Question 1

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank, then

Accepted Answer

A) the liabilities of the First National Bank decrease by $10. 
B) the liabilities of the Second National Bank increase by $10. 
C) the reserves of the First National Bank increase by $10. 
D) all of the above occur. 
E) only A and B of the above occur. 
A) the liabilities of the First National Bank decrease by $10. 
B) the liabilities of the Second National Bank increase by $10. 
C) the reserves of the First National Bank increase by $10. 
D) all of the above occur. 
E) only A and B of the above occur.

Question 2

A bank can reduce its total amount of loans outstanding by

Accepted Answer

A) "calling in" loans; that is, by not renewing some loans when they come due. 
B) selling loans to other banks. 
C) selling loans to the Federal Reserve. 
D) doing all of the above. 
E) doing only A and B of the above. 
A) "calling in" loans; that is, by not renewing some loans when they come due. 
B) selling loans to other banks. 
C) selling loans to the Federal Reserve. 
D) doing all of the above. 
E) doing only A and B of the above.

Question 3

To keep enough cash on hand to meet depositors' demand for withdrawals, banks must engage in liquidity management.

Accepted Answer

A) True 
 B)False

Question 4

The share of checkable deposits in total bank liabilities has

Accepted Answer

A) expanded moderately over time. 
B) expanded dramatically over time. 
C) shrunk over time. 
D) remained virtually unchanged since 1960. 
A) expanded moderately over time. 
B) expanded dramatically over time. 
C) shrunk over time. 
D) remained virtually unchanged since 1960.

Question 5

Examples of off-balance-sheet activities include

Accepted Answer

A) loan sales. 
B) foreign exchange market transactions. 
C) trading in financial futures. 
D) all of the above. 
E) only A and B of the above. 
A) loan sales. 
B) foreign exchange market transactions. 
C) trading in financial futures. 
D) all of the above. 
E) only A and B of the above.

Question 6

The ________ the costs associated with deposit outflows are, the ________ excess reserves banks will want to hold.

Accepted Answer

A) lower; more 
B) higher; less 
C) higher; more 
D) none of the above, since deposit outflows cannot be anticipated 
A) lower; more 
B) higher; less 
C) higher; more 
D) none of the above, since deposit outflows cannot be anticipated

Question 7

Which of the following statements is false?

Accepted Answer

A) Checkable deposits are usually the lowest-cost source of bank funds. 
B) Checkable deposits are the primary source of bank funds. 
C) Checkable deposits are payable on demand. 
D) Checkable deposits include NOW accounts. 
A) Checkable deposits are usually the lowest-cost source of bank funds. 
B) Checkable deposits are the primary source of bank funds. 
C) Checkable deposits are payable on demand. 
D) Checkable deposits include NOW accounts.

Question 8

Before the 1960s,

Accepted Answer

A) over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C) both A and B occurred. 
D) neither A nor B occurred. 
A) over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C) both A and B occurred. 
D) neither A nor B occurred.

Question 9

Banks can protect themselves from the disruption caused by deposit outflows by

Accepted Answer

A) holding excess reserves. 
B) selling securities. 
C) "calling in" loans. 
D) doing all of the above. 
E) doing only A and B of the above. 
A) holding excess reserves. 
B) selling securities. 
C) "calling in" loans. 
D) doing all of the above. 
E) doing only A and B of the above.

Question 10

Bank failure is less likely to occur when a bank

Accepted Answer

A) holds less in U.S. government securities. 
B) suffers large deposit outflows. 
C) holds more excess reserves. 
D) has less bank capital. 
A) holds less in U.S. government securities. 
B) suffers large deposit outflows. 
C) holds more excess reserves. 
D) has less bank capital.

Question 11

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the recent trends in bank performance measures.

Accepted Answer

In recent years, there have been several

Question 13

Given a bank's return on assets, the higher the bank capital, the higher the return for the owners of the bank.

Accepted Answer

A) True 
 B)False

Question 14

Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.

Accepted Answer

A) less; higher 
B) less; lower 
C) more; higher 
D) more; lower 
A) less; higher 
B) less; lower 
C) more; higher 
D) more; lower

Question 15

Loans

Accepted Answer

A) are the largest category of bank assets. 
B) provide most of the bank's revenues. 
C) earn the highest return of all bank assets. 
D) do all of the above. 
E) are only A and B of the above. 
A) are the largest category of bank assets. 
B) provide most of the bank's revenues. 
C) earn the highest return of all bank assets. 
D) do all of the above. 
E) are only A and B of the above.

Question 16

An argument that supports a regulated minimum capital requirement is that banks that hold too little capital

Accepted Answer

A) are unprofitable. 
B) impose costs on other banks because they are more likely to fail. 
C) have an unfair competitive advantage over savings and loans. 
D) includes all of the above. 
A) are unprofitable. 
B) impose costs on other banks because they are more likely to fail. 
C) have an unfair competitive advantage over savings and loans. 
D) includes all of the above.

Question 17

Discount loans are also known as ________.

Accepted Answer

A) interest-free loans 
B) advances 
C) credits 
D) market loans 
A) interest-free loans 
B) advances 
C) credits 
D) market loans

Question 18

Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves.

Accepted Answer

A) low; short-term 
B) low; long-term 
C) high; short-term 
D) high; long-term 
A) low; short-term 
B) low; long-term 
C) high; short-term 
D) high; long-term

Question 19

If a bank has $1 million of deposits, a required reserve ratio of 20 percent, and $300,000 in reserves, it need not rearrange its balance sheet if there is a deposit outflow of

Accepted Answer

A) $50,000. 
B) $75,000. 
C) $150,000. 
D) either A or B of the above. 
A) $50,000. 
B) $75,000. 
C) $150,000. 
D) either A or B of the above.

Question 20

Required reserves are insurance against the costs associated with deposit outflows. The higher the costs associated with deposit outflows, the more required reserves banks will want to hold.

Accepted Answer

A) True 
 B)False

Exam 17: Banking and the Management of Financial Institutions

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank, then

A bank can reduce its total amount of loans outstanding by

To keep enough cash on hand to meet depositors' demand for withdrawals, banks must engage in liquidity management.

The share of checkable deposits in total bank liabilities has

Examples of off-balance-sheet activities include

The ________ the costs associated with deposit outflows are, the ________ excess reserves banks will want to hold.

Which of the following statements is false?

Before the 1960s,

Banks can protect themselves from the disruption caused by deposit outflows by

Bank failure is less likely to occur when a bank

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

Discuss the recent trends in bank performance measures.

Given a bank's return on assets, the higher the bank capital, the higher the return for the owners of the bank.

Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.

Loans

An argument that supports a regulated minimum capital requirement is that banks that hold too little capital

Discount loans are also known as ________.

Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves.

If a bank has $1 million of deposits, a required reserve ratio of 20 percent, and $300,000 in reserves, it need not rearrange its balance sheet if there is a deposit outflow of

Required reserves are insurance against the costs associated with deposit outflows. The higher the costs associated with deposit outflows, the more required reserves banks will want to hold.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

The the costs associated with deposit outflows are, the excess reserves banks will want to hold.

Because checking accounts are liquid for the depositor than passbook savings, they earn interest rates.

Because of their liquidity, U.S. government securities are called secondary reserves.