Question 1

Which of the following are not checkable deposits?

Accepted Answer

A) savings accounts 
B) small-denomination time deposits 
C) negotiable order of withdrawal accounts 
D) all of the above 
E) only A and B of the above 
A) savings accounts 
B) small-denomination time deposits 
C) negotiable order of withdrawal accounts 
D) all of the above 
E) only A and B of the above

Question 2

When a bank receives additional deposits, it gains an equal amount of reserves; when it loses deposits, it loses an equal amount of reserves.

Accepted Answer

A) True 
 B)False

Question 3

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but instead makes loans, then in the bank's final balance sheet,

Accepted Answer

A) the assets at the bank increase by $200,000. 
B) the liabilities of the bank increase by $200,000. 
C) reserves increase by $200,000. 
D) all of the above occur. 
A) the assets at the bank increase by $200,000. 
B) the liabilities of the bank increase by $200,000. 
C) reserves increase by $200,000. 
D) all of the above occur.

Question 4

In recent years, the interest paid on checkable and time deposits has accounted for around ________ of total bank operating expenses, while the costs involved in running the bank have been approximately ________ of total operating expenses.

Accepted Answer

A) 50%; 50% 
B) 50%; 25% 
C) 30%; 50% 
D) 25%; 75% 
A) 50%; 50% 
B) 50%; 25% 
C) 30%; 50% 
D) 25%; 75%

Question 5

The amount of assets per dollar of equity capital is called the

Accepted Answer

A) asset ratio. 
B) equity ratio. 
C) equity multiplier. 
D) asset multiplier. 
E) return on equity. 
A) asset ratio. 
B) equity ratio. 
C) equity multiplier. 
D) asset multiplier. 
E) return on equity.

Question 6

How did liability management change during the 1960s?

Accepted Answer

During the 1960s, liability management u

Question 7

Which is the least costly way for a bank to handle deposit outflows?

Accepted Answer

A) Hold excess reserves. 
B) Borrow from other banks. 
C) Sell securities. 
D) Call in loans. 
A) Hold excess reserves. 
B) Borrow from other banks. 
C) Sell securities. 
D) Call in loans.

Question 8

Which of the following are reported as assets on a bank's balance sheet?

Accepted Answer

A) discount loans from the Fed 
B) loans 
C) borrowings 
D) only A and B of the above 
A) discount loans from the Fed 
B) loans 
C) borrowings 
D) only A and B of the above

Question 9

Which of the following statements is true?

Accepted Answer

A) A bank's assets are its sources of funds. 
B) A bank's liabilities are its uses of funds. 
C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. 
D) All of the above are true. 
A) A bank's assets are its sources of funds. 
B) A bank's liabilities are its uses of funds. 
C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. 
D) All of the above are true.

Question 10

When you deposit $50 in the First National Bank,

Accepted Answer

A) its liabilities decrease by $50. 
B) its assets increase by $50. 
C) its reserves decrease by $50. 
D) only B and C of the above occur. 
A) its liabilities decrease by $50. 
B) its assets increase by $50. 
C) its reserves decrease by $50. 
D) only B and C of the above occur.

Question 11

A bank's balance sheet

Accepted Answer

A) shows that total assets equal total liabilities plus equity capital. 
B) lists sources and uses of bank funds. 
C) indicates whether or not the bank is profitable. 
D) does all of the above. 
E) does only A and B of the above. 
A) shows that total assets equal total liabilities plus equity capital. 
B) lists sources and uses of bank funds. 
C) indicates whether or not the bank is profitable. 
D) does all of the above. 
E) does only A and B of the above.

Question 12

When you deposit $50 in currency at the Old National Bank,

Accepted Answer

A) its assets increase by less than $50 because of reserve requirements. 
B) its reserves increase by less than $50 because of reserve requirements. 
C) its liabilities increase by $50. 
D) only A and B of the above occur. 
A) its assets increase by less than $50 because of reserve requirements. 
B) its reserves increase by less than $50 because of reserve requirements. 
C) its liabilities increase by $50. 
D) only A and B of the above occur.

Question 13

In the late 1960s,

Accepted Answer

A) money market banks no longer needed to depend on checkable deposits as the primary source of bank funds. 
B) banks aggressively set target goals for their asset growth. 
C) the new management of liabilities created more flexibility. 
D) all of the above. 
A) money market banks no longer needed to depend on checkable deposits as the primary source of bank funds. 
B) banks aggressively set target goals for their asset growth. 
C) the new management of liabilities created more flexibility. 
D) all of the above.

Question 14

Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.

Accepted Answer

A) nonnegotiable; secondary 
B) nonnegotiable; primary 
C) negotiable; secondary 
D) negotiable; primary 
A) nonnegotiable; secondary 
B) nonnegotiable; primary 
C) negotiable; secondary 
D) negotiable; primary

Question 15

Which of the following are primary concerns of a bank manager?

Accepted Answer

A) maintaining sufficient reserves to minimize the cost to the bank of deposit outflows 
B) extending loans to borrowers who will pay high interest rates, but who are also good credit risks 
C) acquiring funds at a relatively low cost, so that profitable lending opportunities can be realized 
D) all of the above 
A) maintaining sufficient reserves to minimize the cost to the bank of deposit outflows 
B) extending loans to borrowers who will pay high interest rates, but who are also good credit risks 
C) acquiring funds at a relatively low cost, so that profitable lending opportunities can be realized 
D) all of the above

Question 16

In the absence of regulation, banks would probably hold

Accepted Answer

A) too much capital, reducing the efficiency of the payments system. 
B) too much capital, reducing the profitability of banks. 
C) too little capital, increasing the return on equity. 
D) none of the above. 
A) too much capital, reducing the efficiency of the payments system. 
B) too much capital, reducing the profitability of banks. 
C) too little capital, increasing the return on equity. 
D) none of the above.

Question 17

Banks fail when the value of bank ________ falls below the value of ________, causing the bank to become insolvent.

Accepted Answer

A) reserves; required reserves 
B) loans; secondary reserves 
C) assets; liabilities 
D) income; expenses 
A) reserves; required reserves 
B) loans; secondary reserves 
C) assets; liabilities 
D) income; expenses

Question 18

What is the major focus of each of the following bank management concerns: asset management, liability management, liquidity management, and capital adequacy management?

Accepted Answer

The answer of What is the major focus of each...

Question 19

Off-balance-sheet activities consist of trading financial instruments and generating income from fees and loan sales, all of which affect bank profits but are not visible on bank balance sheets.

Accepted Answer

A) True 
 B)False

Question 20

A bank maintains bank capital to lessen the chance that it will become insolvent.

Accepted Answer

A) True 
 B)False

Exam 17: Banking and the Management of Financial Institutions

Which of the following are not checkable deposits?

When a bank receives additional deposits, it gains an equal amount of reserves; when it loses deposits, it loses an equal amount of reserves.

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but instead makes loans, then in the bank's final balance sheet,

In recent years, the interest paid on checkable and time deposits has accounted for around ________ of total bank operating expenses, while the costs involved in running the bank have been approximately ________ of total operating expenses.

The amount of assets per dollar of equity capital is called the

How did liability management change during the 1960s?

Which is the least costly way for a bank to handle deposit outflows?

Which of the following are reported as assets on a bank's balance sheet?

Which of the following statements is true?

When you deposit $50 in the First National Bank,

A bank's balance sheet

When you deposit $50 in currency at the Old National Bank,

In the late 1960s,

Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.

Which of the following are primary concerns of a bank manager?

In the absence of regulation, banks would probably hold

Banks fail when the value of bank ________ falls below the value of ________, causing the bank to become insolvent.

What is the major focus of each of the following bank management concerns: asset management, liability management, liquidity management, and capital adequacy management?

Off-balance-sheet activities consist of trading financial instruments and generating income from fees and loan sales, all of which affect bank profits but are not visible on bank balance sheets.

A bank maintains bank capital to lessen the chance that it will become insolvent.

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

In recent years, the interest paid on checkable and time deposits has accounted for around of total bank operating expenses, while the costs involved in running the bank have been approximately of total operating expenses.

Large-denomination CDs are , so that like a bond they can be resold in a market before they mature.

Banks fail when the value of bank falls below the value of , causing the bank to become insolvent.