Question 1

Banks experience interest rate risk

Accepted Answer

A)  if adverse selection problems are particularly severe. 
B)  if moral hazard problems are particularly severe. 
C)  on any investment that has high information costs. 
D)  if changes in interest rates cause bank profits to fluctuate. 
A)  if adverse selection problems are particularly severe. 
B)  if moral hazard problems are particularly severe. 
C)  on any investment that has high information costs. 
D)  if changes in interest rates cause bank profits to fluctuate. D

Question 2

If the Federal Reserve did not require them to do so,would banks still hold reserves?

Accepted Answer

Even if the Fed did not require them to do so,banks would still hold reserves in order to help manage liquidity risk.They would probably hold the reserves in a form other than non-interest-bearing deposits at the Fed.

Question 3

Required reserves are

Accepted Answer

A)  the portion of demand deposits and NOW accounts banks must hold. 
B)  zero on demand deposits. 
C)  zero on NOW accounts. 
D)  imposed on all deposits at commercial banks. 
A)  the portion of demand deposits and NOW accounts banks must hold. 
B)  zero on demand deposits. 
C)  zero on NOW accounts. 
D)  imposed on all deposits at commercial banks. A

Question 4

A bank's costs include all of the following EXCEPT

Accepted Answer

A)  the interest it pays to depositors. 
B)  the interest it pays on its loans or debt. 
C)  the cost of providing services. 
D)  the fees paid to maintain its reserve at the Federal Reserve. 
A)  the interest it pays to depositors. 
B)  the interest it pays on its loans or debt. 
C)  the cost of providing services. 
D)  the fees paid to maintain its reserve at the Federal Reserve.

Question 5

If the value of bank's loans declines,what is the corresponding reduction in a liability entry that the bank makes?

Accepted Answer

A)  Deposits are reduced by the amount of the decline in the value of the loan. 
B)  Borrowings are reduced by the amount of the decline in the value of the loan. 
C)  Net worth is reduced by the amount of the decline in the value of the loan. 
D)  Cash items in the process of collection are reduced by the amount of the decline in the value of the loan. 
A)  Deposits are reduced by the amount of the decline in the value of the loan. 
B)  Borrowings are reduced by the amount of the decline in the value of the loan. 
C)  Net worth is reduced by the amount of the decline in the value of the loan. 
D)  Cash items in the process of collection are reduced by the amount of the decline in the value of the loan.

Question 6

Credit risk is the risk that

Accepted Answer

A)  an insufficient number of borrowers will apply for loans or credit. 
B)  interest rates will rise after a loan has been granted. 
C)  interest rates will fall after a loan has been granted. 
D)  borrowers might default on their loans. 
A)  an insufficient number of borrowers will apply for loans or credit. 
B)  interest rates will rise after a loan has been granted. 
C)  interest rates will fall after a loan has been granted. 
D)  borrowers might default on their loans.

Question 7

In banking,the spread refers to the difference between the

Accepted Answer

A)  interest rate on long-term bonds and the interest rate on short-term bonds. 
B)  interest rate on car loans and the interest rate on home mortgages. 
C)  average interest rate earned on assets and the average interest rate paid on liabilities. 
D)  bid and asked prices on a bond. 
A)  interest rate on long-term bonds and the interest rate on short-term bonds. 
B)  interest rate on car loans and the interest rate on home mortgages. 
C)  average interest rate earned on assets and the average interest rate paid on liabilities. 
D)  bid and asked prices on a bond.

Question 8

The interest rate on interbank loans is called the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  repo rate. 
D)  prime rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  repo rate. 
D)  prime rate.

Question 9

As of 2009,about how many banks were there in the United States?

Accepted Answer

A)  57 
B)  2000 
C)  6800 
D)  14,000 
A)  57 
B)  2000 
C)  6800 
D)  14,000

Question 10

Short-term loans between banks are called

Accepted Answer

A)  federal funds. 
B)  repurchase agreements. 
C)  repos. 
D)  discount loans. 
A)  federal funds. 
B)  repurchase agreements. 
C)  repos. 
D)  discount loans.

Question 11

Suppose a bank has assets of $500 million and capital of $100 million.Its return on assets is -3%.What is its leverage ratio? What is its return on equity?

Accepted Answer

Its leverage ratio is bank cap

Question 12

The McFadden Act of 1927

Accepted Answer

A)  separated commercial banking from investment banking. 
B)  put a tax on the issuance of bank notes by state banks. 
C)  prohibited national banks from operating branches outside their home states. 
D)  established the Federal Reserve System. 
A)  separated commercial banking from investment banking. 
B)  put a tax on the issuance of bank notes by state banks. 
C)  prohibited national banks from operating branches outside their home states. 
D)  established the Federal Reserve System.

Question 13

Bank capital is

Accepted Answer

A)  the current market value of the bank's physical assets. 
B)  the historical or original value of the bank's physical assets. 
C)  the capital contributed by the bank's shareholders plus accumulated retained profits. 
D)  the sum of the value of the bank's assets plus the value of the bank's liabilities. 
A)  the current market value of the bank's physical assets. 
B)  the historical or original value of the bank's physical assets. 
C)  the capital contributed by the bank's shareholders plus accumulated retained profits. 
D)  the sum of the value of the bank's assets plus the value of the bank's liabilities.

Question 14

Which of the following statements about checkable deposits is correct?

Accepted Answer

A)  Checkable deposits are a larger fraction of banks' funds today than in 1973. 
B)  Checkable deposits are a smaller fraction of banks' funds today than in 1973. 
C)  All checkable deposits pay interest. 
D)  No checkable deposits pay interest. 
A)  Checkable deposits are a larger fraction of banks' funds today than in 1973. 
B)  Checkable deposits are a smaller fraction of banks' funds today than in 1973. 
C)  All checkable deposits pay interest. 
D)  No checkable deposits pay interest.

Question 15

Geographic restrictions on banks

Accepted Answer

A)  reduce their ability to take advantage of economies of scale. 
B)  raise the costs of their providing risk-sharing, liquidity, and information services. 
C)  reduce their exposure to credit risk. 
D)  reduce the amount of local lending they undertake. 
A)  reduce their ability to take advantage of economies of scale. 
B)  raise the costs of their providing risk-sharing, liquidity, and information services. 
C)  reduce their exposure to credit risk. 
D)  reduce the amount of local lending they undertake.

Question 16

Suppose a bank has $10 million in capital,$100 million in assets,and after-tax profit of $2 million? what is its return on assets? What is its return on equity?

Accepted Answer

Its return on assets is after-

Question 17

How do banks manage credit risk?

Accepted Answer

Banks manage credit risk through diversi

Question 18

Customers who have long-term relationships with banks

Accepted Answer

A)  pose particular problems with respect to adverse selection. 
B)  pose particular problems with respect to moral hazard. 
C)  often obtain credit at a lower rate or with fewer restrictions. 
D)  are more likely to default or violate restrictive covenants. 
A)  pose particular problems with respect to adverse selection. 
B)  pose particular problems with respect to moral hazard. 
C)  often obtain credit at a lower rate or with fewer restrictions. 
D)  are more likely to default or violate restrictive covenants.

Question 19

Which asset is sometimes referred to as a bank's secondary reserves?

Accepted Answer

A)  vault cash 
B)  U.S. government securities 
C)  repurchase agreements 
D)  federal funds 
A)  vault cash 
B)  U.S. government securities 
C)  repurchase agreements 
D)  federal funds

Question 20

In which of the following assets are commercial banks in the United States NOT allowed to invest checkable deposits?

Accepted Answer

A)  home mortgages 
B)  corporate bonds 
C)  municipal bonds 
D)  U.S. Treasury bonds 
A)  home mortgages 
B)  corporate bonds 
C)  municipal bonds 
D)  U.S. Treasury bonds

Banks experience interest rate risk

If the Federal Reserve did not require them to do so,would banks still hold reserves?

Required reserves are

A bank's costs include all of the following EXCEPT

If the value of bank's loans declines,what is the corresponding reduction in a liability entry that the bank makes?

Credit risk is the risk that

In banking,the spread refers to the difference between the

The interest rate on interbank loans is called the

As of 2009,about how many banks were there in the United States?

Short-term loans between banks are called

Suppose a bank has assets of $500 million and capital of $100 million.Its return on assets is -3%.What is its leverage ratio? What is its return on equity?

The McFadden Act of 1927

Bank capital is

Which of the following statements about checkable deposits is correct?

Geographic restrictions on banks

Suppose a bank has $10 million in capital,$100 million in assets,and after-tax profit of $2 million? what is its return on assets? What is its return on equity?

How do banks manage credit risk?

Customers who have long-term relationships with banks

Which asset is sometimes referred to as a bank's secondary reserves?

In which of the following assets are commercial banks in the United States NOT allowed to invest checkable deposits?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 10: The Economics of Banking

Banks experience interest rate risk

If the Federal Reserve did not require them to do so,would banks still hold reserves?

Required reserves are

A bank's costs include all of the following EXCEPT

If the value of bank's loans declines,what is the corresponding reduction in a liability entry that the bank makes?

Credit risk is the risk that

In banking,the spread refers to the difference between the

The interest rate on interbank loans is called the

As of 2009,about how many banks were there in the United States?

Short-term loans between banks are called

Suppose a bank has assets of $500 million and capital of $100 million.Its return on assets is -3%.What is its leverage ratio? What is its return on equity?

The McFadden Act of 1927

Bank capital is

Which of the following statements about checkable deposits is correct?

Geographic restrictions on banks

Suppose a bank has $10 million in capital,$100 million in assets,and after-tax profit of $2 million? what is its return on assets? What is its return on equity?

How do banks manage credit risk?

Customers who have long-term relationships with banks

Which asset is sometimes referred to as a bank's secondary reserves?

In which of the following assets are commercial banks in the United States NOT allowed to invest checkable deposits?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters