Question 1

Why do banks make use of loan loss reserves?

Accepted Answer

Banks set aside part of their

Question 2

A bank that expects interest rates to fall will

Accepted Answer

A)  want the duration of its assets to be greater than the duration of its liabilities a positive duration gap. 
B)  want the duration of its assets to be less than the duration of its liabilities a positive duration gap. 
C)  want the duration of its assets to be greater than the duration of its liabilities a negative duration gap. 
D)  want the duration of its assets to be less than the duration of its liabilities a negative duration gap. 
A)  want the duration of its assets to be greater than the duration of its liabilities a positive duration gap. 
B)  want the duration of its assets to be less than the duration of its liabilities a positive duration gap. 
C)  want the duration of its assets to be greater than the duration of its liabilities a negative duration gap. 
D)  want the duration of its assets to be less than the duration of its liabilities a negative duration gap.

Question 3

Bank capital will decline following an increase in interest rates if the value of its

Accepted Answer

A)  fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B)  fixed-rate assets is less than the value of its fixed-rate liabilities. 
C)  fixed-rate assets is greater than the value of its variable-rate assets. 
D)  fixed-rate liabilities is greater than the value of its variable-rate liabilities. 
A)  fixed-rate assets is greater than the value of its fixed-rate liabilities. 
B)  fixed-rate assets is less than the value of its fixed-rate liabilities. 
C)  fixed-rate assets is greater than the value of its variable-rate assets. 
D)  fixed-rate liabilities is greater than the value of its variable-rate liabilities.

Question 4

The ratio of a bank's after-tax profit to bank capital is known as

Accepted Answer

A)  net interest margin. 
B)  return on equity. 
C)  return on capital. 
D)  spread. 
A)  net interest margin. 
B)  return on equity. 
C)  return on capital. 
D)  spread.

Question 5

What is the primary reason for the differences between the U.S.banking system and those in other major industrial countries?

Accepted Answer

A)  Economies of scale are greater in banking in the United States than in banking in other countries. 
B)  legislation that led to the development of state and national banks. 
C)  the Federal Reserve System. 
D)  the National Bank. 
A)  Economies of scale are greater in banking in the United States than in banking in other countries. 
B)  legislation that led to the development of state and national banks. 
C)  the Federal Reserve System. 
D)  the National Bank.

Question 6

If you have $2 million in a CD at a commercial bank that is a member of the FDIC,how much of your funds are uninsured?

Accepted Answer

A)  $0 
B)  $1 million 
C)  $1.75 million 
D)  $2 million 
A)  $0 
B)  $1 million 
C)  $1.75 million 
D)  $2 million

Question 7

On a bank's balance sheet,assets are

Accepted Answer

A)  the uses of acquired funds. 
B)  the sources of acquired funds. 
C)  those items owed by the bank to depositors and others. 
D)  by definition equal to the bank's liabilities. 
A)  the uses of acquired funds. 
B)  the sources of acquired funds. 
C)  those items owed by the bank to depositors and others. 
D)  by definition equal to the bank's liabilities.

Question 8

The ratio of a bank's after-tax profit to its assets is known as

Accepted Answer

A)  net interest margin. 
B)  return on equity. 
C)  return on capital. 
D)  spread. 
A)  net interest margin. 
B)  return on equity. 
C)  return on capital. 
D)  spread.

Question 9

A balance sheet

Accepted Answer

A)  is a statement showing an individual's or a firm's financial position at a particular point in time. 
B)  is a statement showing an individual's or a firm's income over a period of time. 
C)  is a statement listing the tax liabilities incurred by an individual or a firm. 
D)  can be constructed for any nonfinancial firm, but cannot be constructed for a financial firm. 
A)  is a statement showing an individual's or a firm's financial position at a particular point in time. 
B)  is a statement showing an individual's or a firm's income over a period of time. 
C)  is a statement listing the tax liabilities incurred by an individual or a firm. 
D)  can be constructed for any nonfinancial firm, but cannot be constructed for a financial firm.

Question 10

Banks use "credit-risk analysis" to

Accepted Answer

A)  determine the appropriate interest rate to charge borrowers. 
B)  determine whether to invest in the stock of a corporation. 
C)  determine the appropriate interest rate to pay depositors. 
D)  determine the likelihood of an audit by bank regulators. 
A)  determine the appropriate interest rate to charge borrowers. 
B)  determine whether to invest in the stock of a corporation. 
C)  determine the appropriate interest rate to pay depositors. 
D)  determine the likelihood of an audit by bank regulators.

Question 11

The prime interest rate is the

Accepted Answer

A)  interest rate on six-month U.S. Treasury bills. 
B)  discount rate. 
C)  Federal funds rate. 
D)  interest rate that banks charge high-quality borrowers. 
A)  interest rate on six-month U.S. Treasury bills. 
B)  discount rate. 
C)  Federal funds rate. 
D)  interest rate that banks charge high-quality borrowers.

Question 12

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Accepted Answer

A)  Demand deposits pay interest, whereas NOW accounts do not pay interest. 
B)  Businesses may not hold NOW accounts. 
C)  Checks may be written against demand deposits, but not against NOW accounts. 
D)  Demand deposits are more liquid than NOW accounts. 
A)  Demand deposits pay interest, whereas NOW accounts do not pay interest. 
B)  Businesses may not hold NOW accounts. 
C)  Checks may be written against demand deposits, but not against NOW accounts. 
D)  Demand deposits are more liquid than NOW accounts.

Question 13

Which of the following is NOT a nontransaction deposit?

Accepted Answer

A)  a money market deposit account 
B)  a certificate of deposit 
C)  a savings account 
D)  a NOW account 
A)  a money market deposit account 
B)  a certificate of deposit 
C)  a savings account 
D)  a NOW account

Question 14

What is the largest category of bank assets?

Accepted Answer

A)  loans 
B)  reserves 
C)  securities 
D)  cash items in the process of collection 
A)  loans 
B)  reserves 
C)  securities 
D)  cash items in the process of collection

Question 15

On a bank's balance sheet,liabilities are

Accepted Answer

A)  the uses of acquired assets. 
B)  the sources of acquired funds. 
C)  all those items of value owned by the bank. 
D)  by definition equal to the bank's assets. 
A)  the uses of acquired assets. 
B)  the sources of acquired funds. 
C)  all those items of value owned by the bank. 
D)  by definition equal to the bank's assets.

Question 16

Excess reserves equal

Accepted Answer

A)  total reserves less required reserves. 
B)  required reserves less total reserves. 
C)  total reserves plus required reserves. 
D)  required reserves divided by total reserves. 
A)  total reserves less required reserves. 
B)  required reserves less total reserves. 
C)  total reserves plus required reserves. 
D)  required reserves divided by total reserves.

Question 17

The Federal Reserve System was created in response to

Accepted Answer

A)  the stock market crash of 1929. 
B)  the ending of the Civil War. 
C)  the banking panic of 1907. 
D)  difficulties of the free-banking era. 
A)  the stock market crash of 1929. 
B)  the ending of the Civil War. 
C)  the banking panic of 1907. 
D)  difficulties of the free-banking era.

Question 18

Which group had the most difficult time receiving credit from banks during the credit crunch of the late 2000s?

Accepted Answer

A)  corporations 
B)  federal government 
C)  state and local government 
D)  small businesses 
A)  corporations 
B)  federal government 
C)  state and local government 
D)  small businesses

Question 19

If a bank's ratio of assets to capital is 25 and it's return on assets is -5%,what is its return on equity?

Accepted Answer

A)  -0.2% 
B)  -5% 
C)  -30% 
D)  -125% 
A)  -0.2% 
B)  -5% 
C)  -30% 
D)  -125%

Question 20

Which of the following is a bank liability?

Accepted Answer

A)  reserves 
B)  consumer loans 
C)  nontransaction deposits 
D)  securities 
A)  reserves 
B)  consumer loans 
C)  nontransaction deposits 
D)  securities

Why do banks make use of loan loss reserves?

A bank that expects interest rates to fall will

Bank capital will decline following an increase in interest rates if the value of its

The ratio of a bank's after-tax profit to bank capital is known as

What is the primary reason for the differences between the U.S.banking system and those in other major industrial countries?

If you have $2 million in a CD at a commercial bank that is a member of the FDIC,how much of your funds are uninsured?

On a bank's balance sheet,assets are

The ratio of a bank's after-tax profit to its assets is known as

A balance sheet

Banks use "credit-risk analysis" to

The prime interest rate is the

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Which of the following is NOT a nontransaction deposit?

What is the largest category of bank assets?

On a bank's balance sheet,liabilities are

Excess reserves equal

The Federal Reserve System was created in response to

Which group had the most difficult time receiving credit from banks during the credit crunch of the late 2000s?

If a bank's ratio of assets to capital is 25 and it's return on assets is -5%,what is its return on equity?

Which of the following is a bank liability?

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

Why do banks make use of loan loss reserves?

A bank that expects interest rates to fall will

Bank capital will decline following an increase in interest rates if the value of its

The ratio of a bank's after-tax profit to bank capital is known as

What is the primary reason for the differences between the U.S.banking system and those in other major industrial countries?

If you have $2 million in a CD at a commercial bank that is a member of the FDIC,how much of your funds are uninsured?

On a bank's balance sheet,assets are

The ratio of a bank's after-tax profit to its assets is known as

A balance sheet

Banks use "credit-risk analysis" to

The prime interest rate is the

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Which of the following is NOT a nontransaction deposit?

What is the largest category of bank assets?

On a bank's balance sheet,liabilities are

Excess reserves equal

The Federal Reserve System was created in response to

Which group had the most difficult time receiving credit from banks during the credit crunch of the late 2000s?

If a bank's ratio of assets to capital is 25 and it's return on assets is -5%,what is its return on equity?

Which of the following is a bank liability?

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