Question 1

The goals of bank asset management include

Accepted Answer

A) maximizing risk. 
B) minimizing liquidity. 
C) lending at high interest rates regardless of risk. 
D) purchasing securities with high returns and low risk.

Question 2

All of the following are examples of off-balance sheet activities that generate fee income for banks except

Accepted Answer

A) foreign exchange trades. 
B) guaranteeing debt securities. 
C) back-up lines of credit. 
D) selling negotiable CDs.

Question 3

Because ________ are less liquid for the depositor than ________,they earn higher interest rates.

Accepted Answer

A) passbook savings; time deposits 
B) money market deposit accounts; time deposits 
C) money market deposit accounts; passbook savings 
D) time deposits; passbook savings

Question 4

Which of the following are transaction deposits?

Accepted Answer

A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdraw accounts 
D) Certificates of deposit

Question 5

Banks' asset portfolios include state and local government securities because

Accepted Answer

A) they help to attract business from these government entities. 
B) banks consider them helpful in attracting accounts of Federal employees. 
C) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. 
D) there is no default-risk with state and local government securities.

Question 6

Which of the following is not a nontransaction deposit?

Accepted Answer

A) Savings accounts 
B) Small-denomination time deposits 
C) Negotiable order of withdrawal accounts 
D) Certificate of deposit

Question 7

Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or,alternatively,________ the duration of the bank's liabilities.

Accepted Answer

A) shortening; lengthening 
B) shortening; shortening 
C) lengthening; lengthening 
D) lengthening; shortening

Question 8

If a bank's liabilities are more sensitive to interest rate movements than are its assets,then

Accepted Answer

A) an increase in interest rates will reduce bank profits. 
B) a decrease in interest rates will reduce bank profits. 
C) interest rates changes will not impact bank profits. 
D) an increase in interest rates will increase bank profits.

Question 9

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Accepted Answer

The answer of Using T-accounts show what happens to reserves...

Question 10

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called

Accepted Answer

A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return on investment.

Question 11

Conditions that likely contributed to a credit crunch during the global financial crisis include:

Accepted Answer

A) capital shortfalls caused in part by falling real estate prices. 
B) regulated hikes in bank capital requirements. 
C) falling interest rates that raised interest rate risk,causing banks to choose to hold more capital. 
D) increases in reserve requirements.

Question 12

One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same.That means that the yield curve is

Accepted Answer

A) flat. 
B) slightly upward sloping. 
C) steeply upward sloping. 
D) downward sloping.

Question 13

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

Question 14

Secondary reserves are so called because

Accepted Answer

A) they can be converted into cash with low transactions costs. 
B) they are not easily converted into cash,and are,therefore,of secondary importance to banking firms. 
C) 50% of these assets count toward meeting required reserves. 
D) they rank second to bank vault cash in importance of bank holdings.

Question 15

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Accepted Answer

A) borrow from another bank in the federal funds market. 
B) buy U.S.Treasury bills. 
C) increase loans. 
D) buy corporate bonds.

Question 16

Which of the following bank assets is the most liquid?

Accepted Answer

A) Consumer loans 
B) Reserves 
C) Cash items in process of collection 
D) U.S.government securities

Question 17

In order to reduce the ________ problem in loan markets,bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Accepted Answer

A) moral hazard 
B) adverse selection 
C) moral suasion 
D) adverse lending

Question 18

Bank's make their profits primarily by issuing

Accepted Answer

A) equity. 
B) negotiable CDs. 
C) loans. 
D) NOW accounts.

Question 19

Modern liability management has resulted in

Accepted Answer

A) increased sales of certificates of deposits to raise funds. 
B) increase importance of deposits as a source of funds. 
C) reduced borrowing by banks in the overnight loan market. 
D) failure by banks to coordinate management of assets and liabilities.

Question 20

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

Accepted Answer

A) discount loans; use 
B) discount loans; source 
C) fed funds; use 
D) fed funds; source

Exam 10: Banking and the Management of Financial Institutions