Question 1

Which of the following are bank assets?

Accepted Answer

A)  The building owned by the bank 
B)  A discount loan 
C)  A negotiable CD 
D)  A customer's chequing account

Question 2

A T-account represents ________.

Accepted Answer

A)  a simplified balance sheet 
B)  asset transformation 
C)  T-bills 
D)  term deposits

Question 3

If a bank has excess reserves greater than the amount of a deposit outflow,the outflow will result in equal reductions in ________.

Accepted Answer

A)  deposits and reserves 
B)  deposits and loans 
C)  capital and reserves 
D)  capital and loans

Question 4

Your bank has the following balance sheet:
Assets Liabilities
Reserves $ 50 million Deposits $200 million
Securities 50 million
Loans 150 million Bank capital 50 million
If the desired reserve ratio is 10 percent,what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?

Accepted Answer

The answer of Your bank has the following balance sheet:
Assets...

Question 5

Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?

Accepted Answer

A)  Excess reserves 
B)  Secondary reserves 
C)  Bank capital 
D)  Mortgages

Question 6

If interest rates rise by 5 percentage points,say from 10 to 15 percent,bank profits (measured using basic gap analysis)will ________.

Accepted Answer

A)  decline by $0.5 million 
B)  decline by $1.5 million 
C)  decline by $2.5 million 
D)  increase by $2.0 million

Question 7

A reason why rogue traders have bankrupt their banks is due to ________.

Accepted Answer

A)  the separation of trading activities from the bookkeepers 
B)  stringent supervision of trading activities by bank management 
C)  accounting errors 
D)  a failure to maintain proper internal controls

Question 8

Risk that is related to the uncertainty about interest rate movements is called ________.

Accepted Answer

A)  default risk 
B)  interest-rate risk 
C)  the problem of moral hazard 
D)  security risk

Question 9

Holding large amounts of bank capital helps prevent bank failures because ________.

Accepted Answer

A)  it means that the bank has a higher income 
B)  it makes loans easier to sell 
C)  it can be used to absorb the losses resulting from bad loans 
D)  it makes it easier to call in loans

Question 10

If interest rates rise by 5 percentage points,say,from 10 to 15 percent,bank profits (measured using basic gap analysis)will ________.

Accepted Answer

A)  decline by $0.5 million 
B)  decline by $1.5 million 
C)  decline by $2.5 million 
D)  increase by $1.5 million

Question 11

What is a loan sale and how does it work?

Accepted Answer

The answer of What is a loan sale and how...

Question 12

________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

Accepted Answer

A)  Selling securities 
B)  Selling loans 
C)  Calling in loans 
D)  Selling negotiable CDs

Question 13

When a $10 cheque written on the First National Bank is deposited in an account at CIBC,then ________.

Accepted Answer

A)  the reserves of the First National Bank decrease by $10 
B)  the reserves of the First National Bank increase by $10 
C)  the reserves of CIBC decrease by $10 
D)  the assets of CIBC decrease by $10

Question 14

If a bank has $10 million of demand deposits,a desired reserve ratio of 10 percent,and it holds $2 million in reserves,then it will not have enough reserves to support a deposit outflow of ________.

Accepted Answer

A)  $1.2 million 
B)  $1.1 million 
C)  $1 million 
D)  $900,000

Question 15

Assuming that the average duration of its assets is five years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to decline by ________ of the total original asset value.

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  25 percent

Question 16

If interest rates increase from 9 percent to 10 percent,a bank with a duration gap of 2 years would experience a decrease in its net worth of ________.

Accepted Answer

A)  0.9 percent of its assets 
B)  0.9 percent of its liabilities 
C)  1.8 percent of its liabilities 
D)  1.8 percent of its assets

Question 17

Most of a bank's operating income results from ________.

Accepted Answer

A)  interest on assets 
B)  service charges on deposit accounts 
C)  off-balance-sheet activities 
D)  fees from standby lines of credit

Question 18

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

Accepted Answer

A)  Reserves 
B)  Demand and notice deposits 
C)  Loans 
D)  Deposits with other banks

Question 19

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

Accepted Answer

A)  the assets at the bank increase by $800,000 
B)  the liabilities of the bank increase by $1,000,000 
C)  the liabilities of the bank increase by $800,000 
D)  reserves increase by $160,000

Question 20

When you deposit a $50 bill in the New National Bank,________.

Accepted Answer

A)  its liabilities decrease by $50 
B)  its assets increase by $50 
C)  its reserves decrease by $50 
D)  its cash items in the process of collection increase by $50

Exam 13: Banking and the Management of Financial Institutions