Question 1

With large banks beginning to explore ways in which the liabilities on their balance sheets could provide them with reserves and liquidity, this led to

Accepted Answer

A) the expansion of overnight loan markets. 
B) the development of negotiable CDs. 
C) the ability of money center banks to acquire funds quickly. 
D) all of the above occurring.

Question 2

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

Accepted Answer

A) cash items in the process of collection 
B) deposits with other banks 
C) checkable deposits 
D) bank capital 
E) only A and B of the above

Question 3

In general, banks would prefer to meet deposit outflows by ________ rather than ________

Accepted Answer

A) selling loans; selling securities. 
B) selling loans; borrowing from the Fed. 
C) borrowing from the Fed; selling loans. 
D) "calling in" loans; selling securities.

Question 4

________ were once the most common type of nontransaction deposit.

Accepted Answer

A) Checking accounts 
B) Time deposits 
C) Savings accounts 
D) none of the above

Question 5

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 $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 6

The largest operating expense for a bank is

Accepted Answer

A) salaries and employee benefits. 
B) interest paid on discount loans. 
C) interest paid on federal funds borrowed from other banks. 
D) interest paid on deposits.

Question 7

Since their introduction in 1961, negotiable CDs have become an important source of bank funds.

Accepted Answer

A) True 
 B)False

Question 8

A bank's largest source of funds is its

Accepted Answer

A) nontransaction deposits. 
B) checking deposits. 
C) borrowing from the Fed. 
D) federal funds.

Question 9

Which of the following do banks hold as insurance against the high cost of deposit outflows?

Accepted Answer

A) excess reserves 
B) secondary reserves 
C) bank equity capital 
D) all of the above 
E) only A and B of the above

Question 10

Secondary reserves ________

Accepted Answer

A) can be converted into cash with low transaction costs. 
B) are not easily converted into cash and are, therefore, of secondary importance to banks. 
C) count toward meeting required reserves, but only at a rate of $0.50 per dollar of secondary reserves. 
D) none of the above.

Question 11

Examples of off-balance-sheet activities include

Accepted Answer

A) loan sales. 
B) extending loans to depositors. 
C) borrowing from other banks. 
D) all of the above.

Question 12

Bank capital

Accepted Answer

A) is raised by selling new equity. 
B) is a cushion against a drop in the value of its assets. 
C) comes from retained earnings. 
D) is all of the above.

Question 13

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 increase by $50. 
D) only B and C of the above occur.

Question 14

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

Accepted Answer

A) discount loans 
B) cash items in the process of collection 
C) state government securities 
D) all of the above 
E) only B and C of the above

Question 15

Distinguish between a bank's reserves, required reserves, excess reserves, and secondary reserves.

Accepted Answer

The answer of Distinguish between a bank's reserves, required reserves,...

Question 16

Which of the following bank assets are the least liquid?

Accepted Answer

A) reserves 
B) mortgage loans 
C) cash items in process of collection 
D) deposits with other banks

Question 17

Holding all else constant, when a bank receives the funds for a deposited check,

Accepted Answer

A) cash items in process of collection fall by the amount of the check. 
B) bank assets increase by the amount of the check. 
C) bank liabilities decrease by the amount of the check. 
D) all of the above occur.

Question 18

Owners cannot write checks on nontransaction deposits, but the interest rate paid on these deposits are usually higher than those on checkable deposits.

Accepted Answer