Question 1

For a given return on assets, the lower the bank capital is,

Accepted Answer

A) the lower the return for the owners of the bank will be. 
B) the higher the return for the owners of the bank will be. 
C) the lower the credit risk for the owners of the bank will be. 
D) both A and C of the above will happen.

Question 2

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank, then

Accepted Answer

A) the liabilities of the First National Bank decrease by $10. 
B) the liabilities of the Second National Bank increase by $10. 
C) the reserves of the First National Bank increase by $10. 
D) all of the above occur. 
E) only A and B of the above occur.

Question 3

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 4

Discount loans are also known as ________.

Accepted Answer

A) interest-free loans 
B) advances 
C) credits 
D) market loans

Question 5

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

Question 6

Which of the following is checkable deposits?

Accepted Answer

A) savings accounts 
B) Small-denomination time deposits 
C) Money market deposit accounts 
D) Certificates of deposit

Question 7

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

Accepted Answer

A) True 
 B)False

Question 8

If a bank has $100,000 of deposits, a required reserve ratio of 20 percent, and $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is

Accepted Answer

A) $30,000. 
B) $25,000. 
C) $20,000. 
D) $10,000.

Question 9

When a bank receives additional deposits, it gains an equal amount of reserves; when it loses deposits, it loses an equal amount of reserves.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Accepted Answer

A) reserves 
B) checkable deposits 
C) loans 
D) deposits with other banks

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

A bank maintains bank capital to lessen the chance that it will become insolvent.

Accepted Answer

A) True 
 B)False

Question 15

Banks can protect themselves from the disruption caused by deposit outflows by

Accepted Answer

A) holding excess reserves. 
B) selling securities. 
C) "calling in" loans. 
D) doing all of the above. 
E) doing only A and B of the above.

Question 16

The value-at-risk method for estimating a bank's risk exposure measures the losses a bank could incur under a worst-case scenario.

Accepted Answer

A) True 
 B)False

Question 17

Which is the least costly way for a bank to handle deposit outflows?

Accepted Answer

A) Hold excess reserves. 
B) Borrow from other banks. 
C) Sell securities. 
D) Call in loans.

Question 18

When you deposit $50 in currency at the Old National Bank,

Accepted Answer

A) its assets increase by less than $50 because of reserve requirements. 
B) its reserves increase by less than $50 because of reserve requirements. 
C) its liabilities increase by $50. 
D) only A and B of the above occur.

Question 19

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 20

Since a bank's assets exceed its equity capital, the return on assets always exceeds the return on equity.

Accepted Answer

A) True 
 B)False

Exam 17: Banking and the Management of Financial Institutions

For a given return on assets, the lower the bank capital is,

When a $10 check written on the First National Bank is deposited in an account at the Second National Bank, then

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,

Discount loans are also known as ________.

When you deposit $50 in the First National Bank,

Which of the following is checkable deposits?

The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

If a bank has $100,000 of deposits, a required reserve ratio of 20 percent, and $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is

When a bank receives additional deposits, it gains an equal amount of reserves; when it loses deposits, it loses an equal amount of reserves.

When you deposit $50 in the First National Bank,

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

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

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

A bank maintains bank capital to lessen the chance that it will become insolvent.

Banks can protect themselves from the disruption caused by deposit outflows by

The value-at-risk method for estimating a bank's risk exposure measures the losses a bank could incur under a worst-case scenario.

Which is the least costly way for a bank to handle deposit outflows?

When you deposit $50 in currency at the Old National Bank,

Bank capital

Since a bank's assets exceed its equity capital, the return on assets always exceeds the return on equity.