Question 1

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Accepted Answer

A)  proscription bonds.
B)  restrictive covenants.
C)  due-on-sale clauses.
D)  liens.

Question 2

Banks earn profits by selling ________ with attractive combinations of liquidity,risk,and return,and using the proceeds to buy ________ with a different set of characteristics.

Accepted Answer

A)  loans; deposits
B)  securities; deposits
C)  liabilities; assets
D)  assets; liabilities

Question 3

Which of the following statements are true?

Accepted Answer

A)  A bank's assets are its sources of funds.
B)  A bank's liabilities are its uses of funds.
C)  A bank's balance sheet shows that total assets equal total liabilities plus equity capital.
D)  A bank's balance sheet indicates whether or not the bank is profitable.

Question 4

Which of the following statements are true?

Accepted Answer

A)  Checkable deposits are payable on demand.
B)  Checkable deposits do not include NOW accounts.
C)  Checkable deposits are the primary source of bank funds.
D)  Demand deposits are checkable deposits that pay interest.

Question 5

If,after a deposit outflow,a bank needs an additional $3 million to meet its reserve requirements,the bank can

Accepted Answer

A)  reduce deposits by $3 million.
B)  increase loans by $3 million.
C)  sell $3 million of securities.
D)  repay its discount loans from the Fed.

Question 6

A bank will want to hold more excess reserves (everything else equal) when

Accepted Answer

A)  it expects to have deposit inflows in the near future.
B)  brokerage commissions on selling bonds increase.
C)  the cost of selling loans falls.
D)  the discount rate decreases.

Question 7

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Accepted Answer

A)  calling in loans.
B)  borrowing federal funds.
C)  selling municipal bonds.
D)  seeking new deposits.

Question 8

Traders working for banks are subject to the

Accepted Answer

A)  principal-agent problem.
B)  free-rider problem.
C)  double-jeopardy problem.
D)  exchange-risk problem.

Question 9

Assume a bank has $200 million of assets with a duration of 2.5,and $190 million of liabilities with a duration of 1.05.If interest rates increase from 5 percent to 6 percent,the net worth of the bank falls by

Accepted Answer

A)  $1 million.
B)  $2.4 million.
C)  $3.6 million.
D)  $4.8 million.

Question 10

Credit risk management tools include

Accepted Answer

A)  deductibles.
B)  collateral.
C)  interest rate swaps.
D)  duration analysis.

Question 11

If the First National Bank has a gap equal to a negative $30 million,then a 5 percentage point increase in interest rates will cause profits to

Accepted Answer

A)  increase by $15 million.
B)  increase by $1.5 million.
C)  decline by $15 million.
D)  decline by $1.5 million.

Question 12

A bank is insolvent when

Accepted Answer

A)  its liabilities exceed its assets.
B)  its assets exceed its liabilities.
C)  its capital exceeds its liabilities.
D)  its assets increase in value.

Question 13

Your bank has the following balance sheet
Assets Liabilities
Rate-sensitive $100 million Rate-sensitive $75 million
Fixed-rate 100 million Fixed-rate 125 million
What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

Accepted Answer

The bank's profits would go down because...

Question 14

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Accepted Answer

A)  specialization in lending; diversifying
B)  specialization in lending; rationing
C)  credit rationing; diversifying
D)  screening; rationing

Question 15

Bank reserves include

Accepted Answer

A)  deposits at the Fed and short-term treasury securities.
B)  vault cash and short-term Treasury securities.
C)  vault cash and deposits at the Fed.
D)  deposits at other banks and deposits at the Fed.

Question 16

In the absence of regulation,banks would probably hold

Accepted Answer

A)  too much capital,reducing the efficiency of the payments system.
B)  too much capital,reducing the profitability of banks.
C)  too little capital.
D)  too much capital,making it more difficult to obtain loans.

Question 17

The share of checkable deposits in total bank liabilities has

Accepted Answer

A)  expanded moderately over time.
B)  expanded dramatically over time.
C)  shrunk over time.
D)  remained virtually unchanged since 1960.

Question 18

Which of the following would not be a way to increase the return on equity?

Accepted Answer

A)  Buy back bank stock
B)  Pay higher dividends
C)  Acquire new funds by selling negotiable CDs and increase assets with them
D)  Sell more bank stock

Question 19

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 checking account

Question 20

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Accepted Answer

A)  decrease; increase
B)  increase; decrease
C)  increase; increase
D)  decrease; not be affected

Exam 10: Banking and the Management of Financial Institutions

Which of the following statements are true?

Correct Answer
verified

Which of the following would not be a way to increase the return on equity?

Correct Answer
verified

If,after a deposit outflow,a bank needs an additional $3 million to meet its reserve requirements,the bank can

Correct Answer
verified

Banks earn profits by selling with attractive combinations of liquidity,risk,and return,and using the proceeds to buy with a different set of characteristics.

Correct Answer
verified

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Correct Answer
verified

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Correct Answer
verified

In the absence of regulation,banks would probably hold

Correct Answer
verified

Which of the following statements are true?

Correct Answer
verified

Correct Answer
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The bank's profits would go down because...
View Answer

Bank reserves include

Correct Answer
verified

The share of checkable deposits in total bank liabilities has

Correct Answer
verified

Which of the following are bank assets?

Correct Answer
verified

If the First National Bank has a gap equal to a negative $30 million,then a 5 percentage point increase in interest rates will cause profits to

Correct Answer
verified

Credit risk management tools include

Correct Answer
verified

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

A bank is insolvent when

Correct Answer
verified

A bank will want to hold more excess reserves (everything else equal) when

Correct Answer
verified

As the costs associated with deposit outflows ,the banks willingness to hold excess reserves will .

Correct Answer
verified

Assume a bank has $200 million of assets with a duration of 2.5,and $190 million of liabilities with a duration of 1.05.If interest rates increase from 5 percent to 6 percent,the net worth of the bank falls by

Correct Answer
verified

Traders working for banks are subject to the

Correct Answer
verified

Exam 10: Banking and the Management of Financial Institutions

Which of the following statements are true?

Correct AnswerverifiedShow Answer

Which of the following would not be a way to increase the return on equity?

Correct AnswerverifiedShow Answer

If,after a deposit outflow,a bank needs an additional $3 million to meet its reserve requirements,the bank can

Correct AnswerverifiedShow Answer

Banks earn profits by selling ________ with attractive combinations of liquidity,risk,and return,and using the proceeds to buy ________ with a different set of characteristics.

Correct AnswerverifiedShow Answer

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Correct AnswerverifiedShow Answer

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Correct AnswerverifiedShow Answer

In the absence of regulation,banks would probably hold

Correct AnswerverifiedShow Answer

Which of the following statements are true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe bank's profits would go down because...View AnswerShow Answer

Bank reserves include

Correct AnswerverifiedShow Answer

The share of checkable deposits in total bank liabilities has

Correct AnswerverifiedShow Answer

Which of the following are bank assets?

Correct AnswerverifiedShow Answer

If the First National Bank has a gap equal to a negative $30 million,then a 5 percentage point increase in interest rates will cause profits to

Correct AnswerverifiedShow Answer

Credit risk management tools include

Correct AnswerverifiedShow Answer

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Correct AnswerverifiedShow Answer

A bank is insolvent when

Correct AnswerverifiedShow Answer

A bank will want to hold more excess reserves (everything else equal) when

Correct AnswerverifiedShow Answer

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Correct AnswerverifiedShow Answer

Assume a bank has $200 million of assets with a duration of 2.5,and $190 million of liabilities with a duration of 1.05.If interest rates increase from 5 percent to 6 percent,the net worth of the bank falls by

Correct AnswerverifiedShow Answer

Traders working for banks are subject to the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Banks earn profits by selling with attractive combinations of liquidity,risk,and return,and using the proceeds to buy with a different set of characteristics.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The bank's profits would go down because...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

As the costs associated with deposit outflows ,the banks willingness to hold excess reserves will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified