Question 1

With a 10 percent reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is ________.

Accepted Answer

A)  $90
B)  $100
C)  $10
D)  $110

Question 2

A T-account represents ________.

Accepted Answer

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

Question 3

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.

Accepted Answer

A)  reduces; reduces
B)  increases; increases
C)  reduces; increases
D)  increases; reduces

Question 4

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 5

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 6

Conditions that likely contributed to a credit crunch in 2008 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 7

Through correspondent banking, large banks provide services to small banks, including ________.

Accepted Answer

A)  loan guarantees
B)  foreign exchange transactions
C)  issuing stock
D)  debt reduction

Question 8

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 9

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 10

In general, banks make profits by selling ________ liabilities and buying ________ assets.

Accepted Answer

A)  long-term; shorter-term
B)  short-term; longer-term
C)  illiquid; liquid
D)  risky; risk-free

Question 11

Banks hold excess and secondary reserves to ________.

Accepted Answer

A)  reduce the interest-rate risk problem
B)  provide for deposit outflows
C)  satisfy margin requirements
D)  achieve higher earnings than they can with loans

Question 12

What is a loan sale and how does it work?

Accepted Answer

The students must explain that the loan ...

Question 13

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 14

Because of an expected rise in interest rates in the future, a banker will likely ________.

Accepted Answer

A)  make long-term rather than short-term loans
B)  buy short-term rather than long-term bonds
C)  buy long-term rather than short-term bonds
D)  make either short or long-term loans; expectations of future interest rates are irrelevant

Question 15

The quantity defined as interest income minus interest expenses divided by assets is a measure of bank performance known as ________.

Accepted Answer

A)  operating income
B)  net interest margin
C)  return on assets
D)  return on equity

Question 16

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would ________ in price by approximately ________.

Accepted Answer

A)  increase; 7.8%
B)  decrease; 7.8%
C)  increase; 9.7%
D)  decrease; 9.7%

Question 17

A bank's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called ________.

Accepted Answer

A)  an adjustable gap loan
B)  an adjustable portfolio loan
C)  loan commitment
D)  pre-credit loan line

Question 18

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

Question 19

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 20

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

Exam 12: Banking and the Management of Financial Institutions

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

Correct Answer
verified

A T-account represents ________.

Correct Answer
verified

In the absence of regulation, banks would probably hold ________.

Correct Answer
verified

Bank capital has both benefits and costs for the bank owners. Higher bank capital the likelihood of bankruptcy, but higher bank capital the return on equity for a given return on assets.

Correct Answer
verified

With a 10 percent reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is ________.

Correct Answer
verified

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would in price by approximately .

Correct Answer
verified

Through correspondent banking, large banks provide services to small banks, including ________.

Correct Answer
verified

Conditions that likely contributed to a credit crunch in 2008 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's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called ________.

Correct Answer
verified

Because of an expected rise in interest rates in the future, a banker will likely ________.

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

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.

Correct Answer
verified

Banks hold excess and secondary reserves to ________.

Correct Answer
verified

In general, banks make profits by selling liabilities and buying assets.

Correct Answer
verified

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

Correct Answer
verified

What is a loan sale and how does it work?

Correct Answer
verified
The students must explain that the loan ...
View Answer

A bank is insolvent when ________.

Correct Answer
verified

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

The quantity defined as interest income minus interest expenses divided by assets is a measure of bank performance known as ________.

Correct Answer
verified

Exam 12: Banking and the Management of Financial Institutions

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

Correct AnswerverifiedShow Answer

A T-account represents ________.

Correct AnswerverifiedShow Answer

In the absence of regulation, banks would probably hold ________.

Correct AnswerverifiedShow Answer

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.

Correct AnswerverifiedShow Answer

With a 10 percent reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is ________.

Correct AnswerverifiedShow Answer

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would ________ in price by approximately ________.

Correct AnswerverifiedShow Answer

Through correspondent banking, large banks provide services to small banks, including ________.

Correct AnswerverifiedShow Answer

Conditions that likely contributed to a credit crunch in 2008 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's commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called ________.

Correct AnswerverifiedShow Answer

Because of an expected rise in interest rates in the future, a banker will likely ________.

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

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.

Correct AnswerverifiedShow Answer

Banks hold excess and secondary reserves to ________.

Correct AnswerverifiedShow Answer

In general, banks make profits by selling ________ liabilities and buying ________ assets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is a loan sale and how does it work?

Correct AnswerverifiedThe students must explain that the loan ...View AnswerShow Answer

A bank is insolvent when ________.

Correct AnswerverifiedShow Answer

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

The quantity defined as interest income minus interest expenses divided by assets is a measure of bank performance known as ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Bank capital has both benefits and costs for the bank owners. Higher bank capital the likelihood of bankruptcy, but higher bank capital the return on equity for a given return on assets.

Correct Answer
verified

Correct Answer
verified

If interest rates increase from 3% to 4%, a $100,000 10 year bond with a duration of 8 years would in price by approximately .

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

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

In general, banks make profits by selling liabilities and buying assets.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
The students must explain that the loan ...
View Answer

Correct Answer
verified

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

Correct Answer
verified