Exam 12: Managing and Pricing Deposit Services

Research indicates that at least half of all households and small businesses hold their primary checking account at a depository institution situated within 3 miles of their location.

NOW accounts can be held by businesses and individuals and are interest-bearing checking accounts.

A bank has $200 million in checking deposits with interest and non-interest costs of 4%,$400 million in savings and time deposits with interest and non-interest costs of 8%,and $200 million in equity capital with a cost of 24%.The bank has estimated that reserve requirements,deposit insurance fees,and uncollected balances reduce the amount of money available on checking deposits by 10% and on savings and time deposits by 5%.What is the bank's before-tax cost of funds?

Recently,time deposits have been issued with interest rates adjusted periodically (such as every 90 days).This time period is known as:

Demand deposits are among the most volatile and least predictable of a bank's sources of funds with the shortest potential maturity.

When a bank temporarily offers higher than average interest rates or lower than average customer fees in order to attract new business,they are practicing conditional pricing.

_________________________ pricing is where a financial institution sets up a schedule of fees in which a customer pays a low or no fee if the deposit balance stays above some minimum level and pays a higher fee if the balance declines below that minimum level.

IRA and Keogh deposits have great appeal for bankers principally because they can be sold bearing relatively low (often below-market)interest rates.

Conditionally free deposits for customers mean that as long as the customers do not hold above a certain level of deposit,there are no monthly fees or per transaction charges.

________________ CDs permit periodic upward adjustments in promised interest rates.

A time deposit that allows the depositor to withdraw some of the funds without a withdrawal penalty is called a:

The types of deposits that will be created by the banking system depend predominantly upon:

Competition lowers the expected return to a bank from putting its deposits to work.

The total dollar value of checks paid in the United States has grown modestly in recent years.

A(n)_________________________ is an interest bearing checking account that gives the offering bank the right to insist on prior notice before customer withdrawals can be honored.

The availability of a large block of core deposits decreases the duration of a bank's liabilities.

A(n)_________________________ is a thrift account which carries a fixed maturity date and generally carries a fixed interest rate for that time period.

Conditional deposit pricing may involve all of the following factors except:

A bank has $100 million in checking deposits with interest and non-interest costs of 8%,$600 million in savings and time deposits with interest and non-interest costs of 12%,and $100 million in equity capital with a cost of 26%.The bank has estimated that reserve requirements,deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 20% and on savings and time deposits by 5%.What is the bank's before-tax cost of funds?

Excess legal reserves are the sources out of which new bank loans are created.