Question 1

Which of the following bank assets are the most liquid?

Accepted Answer

A) consumer loans 
B) reserves 
C) cash items in process of collection 
D) U)S. government securities 
A) consumer loans 
B) reserves 
C) cash items in process of collection 
D) U)S. government securities B

Question 2

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

Question 3

Before the 1960s,

Accepted Answer

A) over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C) both A and B occurred. 
D) neither A nor B occurred. 
A) over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. 
B)  banks mostly borrowed from other banks to meet their reserve needs. 
C) both A and B occurred. 
D) neither A nor B occurred. A

Question 4

Bankers' concern regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of

Accepted Answer

A) liability management. 
B) liquidity management. 
C) managing interest-rate risk. 
D) none of the above. 
A) liability management. 
B) liquidity management. 
C) managing interest-rate risk. 
D) none of the above.

Question 5

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

A) True 
 B)False

Question 6

Bank failure is less likely to occur when a bank

Accepted Answer

A) holds less in U.S. government securities. 
B) suffers large deposit outflows. 
C) holds more excess reserves. 
D) has less bank capital. 
A) holds less in U.S. government securities. 
B) suffers large deposit outflows. 
C) holds more excess reserves. 
D) has less bank capital.

Question 7

Loan loss reserves are an asset on a bank's balance sheet.

Accepted Answer

A) True 
 B)False

Question 8

What costs do banks hope to avoid by holding excess reserves?

Accepted Answer

Banks hold excess reserves for several r

Question 9

To keep enough cash on hand to meet depositors' demand for withdrawals, banks must engage in liquidity management.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is an accurate description of modern liability management?

Accepted Answer

A) Greater flexibility in liability management has allowed banks to increase the proportion of their assets held in loans. 
B) New financial instruments enable banks to acquire funds quickly. 
C) The introduction of negotiable CDs have significantly reduced the percentage of funds that banks borrow from one another to finance loans. 
D) All of the above have occurred since 1960. 
E) Only A and B of the above have occurred since 1960. 
A) Greater flexibility in liability management has allowed banks to increase the proportion of their assets held in loans. 
B) New financial instruments enable banks to acquire funds quickly. 
C) The introduction of negotiable CDs have significantly reduced the percentage of funds that banks borrow from one another to finance loans. 
D) All of the above have occurred since 1960. 
E) Only A and B of the above have occurred since 1960.

Question 11

Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves.

Accepted Answer

A) low; short-term 
B) low; long-term 
C) high; short-term 
D) high; long-term 
A) low; short-term 
B) low; long-term 
C) high; short-term 
D) high; long-term

Question 12

Explain the off-balance-sheet activities banks engage in, the risks they face from undertaking these activities, and the controls they put in place to restrict bank employees from taking on too much risk.

Accepted Answer

Off-balance-sheet activities refer to fi

Question 13

The ________ the costs associated with deposit outflows are, the ________ excess reserves banks will want to hold.

Accepted Answer

A) lower; more 
B) higher; less 
C) higher; more 
D) none of the above, since deposit outflows cannot be anticipated 
A) lower; more 
B) higher; less 
C) higher; more 
D) none of the above, since deposit outflows cannot be anticipated

Question 14

Which of the following statements is false?

Accepted Answer

A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) A bank's assets provide the bank with income. 
D) Bank capital is an asset on the bank balance sheet. 
A) A bank's assets are its uses of funds. 
B) A bank issues liabilities to acquire funds. 
C) A bank's assets provide the bank with income. 
D) Bank capital is an asset on the bank balance sheet.

Question 15

A bank fails when the value of its ________ falls below the value of ________, causing the bank to become insolvent.

Accepted Answer

A) reserves; required reserves 
B) loans; secondary reserves 
C) securities; deposit liabilities 
D) assets; liabilities 
A) reserves; required reserves 
B) loans; secondary reserves 
C) securities; deposit liabilities 
D) assets; liabilities

Question 16

Net profit after taxes per dollar of assets is a basic measure of bank profitability called

Accepted Answer

A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return after taxes. 
A) return on assets. 
B) return on capital. 
C) return on equity. 
D) return after taxes.

Question 17

Required reserves are insurance against the costs associated with deposit outflows. The higher the costs associated with deposit outflows, the more required reserves banks will want to hold.

Accepted Answer

A) True 
 B)False

Question 18

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, increasing the return on equity. 
D) none of the above. 
A) too much capital, reducing the efficiency of the payments system. 
B) too much capital, reducing the profitability of banks. 
C) too little capital, increasing the return on equity. 
D) none of the above.

Question 19

If a bank has $10 million of deposits, a required reserve ratio of 10 percent, and $2 million in reserves, then it does not have enough reserves to support a deposit outflow of

Accepted Answer

A) $1.2 million. 
B) $1.1 million. 
C) $1 million. 
D) either A or B of the above. 
A) $1.2 million. 
B) $1.1 million. 
C) $1 million. 
D) either A or B of the above.

Question 20

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 $200,000. 
B) the liabilities of the bank increase by $200,000. 
C) reserves increase by $200,000. 
D) all of the above occur. 
A) the assets at the bank increase by $200,000. 
B) the liabilities of the bank increase by $200,000. 
C) reserves increase by $200,000. 
D) all of the above occur.

Exam 17: Banking and the Management of Financial Institutions

Which of the following bank assets are the most liquid?

Which of the following bank assets are the least liquid?

Before the 1960s,

Bankers' concern regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of

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

Bank failure is less likely to occur when a bank

Loan loss reserves are an asset on a bank's balance sheet.

What costs do banks hope to avoid by holding excess reserves?

To keep enough cash on hand to meet depositors' demand for withdrawals, banks must engage in liquidity management.

Which of the following statements is an accurate description of modern liability management?

Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves.

Explain the off-balance-sheet activities banks engage in, the risks they face from undertaking these activities, and the controls they put in place to restrict bank employees from taking on too much risk.

The ________ the costs associated with deposit outflows are, the ________ excess reserves banks will want to hold.

Which of the following statements is false?

A bank fails when the value of its ________ falls below the value of ________, causing the bank to become insolvent.

Net profit after taxes per dollar of assets is a basic measure of bank profitability called

Required reserves are insurance against the costs associated with deposit outflows. The higher the costs associated with deposit outflows, the more required reserves banks will want to hold.

In the absence of regulation, banks would probably hold

If a bank has $10 million of deposits, a required reserve ratio of 10 percent, and $2 million in reserves, then it does not have enough reserves to support a deposit outflow of

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,

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

Because of their liquidity, U.S. government securities are called secondary reserves.

The the costs associated with deposit outflows are, the excess reserves banks will want to hold.

A bank fails when the value of its falls below the value of , causing the bank to become insolvent.