1) Which of the following statements are true?
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 equals total liabilities plus equity capital.
D) Each of the above.
2) Which of the following statements is false?
A) A bank's assets are its uses of funds.
B) A bank issues liabilities to acquire funds.
C) The bank's assets provide the bank with income.
D) Bank capital is an asset in the bank balance sheet.
3) Which of the following are reported as assets on a bank's balance sheet?
A) Discount loans from the Fed B) Loans
C) Borrowings D) Only (a) and (b) of the above
4) Which of the following are reported as assets on a bank's balance sheet?
A) Cash items in the process of collection B) Checkable deposits
C) Borrowings D) Bank capital
5) Banks' holdings of securities consist primarily of
A) Treasury and government agency securities.
B) tax-exempt municipal securities.
C) state and local government securities.
D) corporate securities.
6) Which of the following are reported as liabilities on a bank's balance sheet?
A) Reserves B) Small denomination time deposits
C) Loans D) Deposits with other banks.
7) Which of the following are reported as liabilities on a bank's balance sheet?
A) discount loans
B) cash items in the process of collection
C) State government securities
D) all of the above
E) only (a) and (b) of the above
8) Bank capital is listed on the _____ side of the bank's balance sheet because it represents a _____ of funds.
A) liability; use B) liability; source C) asset; use D) asset; source
9) Banks acquire the funds that they use to purchase income- earning assets from such sources as
A) checkable deposits.
B) savings accounts.
C) reserves.
D) all of the above.
E) only (a) and (b) of the above.
10) Bank capital is listed on the _____ side of the bank's balance sheet because it represents a _____ of funds.
A) liability; use B) liability; source C) asset; use D) asset; source
11) Which of the following bank assets is the most liquid?
A) Consumer loans B) Reserves
C) Cash items in process of collection D) U.S. government securities
12) When you deposit a $50 bill in the Security Pacific National Bank,
A) its liabilities increase by $50.
B) its assets increase by $50.
C) its reserves increase by $50.
D) all of the above occur.
E) only (b) and (c) of the above occur.
13) When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank, then
A) the liabilities of First National decrease by $50.
B) the reserves at First National increase by $50.
C) the liabilities at Chemical Bank increase by $50.
D) only (a) and (b) of the above occur.
14) 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 makes loans instead, then, in the bank's final balance sheet,
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) each of the above occurs.
15) 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 makes loans instead, then, in the bank's final balance sheet,
A) the assets at the bank increase by $1,000,000.
B) the liabilities of the bank increase by $1,000,000.
C) reserves increase by $200,000.
D) each of the above occurs.
16) A banker has the following concerns:
A) to acquire funds at low cost.
B) to minimize risk by diversifying asset holdings.
C) to have enough ready cash to meet deposit outflows.
D) each of the above.
17) Which of the following do banks hold as insurance against the high cost of deposit outflows?
A) Excess reserves
B) Secondary reserves
C) Bank equity capital
D) Each of the above
E) Only (a) and (b) of the above
18) The _____ are the costs associated with deposit outflows, the _____ excess reserves banks will want to hold.
A) lower; more
B) higher; less
C) higher; more
D) None of the above, since deposit outflows cannot be anticipated.
19) A bank failure occurs whenever
A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves to meet its reserve requirements.
B) a bank suffers a large deposit outflow.
C) a bank has to call in a large volume of loans.
D) a bank is not allowed to borrow from the Fed.
20) Holding large amounts of bank capital helps prevent bank failures because
A) it means that the bank has a higher income.
B) it makes loans easier to sell.
C) it can be used to absorb the losses resulting from a deposit outflow.
D) it makes it easier to call in loans.
21) Which of the following is an argument in support of a regulated minimum capital requirement?
A) Banks that hold too little capital are too profitable.
B) Banks that hold too little capital impose costs on other banks because they are more likely to fail.
C) Banks that hold too little capital have an unfair competitive advantage over savings and loans.
D) All of the above.
22) When interest rates are expected to fall in the future, a bank manager is likely to
A) make short-term rather long-term loans.
B) buy short-term rather than long-term bonds.
C) buy long-term rather than short-term bonds.
D) do both (a) and (b).
23) Which of the following have resulted from more active liability management on the part of banks?
A) Checking deposits have become a less important source of bank funds.
B) Banks have increased loans.
C) Banks make more active use of the federal funds market.
D) Each of the above.
E) Only (a) and (b) of the above.
24) All else the same, if a bank has more rate-sensitive liabilities than assets, then a(n) _____ in interest rates will _____ bank profits.
A) increase; increase B) increase; reduce
C) decline; reduce D) decline; not affect
25) 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
A) increase by $15 million. B) increase by $1.5 million.
C) decline by $15 million. D) decline by $1.5 million.
26) Which of the following are nontransaction deposits?
A) savings accounts.
B) small-denomination time deposits.
C) certificates of deposit.
D) all of the above.
E) only (a) and (b) of the above.
27) Because time deposits are _____ liquid for the depositor than passbook savings, they earn _____ interest rates.
A) less; higher B) less; lower C) more; higher D) more; lower
28) Bank loans from the Federal Reserve are called _____ and represent a _____ of funds.
A) discount loans; use B) discount loans; source
C) fed funds; use D) fed funds; source
29) When a bank determines that a $1 million loan will not be paid back and formally writes it off
A) the loan loss reserve account will drop by $1 million.
B) the loan loss reserve account will rise by $1 million.
C) the bank's assets are lowered by $1 million.
D) both (a) and (c) of the above occur.
E) both (b) and (c) of the above occur.
30) Holding all else constant, when a bank receives the funds for a deposited check,
A) cash items in the process of collection fall by the amount of the check.
B) bank assets increase by the amount of the check.
C) bank liabilities decrease by the amount of the check.
D) all of the above.
31) Because of their _____ liquidity, _____ U.S. government securities are called secondary reserves.
A) low; short-term B) low; long-term
C) high; short-term D) high; long-term
32) 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.
A) loans; deposits B) securities; deposits
C) liabilities; assets D) assets; liabilities
33) When Jane Brown opens a bank account with a $100 check, Ms. Brown's bank _____ assets of $100 and _____ liabilities of $100.
A) gains; gains B) gains; loses C) loses; gains D) loses; loses
34) A bank can reduce its total amount of loans outstanding by
A) "calling in" loans -- that is, by not renewing some loans when they come due.
B) selling them to other banks.
C) selling them to the Federal Reserve.
D) doing all of the above.
E) doing only (a) and (b) of the above.
35) Banks fail when the value of bank _____ fall below the value of its _____, causing the bank to become insolvent.
A) reserves; required reserves B) loans; secondary reserves
C) securities; deposit liabilities D) assets; liabilities