Handout 4-
[Q1] Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ______ percent.
A) ten
B) twenty
C) eighty
D) ninety
[Q2] Which of the following statements are true?
A) A bank's balance sheet shows that total assets equal total liabilities plus equity capital.
B) A bank's liabilities are its uses of funds.
C) A bank's assets are its sources of funds.
D) A bank's balance sheet indicates whether r not the bank is profitable.
[Q3] Total Reserves minus vault cash equals
A) bank deposits with the Fed.
B) excess reserves.
C) currency in circulation.
D) required reserves.
[Q4] If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to
A) its excess reserves.
B) its total reserves.
C) 10 times its excess reserves.
D) 10 percent of its excess reserves.
[Q5] If, after a deposit outflow, a bank has a reserve deficiency of $ 3 million, it can meet its reserve requirements by
A) reducing deposits by $3 million.
B) increasing loans by $3 million.
C) selling $3 million of securities.
D) repaying its discount loans from the Fed.
[Q6] If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is
A) $50,000.
B) $40,000.
C) $30,000.
D) $25,000.
[Q7] When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.
A) gains; gains
B) gains; loses
C) loses; gains
D) loses; loses
[Q8] Because of an expected rise in interest rates in the future, a banker will likely
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.
[Q9] (Fall 2010) ______ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.
A) Selling securities
B) Calling in loans
C) Selling negotiable CDs
D) Selling loans
[Q10] In general, banks would prefer to meet deposit outflows by ________ rather than ________.
A) selling loans; selling securities
B) selling loans; borrowing from the Fed
C) borrowing from the Fed; selling loans
D) calling in loans; selling securitie.