TB 17
TB 17
TB 17
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3.
4.
5.
210
6.
7.
8.
9.
10.
In recent years, the interest paid on checkable and time deposits has accounted for around
of total bank operating expenses, while the costs involved in running the bank have been
approximately
of total operating expenses.
(a) 50 percent; 50 percent
(b) 50 percent; 25 percent
(c)25 percent; 50 percent
(d)
25 percent; 75
percent
Answer: C
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11.
12.
13.
14.
15.
16.
212
17.
and represent a
18.
19.
20.
21.
22.
Which of the following are not reported as assets on a banks balance sheet?
(a) Cash items in the process of collection
(b) Deposits with other banks
(c) U.S. Treasury securities
(d) Checkable deposits
Answer: D
of funds.
Chapter 17
23.
Which of the following are not reported as assets on a banks balance sheet?
(a) Cash items in the process of collection
(b) Borrowings
(c) U.S. Treasury securities
(d) Reserves
Answer: B
24.
Because of their
reserves.
(a) low; short-term
(b) low; long-term
(c) high; short-term
(d) high; long-term
Answer: C
25.
26.
27.
28.
liquidity,
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29.
Loans
(a) are the largest category of bank assets.
(b) provide most of the banks revenues.
(c) earn the highest return of all bank assets.
(d) do each of the above.
(e) do only (a) and (b) of the above.
Answer: D
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31.
32.
33.
34.
assets.
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35.
36.
37.
When a $10 check written on the First National Bank is deposited in an account at the Second
National Bank, then
(a) the liabilities of the First National Bank decrease by $10.
(b) the reserves of the First National Bank increase by $10.
(c) the liabilities of Second National Bank decrease by $10.
(d) the assets of Second National Bank decrease by $10.
Answer: A
38.
When a $10 check written on the First National Bank is deposited in an account at Second National
Bank, then
(a) the liabilities of the First National Bank decrease by $10.
(b) the liabilities of Second National Bank increase by $10.
(c) the reserves of the First National Bank increase by $10.
(d) all of the above occur.
(e) only (a) and (b) of the above occur.
Answer: E
39.
Holding all else constant, when a bank receives the funds for a deposited check,
(a) cash items in 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.
Answer: A
40.
Holding all else constant, when a bank receives the funds for a deposited check,
(a) cash items in process of collection fall by the amount of the check.
(b) bank assets remain unchanged.
(c) bank liabilities decrease by the amount of the check.
(d) all of the above.
(e) only (a) and (b) of the above.
Answer: E
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41.
42.
43.
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
(a) liability management.
(b) liquidity management.
(c) managing interest-rate risk.
(d) none of the above.
Answer: B
44.
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 banks 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.
Answer: C
45.
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 banks final
balance sheet,
(a) the assets at the bank increase by $800,000.
(b) the liabilities of the bank increase by $1,000,000.
(c) the liabilities of the bank increase by $800,000.
(d) reserves increase by $160,000.
Answer: B
46.
If a bank has $1 million of deposits, a required reserve ratio of 20 percent, and $300,000 in reserves,
it need not rearrange its balance sheet if there is a deposit outflow of
(a) $50,000.
(b) $75,000.
(c) $150,000.
(d) either (a) or (b) of the above.
Answer: D
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47.
If a bank has $100,000 of deposits, a required reserve ratio of 20 percent, and $40,000 in reserves,
then the maximum deposit outflow it can sustain without altering its balance sheet is
(a) $30,000.
(b) $25,000.
(c) $20,000.
(d) $10,000.
Answer: B
48.
If a bank has $200,000 of deposits, a required reserve ratio of 20 percent, and $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.
Answer: A
49.
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
(a) $1.2 million.
(b) $1.1 million.
(c) $1 million.
(d) either (a) or (b) of the above.
Answer: A
50.
Banks can protect themselves from the disruption caused by deposit outflows by
(a) holding excess reserves.
(b) selling securities.
(c) calling in loans.
(d) doing all of the above.
(e) doing only (a) and (b) of the above.
Answer: D
51.
52.
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
Answer: A
rather than
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53.
Which is the least costly way for a bank to handle deposit outflow?
(a) Hold excess reserves.
(b) Borrow from other banks.
(c) Sell securities.
(d) Call in loans.
Answer: A
54.
The
are the costs associated with deposit outflows, the
will want to hold.
(a) lower; more
(b) higher; less
(c) higher; more
(d) None of the above, since deposit outflows cannot be anticipated.
Answer: C
55.
56.
Which of the following statements are accurate descriptions of modern liability management?
(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.
Answer: E
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58.
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63.
64.
On a banks income statement, the amount available to keep as retained earning or pay to the
stockholders in dividends is the banks
(a) net income.
(b) net operating income.
(c) net extraordinary items.
(d) net interest margin.
Answer: A
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220
65.
Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called
(a) return on assets.
(b) return after taxes.
(c) return on equity.
(d) equity multiplier.
Answer: C
66.
Net profit after taxes per dollar of assets is a basic measure of bank profitability called
(a) return on assets.
(b) return on capital.
(c) return on equity.
(d) return after taxes.
Answer: A
67.
68.
69.
70.
An argument that supports a regulated minimum capital requirement is that banks that hold too
little capital
(a) are unprofitable.
(b) impose costs on other banks because they are more likely to fail.
(c) have an unfair competitive advantage over savings and loans.
(d) all of the above.
Answer: B
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71.
72.
73.
74.
75.
The danger of banks engaging in activities such as trading in financial futures and interest-rate
swaps is that these activities allow banks to
(a) increase profits.
(b) decrease risks.
(c) avoid bank regulations.
(d) engage in speculation.
Answer: D
76.
When a bank sells all or part of the cash stream from a specific loan,
(a) it thereby removes the loan from its balance sheet.
(b) it usually does so at a loss.
(c) it usually does so at a profit.
(d) both (a) and (b) of the above.
(e) both (a) and (c) of the above.
Answer: E
222
True/False
1.
Since their introduction in 1961, negotiable CDs have become an important source of bank funds.
Answer: TRUE
2.
Deposits that banks keep in accounts at the Federal Reserve less vault cash is called reserves.
Answer: FALSE
3.
When a bank receives additional deposits, it gains an equal amount of reserves; when it loses
deposits, it loses an equal amount of reserves.
Answer: TRUE
4.
To keep enough cash on hand to meet depositors demand for withdrawals, banks must engage in
liquidity management.
Answer: TRUE
5.
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.
Answer: FALSE
6.
A bank maintains bank capital to lessen the chance that it will become insolvent.
Answer: TRUE
7.
Given a banks return on assets, the higher the bank capital, the higher the return for the owners of
the bank.
Answer: FALSE
8.
9.
Off-balance-sheet activities consist of trading financial instruments and generating income from fees
and loan sales, all of which affect bank profits but are not visible on bank balance sheets.
Answer: TRUE
10.
The value-at-risk method for estimating a banks risk exposure measures the losses a bank could
incur under a worst-case scenario.
Answer: FALSE.
11.
The share of bank operating income earned from off-balance sheet activities has increased over the
past two decades.
Answer: TRUE.
12.
Since a banks assets exceed its equity capital, the return on assets always exceeds the return on
equity.
Answer: FALSE.
13.
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Essay
1.
What is the major focus of each of the following bank management concerns: asset management;
liability management; liquidity management; capital adequacy management?
2.
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.
3.
4.
5.
Distinguish between a banks reserves, required reserves, excess reserves, and secondary reserves.
6.