Question 1

Risk that is related to the uncertainty about interest rate movements is called

Accepted Answer

A)  default risk.
B)  interest-rate risk.
C)  the problem of moral hazard.
D)  security risk.

Question 2

In order to reduce the ________ problem in loan markets,bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Accepted Answer

A)  moral hazard
B)  adverse selection
C)  moral suasion
D)  adverse lending

Question 3

Which of the following are reported as liabilities on a bank's balance sheet?

Accepted Answer

A)  Reserves
B)  Checkable deposits
C)  Loans
D)  Deposits with other banks

Question 4

If a bank needs to raise the amount of capital relative to assets,a bank manager might choose to

Accepted Answer

A)  buy back bank stock.
B)  pay higher dividends.
C)  shrink the size of the bank.
D)  sell securities the bank owns and put the funds into the reserve account.

Question 5

When you deposit a $50 bill in the Security Pacific National Bank,

Accepted Answer

A)  its liabilities decrease by $50.
B)  its assets increase by $50.
C)  its reserves decrease by $50.
D)  its cash items in the process of collection increase by $50.

Question 6

All of the following are examples of off-balance sheet activities that generate fee income for banks except

Accepted Answer

A)  foreign exchange trades.
B)  guaranteeing debt securities.
C)  back-up lines of credit.
D)  selling negotiable CDs.

Question 7

Which of the following are bank assets?

Accepted Answer

A)  the building owned by the bank
B)  a discount loan
C)  a negotiable CD
D)  a customer's checking account

Question 8

All else the same,if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets,then ________ in interest rates will ________ bank profits.

Accepted Answer

A)  an increase; increase
B)  an increase; reduce
C)  a decline; reduce
D)  a decline; not affect

Question 9

If a bank has ________ rate-sensitive assets than liabilities,a ________ in interest rates will reduce bank profits,while a ________ in interest rates will raise bank profits.

Accepted Answer

A)  more; rise; decline
B)  more; decline; rise
C)  fewer; decline; decline
D)  fewer; rise; rise

Question 10

One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same.That means that the yield curve is

Accepted Answer

A)  flat.
B)  slightly upward sloping.
C)  steeply upward sloping.
D)  downward sloping.

Question 11

Your bank has the following balance sheet

What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

Accepted Answer

The bank's profits would go down because...

Question 12

Modern liability management has resulted in

Accepted Answer

A)  increased sales of certificates of deposits to raise funds.
B)  increase importance of deposits as a source of funds.
C)  reduced borrowing by banks in the overnight loan market.
D)  failure by banks to coordinate management of assets and liabilities.

Question 13

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

Question 14

Which of the following are not reported as assets on a bank's balance sheet?

Accepted Answer

A)  Cash items in the process of collection
B)  Deposits with other banks
C)  U.S.Treasury securities
D)  Checkable deposits

Question 15

Because ________ are less liquid for the depositor than ________,they earn higher interest rates.

Accepted Answer

A)  passbook savings; time deposits
B)  money market deposit accounts; time deposits
C)  money market deposit accounts; passbook savings
D)  time deposits; passbook savings

Question 16

Use the following table to answer the questions:

-If interest rates rise by 5 percentage points,say,from 10 to 15%,bank profits (measured using gap analysis) will

Accepted Answer

A)  decline by $0.5 million.
B)  decline by $1.5 million.
C)  decline by $2.5 million.
D)  increase by $1.5 million.

Question 17

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

Accepted Answer

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 Citibank decrease by $10.
D)  the assets of Citibank decrease by $10.

Question 18

Secondary reserves are so called because

Accepted Answer

A)  they can be converted into cash with low transactions costs.
B)  they are not easily converted into cash,and are,therefore,of secondary importance to banking firms.
C)  50% of these assets count toward meeting required reserves.
D)  they rank second to bank vault cash in importance of bank holdings.

Question 19

Which of the following statements most accurately describes the task of bank asset management?

Accepted Answer

A)  Banks seek the highest returns possible subject to minimizing risk and making adequate provisions for liquidity.
B)  Banks seek to have the highest liquidity possible subject to earning a positive rate of return on their operations.
C)  Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,liquidity needs supersede the desire for profits.
D)  Banks seek to acquire funds in the least costly way.

Question 20

Examples of off-balance-sheet activities include

Accepted Answer

A)  loan sales.
B)  extending loans to depositors.
C)  borrowing from other banks.
D)  selling negotiable CDs.

Exam 10: Banking and the Management of Financial Institutions

Modern liability management has resulted in

Correct AnswerverifiedShow Answer

Your bank has the following balance sheet What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

Correct AnswerverifiedThe bank's profits would go down because...View AnswerShow Answer

Which of the following are reported as liabilities on a bank's balance sheet?

Correct AnswerverifiedShow Answer

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

Correct AnswerverifiedShow Answer

If a bank has ________ rate-sensitive assets than liabilities,a ________ in interest rates will reduce bank profits,while a ________ in interest rates will raise bank profits.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When you deposit a $50 bill in the Security Pacific National Bank,

Correct AnswerverifiedShow Answer

Examples of off-balance-sheet activities include

Correct AnswerverifiedShow Answer

All else the same,if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets,then ________ in interest rates will ________ bank profits.

Correct AnswerverifiedShow Answer

Risk that is related to the uncertainty about interest rate movements is called

Correct AnswerverifiedShow Answer

Which of the following statements most accurately describes the task of bank asset management?

Correct AnswerverifiedShow Answer

Use the following table to answer the questions: -If interest rates rise by 5 percentage points,say,from 10 to 15%,bank profits (measured using gap analysis) will

Correct AnswerverifiedShow Answer

One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same.That means that the yield curve is

Correct AnswerverifiedShow Answer

Which of the following are not reported as assets on a bank's balance sheet?

Correct AnswerverifiedShow Answer

If a bank needs to raise the amount of capital relative to assets,a bank manager might choose to

Correct AnswerverifiedShow Answer

In order to reduce the ________ problem in loan markets,bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.

Correct AnswerverifiedShow Answer

Secondary reserves are so called because

Correct AnswerverifiedShow Answer

Which of the following are bank assets?

Correct AnswerverifiedShow Answer

All of the following are examples of off-balance sheet activities that generate fee income for banks except

Correct AnswerverifiedShow Answer

Because ________ are less liquid for the depositor than ________,they earn higher interest rates.

Correct AnswerverifiedShow Answer

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The bank's profits would go down because...
View Answer

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If a bank has rate-sensitive assets than liabilities,a in interest rates will reduce bank profits,while a in interest rates will raise bank profits.

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

Correct Answer
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All else the same,if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets,then in interest rates will bank profits.

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Because are less liquid for the depositor than ,they earn higher interest rates.

Correct Answer
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