Question 1

Of the following methods that banks might use to reduce moral hazard problems,the one not legally permitted in the United States is the

Accepted Answer

A)   requirement that firms keep compensating balances at the banks from which they obtain their loans.
B)   requirement that firms place on their board of directors an officer from the bank.
C)   inclusion of restrictive covenants in loan contracts.
D)   requirement that individuals provide detailed credit histories to bank loan officers.E) C) and D)
F) B) and C)

Question 2

Which of the following statements is false?

Accepted Answer

A)   Checkable deposits are usually the lowest cost source of bank funds.
B)   Checkable deposits are the primary source of bank funds.
C)   Checkable deposits are payable on demand.
D)   Checkable deposits include NOW accounts.E) A) and B)
F) B) and D)

Question 3

Because of an expected rise in interest rates in the future,a banker will likely

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 4

One way for banks to reduce the principal-agent problems associated with trading activities is to

Accepted Answer

A)   set limits on the total amount of a traders' transactions.
B)   make sure that the person conducting the trades is also the person responsible for recording the transactions.
C)   encourage traders to take on more risk if the potential rewards are higher.
D)   reduce the regulations on the traders so that they have more flexibility in conducting trades.E) C) and D)
F) A) and B)

Question 5

A bank that wants to monitor the check payment practices of its commercial borrowers,so that moral hazard can be prevented,will require borrowers to

Accepted Answer

A)   place a bank officer on their board of directors.
B)   place a corporate officer on the bank's board of directors.
C)   keep compensating balances in a checking account at the bank.
D)   purchase the bank's CDs.E) A) and B)
F) B) and D)

Question 6

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Accepted Answer

A)   decrease; increase
B)   increase; decrease
C)   increase; increase
D)   decrease; not be affectedE) B) and C)
F) None of the above

Question 7

All of the following are operating expenses for a bank except

Accepted Answer

A)   service charges on deposit accounts.
B)   salaries and employee benefits.
C)   rent on buildings.
D)   servicing costs of equipment such as computers.E) A) and C)
F) All of the above

Question 8

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Accepted Answer

A)   specialization in lending; diversifying
B)   specialization in lending; rationing
C)   credit rationing; diversifying
D)   screening; rationingE) A) and C)
F) All of the above

Question 9

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 accountE) C) and D)
F) A) and D)

Question 10

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Accepted Answer

A)   proscription bonds.
B)   restrictive covenants.
C)   due-on-sale clauses.
D)   liens.E) A) and B)
F) A) and C)

Question 11

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.E) A) and B)
F) A) and C)

Question 12

Your bank has the following balance sheet
Assets Liabilities
Rate-sensitive $100 million Rate-sensitive $75 million
Fixed-rate 100 million Fixed-rate 125 million
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 13

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Accepted Answer

A)   calling in loans.
B)   borrowing federal funds.
C)   selling municipal bonds.
D)   seeking new deposits.E) A) and C)
F) All of the above

Question 14

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Accepted Answer

A)   gains; gains
B)   gains; loses
C)   loses; gains
D)   loses; losesE) B) and C)
F) A) and D)

Question 15

Traders working for banks are subject to the

Accepted Answer

A)   principal-agent problem.
B)   free-rider problem.
C)   double-jeopardy problem.
D)   exchange-risk problem.E) All of the above
F) None of the above

Question 16

When banks offer borrowers smaller loans than they have requested,banks are said to

Accepted Answer

A)   shave credit.
B)   rediscount the loan.
C)   raze credit.
D)   ration credit.E) B) and C)
F) B) and D)

Question 17

Banks hold capital because

Accepted Answer

A)   they are required to by regulatory authorities.
B)   higher capital increases the returns to the owners.
C)   it increases the likelihood of bankruptcy.
D)   higher capital increases the return on equity.E) B) and D)
F) C) and D)

Question 18

The amount of assets per dollar of equity capital is called the

Accepted Answer

A)   asset ratio.
B)   equity ratio.
C)   equity multiplier.
D)   asset multiplier.E) All of the above
F) B) and C)

Question 19

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.
D)   too much capital, making it more difficult to obtain loans.E) A) and D)
F) A) and C)

Question 20

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Accepted Answer

A)   borrow from another bank in the federal funds market.
B)   buy U.S. Treasury bills.
C)   increase loans.
D)   buy corporate bonds.E) A) and C)
F) None of the above

Exam 10: Banking and the Management of Financial Institutions

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

Of the following methods that banks might use to reduce moral hazard problems,the one not legally permitted in the United States is the

Correct Answer
verified

As the costs associated with deposit outflows ,the banks willingness to hold excess reserves will .

Correct Answer
verified

When banks offer borrowers smaller loans than they have requested,banks are said to

Correct Answer
verified

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Correct Answer
verified

A bank that wants to monitor the check payment practices of its commercial borrowers,so that moral hazard can be prevented,will require borrowers to

Correct Answer
verified

In the absence of regulation,banks would probably hold

Correct Answer
verified

Which of the following are bank assets?

Correct Answer
verified

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Correct Answer
verified

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Correct Answer
verified

Because of an expected rise in interest rates in the future,a banker will likely

Correct Answer
verified

All of the following are operating expenses for a bank except

Correct Answer
verified

The amount of assets per dollar of equity capital is called the

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

One way for banks to reduce the principal-agent problems associated with trading activities is to

Correct Answer
verified

Traders working for banks are subject to the

Correct Answer
verified

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

Correct Answer
verified

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank assets of $100 and liabilities of $100.

Correct Answer
verified

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

Banks hold capital because

Correct Answer
verified

Exam 10: Banking and the Management of Financial Institutions

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

Of the following methods that banks might use to reduce moral hazard problems,the one not legally permitted in the United States is the

Correct AnswerverifiedShow Answer

As the costs associated with deposit outflows ________,the banks willingness to hold excess reserves will ________.

Correct AnswerverifiedShow Answer

When banks offer borrowers smaller loans than they have requested,banks are said to

Correct AnswerverifiedShow Answer

Banks that actively manage liabilities will most likely meet a reserve shortfall by

Correct AnswerverifiedShow Answer

A bank that wants to monitor the check payment practices of its commercial borrowers,so that moral hazard can be prevented,will require borrowers to

Correct AnswerverifiedShow Answer

In the absence of regulation,banks would probably hold

Correct AnswerverifiedShow Answer

Which of the following are bank assets?

Correct AnswerverifiedShow Answer

If a bank needs to acquire funds quickly to meet an unexpected deposit outflow,the bank could

Correct AnswerverifiedShow Answer

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

Correct AnswerverifiedShow Answer

Because of an expected rise in interest rates in the future,a banker will likely

Correct AnswerverifiedShow Answer

All of the following are operating expenses for a bank except

Correct AnswerverifiedShow Answer

The amount of assets per dollar of equity capital is called the

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

One way for banks to reduce the principal-agent problems associated with trading activities is to

Correct AnswerverifiedShow Answer

Traders working for banks are subject to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank ________ assets of $100 and ________ liabilities of $100.

Correct AnswerverifiedShow Answer

In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.

Correct AnswerverifiedShow Answer

Banks hold capital because

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

As the costs associated with deposit outflows ,the banks willingness to hold excess reserves will .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When Jane Brown writes a $100 check to her nephew and he cashes the check,Ms.Brown's bank assets of $100 and liabilities of $100.

Correct Answer
verified

In one sense appears surprising since it means that the bank is not its portfolio of loans and thus is exposing itself to more risk.

Correct Answer
verified

Correct Answer
verified