ECON 353 CH9 1/2

23) 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.

A) $50,000.

10) When you deposit a $50 bill in the Security Pacific National Bank A) its assets increase by $50. B) its cash items in the process of collection increase by $50. C) its liabilities decrease by $50. D) its reserves decrease by $50

A) its assets increase by $50

4) Because checking accounts are ________ liquid for the depositor than savings accounts, they earn ________ interest rates. A) more; lower B) less; lower C) less; higher D) more; higher

A) more; lower

13) A $100 deposit into my checking account at My Bank increases my checkable deposits by $100, and the bank's ________ by $100. A) reserves B) securities C) capital D) loans

A) reserves

16) Asset transformation can be described as A) borrowing and lending for the long term. B) borrowing short and lending long. C) borrowing long and lending short. D) borrowing and lending only for the short term

B) borrowing short and lending long.

3) Which of the following are reported as liabilities on a bank's balance sheet? A) real estate loans B) discount loans C) U.S. Treasury securities D) reserves

B) discount loans

25) As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________. A) decrease; increase B) increase; increase C) increase; decrease D) decrease; not be affected

B) increase; increase

24) If a bank needs to raise the amount of capital relative to assets, a bank manager might choose to A) buy back bank stock. B) reduce the bank's assets by making fewer loans. C) pay higher dividends. D) sell securities the bank owns and put the funds into the reserve account.

B) reduce the bank's assets by making fewer loans

1) Which of the following are bank assets? A) a customer's checking account B) the building owned by the bank C) a discount loan D) a negotiable CD

B) the building owned by the bank

20) Banks hold capital because A) higher capital increases the returns to the owners. B) they are required to by regulatory authorities. C) higher capital increases the return on equity. D) it increases the likelihood of bankruptcy.

B) they are required to by regulatory authorities.

2) Which of the following statements are TRUE? A) Checkable deposits are assets for the bank. B) Checkable deposits do not include NOW accounts. C) Checkable deposits are payable on demand. D) Checkable deposits are the primary source of bank funds

C) Checkable deposits are payable on demand.

11) A deposit outflow results in equal reductions in A) reserves and capital. B) assets and capital. C) assets and liabilities. D) loans and reserves.

C) assets and liabilities.

22) If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the bank could A) increase loans. B) buy U.S. Treasury bills. C) borrow from another bank in the federal funds market. D) buy corporate bonds.

C) borrow from another bank in the federal funds market.

5) Bank loans from the Federal Reserve are called ________ and represent a ________ of funds. A) discount loans; use B) fed funds; use C) discount loans; source D) fed funds; source

C) discount loans; source

8) Secondary reserves include A) state and local government securities. B) deposits at other large banks. C) short-term U.S. government securities. D) deposits at Federal Reserve Banks

C) short-term U.S. government securities.

15) In general, banks make profits by selling ________ liabilities and buying ________ assets. A) risky; risk-free B) illiquid; liquid C) short-term; longer-term D) long-term; shorter-term

C) short-term; longer-term

14) When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then A) the reserves of the First National Bank increase by $10. B) the assets of Citibank decrease by $10. C) the liabilities of the First National Bank decrease by $10. D) the liabilities of Citibank decrease by $10.

C) the liabilities of the First National Bank decrease by $10.

18) 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 assets of Chemical Bank rise by $50. B) the liabilities at Chemical Bank rise by $50. C) the reserves at First National fall by $50. D) the assets of First National rise by $50.

C) the reserves at First National fall by $50.

7) Which of the following statements are TRUE? A) A bank's balance sheet indicates whether or not the bank is profitable. B) A bank's assets are its sources of funds. C) A bank's liabilities are its uses of funds. D) A bank's balance sheet shows that total assets equal total liabilities plus equity capital.

D) A bank's balance sheet shows that total assets equal total liabilities plus equity capital.

17) When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________. A) decrease; increase B) decrease; decrease C) increase; decrease D) increase; increase

D) increase; increase

19) When you deposit $50 in currency at Old National Bank A) its assets increase by less than $50 because of reserve requirements. B) its reserves increase by less than $50 because of reserve requirements. C) its liabilities decrease by $50. D) its liabilities increase by $50

D) its liabilities increase by $50

9) Which of the following bank assets is the most liquid? A) U.S. government securities B) state and local government securities C) consumer loans D) reserves

D) reserves

6) Banks acquire the funds that they use to purchase income-earning assets from such sources as A) reserves. B) cash items in the process of collection. C) deposits at other banks. D) savings accounts.

D) savings accounts.

21) If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can A) reduce deposits by $3 million. B) repay its discount loans from the Fed. C) increase loans by $3 million. D) sell $3 million of securities that the bank currently owns.

D) sell $3 million of securities that the bank currently owns.

12) 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 liabilities of the bank increase by $800,000. B) the assets at the bank increase by $800,000. C) reserves increase by $160,000. D) the liabilities of the bank increase by $1,000,000.

D) the liabilities of the bank increase by $1,000,000.