ch 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 servicing accounts have been approximately ________ of operating expenses.

25 percent; 50 percent

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

A bankʹs balance sheet shows that total assets equal total liabilities plus equity capital.

Which of the following statements is false? A) A bankʹs assets are its uses of funds. B) A bank issues liabilities to acquire funds. C) The bankʹs assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet.

Bank capital is recorded as an asset on the bank balance sheet.

Which of the following are not reported as assets on a bankʹs balance sheet? A) Cash items in the process of collection B) Deposits with other banks C) U.S. Treasury securities D) Checkable deposits

Checkable deposits

Which of the following are reported as liabilities on a bankʹs balance sheet? A) Reserves B) Checkable deposits C) Loans D) Deposits with other banks

Checkable deposits

Which of the following statements are true? A) Checkable deposits are payable on demand. B) Checkable deposits do not include NOW accounts. C) Checkable deposits are the primary source of bank funds. D) Demand deposits are checkable deposits that pay interest.

Checkable deposits are payable on demand

Which of the following statements is false? 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.

Checkable deposits are the primary source of bank funds.

Which of the following are reported as liabilities on a bankʹs balance sheet? A) Discount loans B) Reserves C) U.S. Treasury securities D) Loans

Discount loans

Which of the following are transaction deposits? A) Savings accounts B) Small-denomination time deposits C) Negotiable order of withdraw accounts D) Certificates of deposit

Negotiable order of withdraw accounts

Which of the following is not a nontransaction deposit? A) Savings accounts B) Small-denomination time deposits C) Negotiable order of withdrawal accounts D) Certificate of deposit

Negotiable order of withdrawal accounts

Which of the following are reported as assets on a bankʹs balance sheet? A) Borrowings B) Reserves C) Savings deposits D) Bank capital

Reserves

Which of the following bank assets is the most liquid? A) Consumer loans B) Reserves C) Cash items in process of collection D) U.S. government securities

Reserves

Which of the following is not a source of borrowings for a bank? A) Federal funds B) Eurodollars C) Transaction deposits D) Discount loans

Transaction deposits

The largest percentage of banksʹ holdings of securities consist of

Treasury and government agency securities.

Asset transformation can be described as

borrowing short and lending long.

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

discount loans; source

Through correspondent banking, large banks provide services to small banks, including

foreign exchange transactions.

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

high; short-term

When a new depositor opens a checking account at the First National Bank, the bankʹs assets ________ and its liabilities ________.

increase; increase

Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and return, and using the proceeds to buy ________ with a different set of characteristics.

liabilities; assets

Bank capital is listed on the ________ side of the bankʹs balance sheet because it represents a ________ of funds.

liability; source

Bankʹs make their profits primarily by issuing ________.

loans

The most important category of assets on a bankʹs balance sheet is

loans

When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brownʹs bank ________ assets of $100 and ________ liabilities of $100.

loses; loses

Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.

more; lower

Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.

negotiable; secondary

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

passbook savings; checkable deposits

The fraction of checkable deposits that banks are required by regulation to hold are

required reserves.

Banks acquire the funds that they use to purchase income-earning assets from such sources as

savings accounts.

Secondary reserves include

short-term Treasury securities.

In general, banks make profits by selling ________ liabilities and buying ________ assets.

short-term; longer-term

The share of checkable deposits in total bank liabilities has

shrunk over time.

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

the building owned by the bank

Banksʹ asset portfolios include state and local government securities because

their interest payments are tax deductible for federal income taxes.

Secondary reserves are so called because

they can be converted into cash with low transactions costs.

Bank capital is equal to ________ minus ________.

total assets; total liabilities

Bank reserves include

vault cash and deposits at the Fed.