Chapter 17: Commercial Bank Operations

if the stock market performs well

"Bull market" CDs reward depositors:

negotiable

A _______ CD is a time deposit offered by some large banks to corporations, with a specific maturity date, minimum deposit of $100,000 or more, and a secondary market.

direct lease

A _______ loan may be especially appropriate when the bank wishes to avoid adding more debt to its balance sheet.

negotiable order of withdrawal (NOW)

A ______________ account provides checking services as well as interest.

just a few days; just a few days

A single loan in the federal funds market is usually for _______; when a bank sells a single repurchase agreement, the maturity is usually _________.

dilute the ownership of the bank

All other things equal, when banks issue new stock, they:

savings and time deposits; foreign deposits and short-term borrowings

As a source of funds, small banks rely more heavily on _______, and larger banks rely more heavily on _______.

issuing stock; retained earnings

Bank capital represents funds obtained through _______ and through _______.

working capital

Bank loans designed to support a firm's ongoing business operations are called _______ loans.

B) federal funds

Banks sometimes need funds and sometimes have excess funds available. Which of the following is commonly a source of bank funds and a use of bank funds? A) MMDAs B) federal funds C) the discount window D) retail CDs

they try to avoid diluting ownership of the bank

Banks sometimes prefer to minimize their amount of capital since:

in a bank's vault

Cash held _______ represents the major portion of a bank's required reserves.

not insured by the FDIC

Deposits in foreign branches of U.S. banks are:

are not; must

Edge Act corporations _______ constrained by existing regulations against interstate banking. Their deposits _______ be specifically related to international transactions.

offer limited check writing privileges

Money market deposit accounts differ from conventional time deposits in that they:

issuing bonds

Obtaining funds through _______ is not a common way for banks to satisfy a temporary deficiency of funds. A) issuing bonds B) the federal funds market C) repurchase agreements D) borrowing from the Federal Reserve

secondary capital

Subordinated notes and debentures are examples of:

resolve temporary shortages of funds experienced by banks

The Federal Reserve provides loans to banks in order to:

between .25 percent and 1.00 percent above

The federal funds rate is generally ______ the Treasury bill rate.

correct short-term fund imbalances experienced by banks.

The intent of federal funds transactions is to:

prime

The interest rate banks charge their most creditworthy customers is known as the _______ rate.

federal funds

The interest rate charged on loans between depository institutions is commonly referred to as the _______ rate.

primary credit lending

The interest rate charged on loans from the Federal Reserve to banks is commonly referred to as the _______ rate.

much more volatile than

The level of large time deposits is _______ that of small time deposits.

loans

The main use of bank funds is for:

the Federal Reserve

The primary credit lending rate is determined by:

NCDs

Transaction deposits do not include:

True

True or False: A bank's sources of funds represent liabilities or equity of the bank.

False

True or False: A bank's uses of funds represent liabilities of a bank.

True

True or False: Because U.S. dollars are widely used as an international medium of exchange, the Eurodollar market is very active.

True

True or False: Commercial banks can be a lender or a borrower when using repurchase agreements and loans in the federal funds market.

True

True or False: Commercial banks have expanded in recent years not only by acquiring other banks but also by acquiring other types of financial service firms.

False

True or False: Protective covenants impose conditions in which the bank must provide additional loans to a borrower to protect the borrower from going bankrupt.

False

True or False: The operations, management, and regulation of a financial conglomerate are the same irrespective of the types of services offered.

repurchase agreement

When a bank in need of funds for a few days sells some of its government securities to a corporation with a temporary excess of funds, then buys them back shortly thereafter, this is a:

NCDs

When a bank obtains funds through _______, households are not a common provider of the funds.

repurchase agreement

When a bank obtains funds through a ______, the provider of the funds receives collateral.

borrow in the federal funds market

When banks need funding for just a few days, they would most likely:

other depository institutions

When banks obtain funds in the federal funds market, the providers of the funds are:

government agency securities are subject to default risk.

When comparing Treasury securities and government agency securities,:

D) informal line of credit

Which of the following is most appropriate for a business that may experience a sudden need for funds but does not know precisely when? A) working capital loan B) direct lease loan C) term loan D) informal line of credit

a) highly leveraged transactions (HLTs)

Which of the following is not an off-balance sheet activity? A) highly leveraged transactions (HLTs) B) standby letters of credit C) forward contracts D) swap contracts

A) In point-of-sale transactions, EFT increases the number of transactions by check, credit card, and cash.

Which of the following is not true regarding electronic funds transfer (EFT) A) In point-of-sale transactions, EFT increases the number of transactions by check, credit card, and cash. B) Banks have developed shared ATM networks to attract deposits without having to construct facilities or hire and train employees. C) Through EFT, Social Security payments made by the government can be directly deposited to individual accounts. D) Businesses that receive large volumes of cash receipts (such as utilities) use EFT for collection to reduce the processing tasks.

D) The primary credit lending rate is now set at a level above the federal funds rate.

Which of the following is true? A) The primary credit lending rate is set by the President of the United States. B) The federal funds rate is set by the President of the United States. C) The primary credit lending rate is set by commercial banks. D) The primary credit lending rate is now set at a level above the federal funds rate.

C) The banking industry has become less concentrated in recent years.

Which of the following statements is incorrect? A) Banks have expanded their business across services overtime. B) Acquisitions have been a convenient method for banks to grow quickly and capitalize on economies of scale. C) The banking industry has become less concentrated in recent years. D) All of these statements are correct.

ATS

Which type of savings account transfers funds to a checking account when checks are written?

Demand deposit accounts

______ are offered to bank customers who desire to write checks against their account.

savings deposits (including MMDAs- Money Market Deposit Accounts)

______ are the largest bank source of funds (as a percentage of total liabilities).

term

______ loans are primarily used to finance the purchase of fixed assets.

Branches

_______ are full-service banking offices that can compete directly with other banks located in that area.

Callable

__________ CDs allow the issuer to force an early maturity.