money and banking exam 2

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

A

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) Checkable deposits are assets for the bank.

A

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Answer: Security National BankAssetsLiabilitiesReserves +$250Checkable deposits +$250

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.

B

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

C

The share of checkable deposits in total bank liabilities has A) expanded moderately over time. B) expanded dramatically over time. C) shrunk over time. D) remained virtually unchanged since 1960.

C

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

D

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

D

Excess reserve formula

ER= R - RR

f the bank you own has no excess reserves and a sound customer comes in asking for a loan, should you automatically turn the customer down, explaining that you don't have any excess reserves to lend out? Why or why not? What options are available that will enable you to provide the funds your customer needs?

No you should 1. borrow from fed 2. overnight loans 3. get back funds from bad customers

Required Reserve formula

RR = rr x CD

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) loans C) capital D) securities

a

A $5 million deposit outflow from a bank has the immediate effect of A) reducing deposits and reserves by $5 million. B) reducing deposits and loans by $5 million. C) reducing deposits and securitiesby $5 million. D) reducing deposits and capital by $5 million.

a

A bank failure occurs whenever A)a bank cannot satisfy its obligations to pay its depositors and other creditors. B) a bank suffers a large deposit outflow. C) a bank has to call in a large volume of loans. D) a bank refuses to make new loans.

a

A bank is insolvent when A) its liabilities exceed its assets. B) its assets exceed its liabilities. C) its capital exceeds its liabilities. D) its assets increase in value.

a

Bank capital is equal to ________ minus ________. A) total assets; total liabilities B) total liabilities; total assets C) total assets; total reserves D) total liabilities; total borrowings

a

If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of A) $1.2 million. B) $1.1 million. C) $1 million. D) $900,000

a

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in A) deposits and reserves. B) deposits and loans. C) capital and reserves. D) capital and loans.

a

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

a

Of the following, which would be the last choice for a bank facing a reserve deficiency?A) Call in loans. B) Borrow from the Fed. C) Sell securities. D) Borrow from other banks.

a

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bank's final balance sheet A) the assets at the bank increase by $1 million. B) the liabilities of the bank decrease by $1 million. C) reserves increase by $200,000. D) liabilities increase by $200,000

a

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

a

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

a

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

a

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is A) $90. B) $100. C) $10. D) $110.

a

f 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

A bank with insufficient reserves can increase its reserves by A) lending federal funds. B) calling in loans. C) buying short-term Treasury securities. D) buying municipal bonds.

b

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

b

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

b

Bank ________ is/are listed on the liability side of the bank's balance sheet. A) reserves B) capital C) securities D) cash items

b

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

b

If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $30,000. B) $25,000. C) $20,000. D) $10,000.

b

The amount of checkable deposits that banks are required by regulation to hold are the A) excess reserves. B) required reserves. C) vault cash. D) total reserves.

b

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reservesbut makes loans instead, then, in the bank's final balance sheet A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000.

b

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

b

Which of the following are reported as assets on a bank's balance sheet? A) borrowings B) reserves C) savings deposits D) bank capital

b

Which of the following are reported as liabilities on a bank's balance sheet? A) reserves B) checkable deposits C) consumer loans D) deposits with other banks

b

ankers' concerns regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of A) liability management. B) liquidity management. C) managing interest rate risk. D) managing credit risk.

b

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

b

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

b

If the bank suffers a deposit outflow of $50 million with a required reserve ratio on deposits of 10%, what actions should you take?

borrow discount loans from fed sell off loans borrow from other banks sell securities

All of the following are nontransaction deposits EXCEPT A) savings accounts. B) small-denomination time deposits. C) checkable deposits. D) certificates of deposit.

c

Bank reserves include A) deposits at the Fed and short-term treasury securities. B) vault cash and short-term Treasury securities. C) vault cash and deposits at the Fed. D) deposits at other banks and deposits at the Fed.

c

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. A) loans; deposits B) securities; deposits C) liabilities; assets D) assets; liabilities

c

Because ________ are less liquid for the depositor than ________, they earn higher interest rates. A) money market deposit accounts; time deposits B) checkable deposits; savings accounts C) savings accounts; checkable deposits D) savings accounts; time deposits

c

Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves. A) low; short-term B) low; long-term C) high; short-term D) high; long-term

c

The most important category of assets on a bank's balance sheet is A) other assets. B) securities. C) loans. D) cash items in the process of collection.

c

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

c

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 increase by $50. D) its liabilities decrease by $50.

c

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

c

Which of the following are transaction deposits? A) savings accounts B) small-denomination timedeposits C) checkable deposits D) certificates of deposit

c

Which of the following is NOT a source of borrowings for a bank? A) federal funds B) Eurodollars C) transaction deposits D) discount loans

c

bank's make their profits primarily by issuing A) equity. B) negotiable CDs. C) loans. D) NOW accounts.

c

n general, banks would prefer to acquire funds quickly by ________ rather than ________. A) reducing loans; selling securities B) reducing loans; borrowing from the Fed C) borrowing from the Fed; reducing loans D) "calling in" loans; selling securities

c

Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n) ________ for the borrowing bank and a(n) ________ for the lending bank. A) asset; asset B) asset; liability C) liability; liability D) liability; asset

d

Because ________ are less liquid for the depositor than ________, they earn higher interest rates. A) savings accounts; time deposits B) money market deposit accounts; time deposits C) money market deposit accounts; savings accounts D) time deposits; savings accounts

d

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. A) gains; gains B) gains; loses C) loses; gains D) loses; loses

d

Which of the following are NOT reported as assets on a bank's balance sheet? A) cash items in the process of collection B) deposits with other banks C) U.S. Treasury securities D) checkable deposits

d

Reserve formula

deposit at fed + vault cash

Why has the development of overnight loan markets made it more likely that banks will hold fewer excess reserves?

it is easy to get access to more reserves. call in or sell off loans, overnight loans