ECO 315 Chapter 9

The assets appears on the _______ side whereas the liabilities appear on the _______ side of the balance sheet.

left-hand; right-hand

Which of the following is true about the balance sheet?

Assets = Liabilities plus Equity

If a bank has an asset of $20 million, equity of $5 million, and profits of $2 million, its return on equity would be ______.

40%

If a bank has an asset of $30 million, liabilities of $25 million, and profits of $4 million, its return on assets would be ______.

13.3%

In a bank's balance sheet, the liabilites column represents the ______ of funds and generates ______ for the bank

sources; expenses

To evaluate the financial health of a bank, essential financial reports that one should examine are the _________.

- Balance sheet - Income statement - statement of cash flow

Which of the following is true?

- Banks can loan out all of their excess reserves - Banks are subject to the minimum capital requirement - Banks can loan out depositors' money

Which of the following can be used to manage a bank's short-term liquidity problem?

- Borrow from the Federal funds market - Borrow from the Fed's discount window - sell the secondary reserves

What are the broad areas of bank management issues that were discussed in lecture?

- Liquidity - Assets and Liabilities

The primary assets of a commercial bank are _____.

- bonds purchased and held by the bank. - mortgage loans made to customers.

Which of the following is part of 4C's of Lending?

- collateral - capability - character - capital

When the net interest margin ______, a bank's profit _____.

- increases; increases - decreases; decreases

Which of the following belong in the liabilities column of a bank's balance sheet?

- the bank customers' checkable deposits - the bank's borrowing

If a bank has an asset of $20 million, equity of $5 million, and profits of $2 million, its return on assets would be ______.

10%

In a broad sense, a commercial bank's equity capital is _____.

a liability to the bank's shareholders

The return on assets (ROA) is measured as _______

a ratio of profits over assets

Good asset management by a bank manager means __________.

apply 4C's of lending

If a bank has a poorly performing loans, it is faced with______ management problem.

assets

A minimum capital requirement rate of 5% means that a bank's _____ should be at minimum 5% of the bank's _____.

capital; assets

Holding profits and equity of a bank constant, if a bank's liabilities increase, its return on assets will ______.

decrease

The primary liabilities of banks are _____.

deposits made by customers.

Financial institutions search for ________ has resulted in many financial innovations.

higher profits

Holding all else constant, if the deposit rate decreases, the bank's profit will likely ________.

increase

U.S. Treasuries appears on the _______ side whereas large time deposits appear on the _______ side of the bank's balance sheet.

left-hand; right-hand

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

owning common stock.

There is a/an ________ relationship between the change in the net interest margin and the change in a bank's profit.

positive

Holding profits and equity of a bank constant, if a bank's liabilities increase, its return on equity will ______.

remain unchanged

In a bank's balance sheet, the assets column represents the ______ of funds and generates ______ for the bank

uses; income

In a bank's balance sheet, the assets column represents the ______ of funds whereas the liabilities column represents the _____ of funds

uses; sources