BNAD301 Chapter 10 Part 1

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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

$25,000.

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

Which of the following statements are​ true?

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

​________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.

Calling in loans

Which of the following are reported as liabilities on a​ bank's balance​ sheet?

Checkable deposits

Which of the following statements are​ true?

Checkable deposits are payable on demand.

Which of the following is not an asset on a​ bank's balance​ sheet?

Checkable deposits.

If a bank doubles the amount of its capital and ROA stays​ constant, what will happen to​ ROE?

Given the​ ROA, if bank capital​ doubles, then ROE will fall by half.

Which of the following has not resulted from more active liability management on the part of​ banks?

Increased bank holdings of cash items

Which of the following is a main responsibility of the bank​ manager?

Maintaining reserves at a level to minimize the cost to the bank of deposit outflows.

Which of the following are primary concerns of the bank​ manager?

Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows

Which of the following are transaction​ deposits?

Negotiable order of withdraw accounts

If 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 for you to provide the funds your customer​ needs

No. There are several ways that reserves can be acquired. For​ example, the bank can borrow at the discount window or in the federal funds​ market, or it can acquire funds by issuing negotiable CDs.

Which of the following are reported as assets on a​ bank's balance​ sheet?

Reserves

Which of the following bank assets is the most​ liquid?

Reserves

A bank finds that its ROE is too low because it has too much bank capital. Which of the following will not raise its​ ROE?

The bank can sell part of its holdings of securities and hold more excess reserves

Suppose ​$200,000 is deposited at a bank. The required reserve ratio is 10 ​percent, and the bank chooses not to hold any excess reserves but makes loans instead. What are the​ bank's total​ reserves?

Total reserves are ​$20,000.​

The largest percentage of​ banks' holdings of securities consist of

Treasury and government agency securities.

If a bank needs to acquire funds quickly to meet an unexpected deposit​ outflow, the bank could

borrow from another bank in the federal funds market.

Holding all else​ constant, when a bank receives the funds for a deposited​ check,

cash items in the process of collection fall by the amount of the check.

If a bank has excess reserves greater than the amount of a deposit​ outflow, the outflow will result in equal reductions in

deposits and reserves.

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

discount​ loans; source

The amount of assets per dollar of equity capital is called the

equity multiplier.

Banks that suffered significant losses in the 1980s made the mistake of

failing to diversify their loan portfolio.

A bank is insolvent when

its liabilities exceed its assets.

Bankers' 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

liquidity management.

​Large-denomination CDs are​ ________, so that like a​ bond, they have a​ ________degree of liquidity and can be sold in secondary markets.

negotiable; greater

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

passbook​ savings; checkable deposits

Net profit after taxes per dollar of assets is a basic measure of bank profitability called

return on assets.

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

savings accounts.

​If, after a deposit​ outflow, a bank needs an additional​ $3 million to meet its reserve​ requirements, the bank can

sell​ $3 million of securities.

Secondary reserves include

short−term Treasury securities.

The share of checkable deposits in total bank liabilities has

shrunk over time.

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,

the liabilities of the bank increase by​ $1,000,000.

In the absence of​ regulation, banks would probably hold

too little capital.

As the costs associated with deposit outflows​ ________, the banks willingness to hold excess reserves will​ ________.

​increase; increase

When a new depositor opens a checking account at the First National​ Bank, the​ bank's 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​ bank's balance sheet because it represents a​ ________ of funds.

​liability; source

Banks generate profits by earning higher returns on their​ ____________ than they pay in interest on​ _____________.

​loans; deposits

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.

​loses; loses


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