Homework 2f

A bank has an ROA of​ 1% and an equity multiplier of 9. What is the ROE for the​ bank? a) 9% b) 9 c) 8 d) 8%

a) 9%

Which of the following statements is​ true? a) A​ bank's assets are its uses of funds. b) A​ bank's assets are its sources of funds. c) A​ bank's liabilities are its uses of funds. d) Only B and C of the above are true.

a) A​ bank's assets are its uses of funds.

Which of the following are reported as liabilities on a​ bank's balance​ sheet? a) Discount loans b) Cash items in the process of collection c) State government securities d) All of the above e) Only B and C of the above

a) Discount loans

The process by which banks make profits by selling liabilities with one set of characteristics and using the proceeds to buy assets with a different set of characteristics is referred to as asset transformation. a) TRUE b) FALSE

a) TRUE

Secondary reserves a) can be converted into cash with low transaction costs. b) count toward meeting required​ reserves, but only at a rate of​ $0.50 per dollar of secondary reserves. c) are not easily converted into cash and​ are, therefore, of secondary importance to banks. d) of none of the above.

a) can be converted into cash with low transaction costs.

Holding all else​ constant, when a bank receives the funds for a deposited​ check, a) cash items in process of collection fall by the amount of the check. b) bank assets increase by the amount of the check. c) bank liabilities decrease by the amount of the check. d) all of the above occur.

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

When you deposit​ $50 in currency at the Old National​ Bank, a) its assets increase by​ $50. b) its reserves increase by less than​ $50 because of reserve requirements. c) its liabilities decrease by​ $50. d) only A and B of the above occur.

a) its assets increase by​ $50.

If a bank has​ $200,000 of​ deposits, a required reserve ratio of 20​ percent, and​ $80,000 in​ reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is a) ​$50,000. b) ​$30,000. c) ​$40,000. ​d) $25,000.

a) ​$50,000.

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) ​liabilities; assets b) ​securities; deposits c) ​assets; liabilities d) ​loans; deposits

a) ​liabilities; assets

Which is the least costly way for a bank to handle deposit​ outflows? a) Call in loans. b) Hold excess reserves. c) Sell securities. d) Borrow from other banks.

b) Hold excess reserves.

Which of the following are reported as assets on a​ bank's balance​ sheet? a) Discount loans from the Fed b) Loans c) Borrowings d) Only A and B of the above

b) Loans

Which of the following is checkable​ deposits? a) Savings accounts b) Money market deposit accounts c) ​Small-denomination time deposits d) Certificates of deposit

b) Money market deposit accounts

Which of the following are reported as assets on a​ bank's balance​ sheet? a) Borrowings b) Reserves c) Bank capital d) Savings deposits e) Only A and B of the above

b) Reserves

Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called a) return after taxes. b) return on equity. c) equity multiplier. d) return on assets.

b) return on equity.

Because checking accounts are​ ________ liquid for the depositor than passbook​ savings, they earn​ ________ interest rates. a) ​more; higher b) ​more; lower c) ​less; higher d) ​less; lower

b) ​more; lower

Which of the following are checkable​ deposits? a) Savings accounts b) ​Small-denomination time deposits c) Negotiable order of withdrawal accounts d) Certificates of deposit

c) Negotiable order of withdrawal accounts

________ were once the most common type of nontransaction deposit. a) Time deposits b) checking accounts c) Savings accounts d) none of the above

c) Savings accounts

Bank loans from the Federal Reserve are called​ ________ and represent a​ ________ of funds. a) discount​ loans; use b) fed​ funds; use c) discount​ loans; source d) fed​ funds; source

c) discount​ loans; source

The amount of assets per dollar of equity capital is called the a) asset ratio. b) return on equity. c) equity multiplier. d) asset multiplier. e) equity ratio.

c) equity multiplier.

Bankers' concern 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) managing​ interest-rate risk. b) liability management. c) liquidity management. d) none of the above.

c) liquidity management.

Examples of​ off-balance-sheet activities include a) extending loans to depositors. b) borrowing from other banks. c) loan sales. d) all of the above.

c) loan sales.

When a​ $10 check written on the First National Bank is deposited in an account at the Second National​ Bank, then a) the reserves of the First National Bank increase by​ $10. b) the assets of Second National Bank decrease by​ $10. c) the liabilities of the First National Bank decrease by​ $10. d) the liabilities of the Second National Bank decrease by​ $10.

c) the liabilities of the First National Bank decrease by​ $10.

In the absence of​ regulation, banks would probably hold a) In the absence of​ regulation, banks would probably hold b) too much​ capital, reducing the profitability of banks. c) too little​ capital, increasing the return on equity. d) none of the above.

c) too little​ capital, increasing the return on equity.

A bank manager has which of the following​ concerns? a) To minimize risk by diversifying asset holdings b) To have enough ready cash to meet deposit outflows c) To acquire funds at low cost d) All of the above

d) All of the above

Which of the following are not reported as assets on a​ bank's balance​ sheet? a) Cash items in the process of collection b) U.S. Treasury securities c) Reserves d) Borrowings

d) Borrowings

Which of the following bank assets are the least​ liquid? a) Cash items in process of collection b) Reserves c) Deposits with other banks d) Mortgage loans

d) Mortgage loans

In the late​ 1960s, a) banks aggressively set target goals for their asset growth. b) the new management of liabilities created more flexibility. c) money market banks no longer needed to depend on checkable deposits as the primary source of bank funds. d) all of the above.

d) all of the above.

In​ general, banks would prefer to meet deposit outflows by​ ________ rather than​ ________. a) ​"calling in"​ loans; selling securities b) selling​ loans; selling securities c) selling​ loans; borrowing from the Fed d) borrowing from the​ Fed; selling loans

d) borrowing from the​ Fed; selling loans

Loans a) are the largest category of bank assets. b) provide most of the​ bank's revenues. c) earn the highest return of all bank assets. d) do all of the above. e) are only A and B of the above.

d) do all of the above.

Bank capital a) is raised by selling new equity. b) comes from retained earnings. c) is a cushion against a drop in the value of its assets. d) is all of the above.

d) is all of the above.

When you deposit​ $50 in the First National​ Bank, a) its liabilities decrease by​ $50. b) its assets increase by​ $50. c) its reserves increase by​ $50. d) only B and C of the above occur.

d) only B and C of the above occur.

Banks fail when the value of bank​ ________ falls below the value of​ ________, causing the bank to become insolvent. a) ​loans; secondary reserves b) ​income; expenses c) ​reserves; required reserves d) ​assets; liabilities

d) ​assets; liabilities

Which of the following statements is an accurate description of modern liability​ management? a) Greater flexibility in liability management has allowed banks to increase the proportion of their assets held in loans. b) New financial instruments enable banks to acquire funds quickly. c) The introduction of negotiable CDs have significantly reduced the percentage of funds that banks borrow from one another to finance loans. d) All of the above have occurred since 1960. e) Only A and B of the above have occurred since 1960.

e) Only A and B of the above have occurred since 1960.

A​ bank's balance sheet a) shows that total assets equal total liabilities plus equity capital. b) lists sources and uses of bank funds. c) indicates whether or not the bank is profitable. d) does all of the above. e) does only A and B of the above.

e) does only A and B of the above.

Checkable deposits and money market deposit accounts are a) payable on demand. b) liabilities of the banks. c) assets of the banks. d) only A and C of the above. e) only A and B of the above.

e) only A and B of the above.