Chapter 9 Quiz Questions (M&B Final)

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.

$25,000

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is a) $10 b) $100 c) $110 d) $90

$90

Which of the following statements most accurately describes the task of bank asset management? a) Banks seek to acquire funds in the last costly way b) Banks seek the highest returns possible subject to minimizing risk and making adequate provision for liquidity c) Banks seek to prevent failure at all cost; since a failed banks earns no profit, liquidity needs supersede the desire for profit d) Banks seek to have the highest liquidity possible subject to earning a positive rate of return on their operations

Banks seek the highest returns possible subject to minimizing risk and making adequate provision for liquidity

Which of the following statements are TRUE? a) a bank's assets are its sources of funds b) a bank's balance sheet shows that total assets equals total liabilities plus equity capital c) a bank's liabilities are it uses of funds d) a bank's balance sheet indicates whether or not the bank is profitable

a bank's balance sheet shows that total assets equals total liabilities plus equity capital

If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of A) adverse credit risk. B) adverse selection. C) moral hazard. D) lemon lenders.

adverse selection.

All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets, then ________ in interest rates will ________ bank profits. a) a decline; reduce b) a decline; not affect c) an increase; reduce d) an increase; increase

an increase; reduce

Of the following which would be the last choice for a bank facing a reserve deficiency? a) sell securities b) borrow from other banks c) borrow form the Fed d) call in loans

call in loans

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

discount loans; source

When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________. a) decrease; decrease b) decrease; increase c) increase; decrease d) increase; increase

increase; increase

When you deposit a $50 bill in the Security Pacific National Bank, a) its reserves decrease by $50 b) its assets increase by $50 c) its liabilities decrease by $50 d) its cash items in the process of collection increase by $50

its assets increase by $50

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

more; lower

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 securities by $5 million c) reducing deposits and capital by $5 million d) reducing deposits and loans by $5 million

reducing deposits and reserves by $5 million