econ

A bank with insufficient reserves can increase its reserves by

1) calling in loans.

If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will

1) decline by $0.5 million.

Depositors want banks to have ________ net worth to help ensure that banks do not ________ in the production of information about borrowers.

1) high; under-invest

All else the same, if a bank has more rate-sensitive liabilities than assets, then a(n) ________ in interest rates will________ bank profits.

1) increase; reduce

Modern liability management has resulted in

1) increased sales of certificates of deposits to raise funds.

Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds.

1) liability; source

In general, banks make profits by selling ________ liabilities and buying ________ assets.

1) short-term; longer-term

Which of the following are not reported as assets on a bank's balance sheet?

2) Discount loans from the Fed

When interest rates are expected to rise in the future, a banker is likely to

2) buy short-term rather than long-term bonds.

If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to

2) decline by $1.5 million.

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

2) return on equity.

For a given return on assets,

2) the lower is bank capital, the higher is the return for the

Which of the following statements is false?

2) Bank capital is an asset in the bank balance sheet.

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

2) Discount loans

Banks that actively manage liabilities will most likely meet a reserve shortfall by

2) borrowing federal funds.

Asset transformation can be described as

3) borrowing short and lending long.

Assuming that the average duration of its assets is five years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by________ of the total original asset value. 1010

3) decline; 10 percent

If a bank has more rate-sensitive assets than liabilities, then a(n) ________ in interest rates will ________ bank profits.

3) increase; increase

Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by________ of the total original asset value.

3) decline; 5 percent

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

3) discount loans; source

Bank capital

4)

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

4) Only A and B of the above

If the First State Bank has a gap equal to a positive $20 million, then a 5 percentage point drop in interest rates will cause profits to

4) decline by $1.0 million.

Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank's assets to increase their rate sensitivity or, alternatively, ________ the duration of the bank's liabilities.

4) shortening; lengthening

Which of the following statements are true?

4) Each of the above are true.

A bank holding insufficient reserves can meet its reserve requirements by 3232

4) all of the above.

A bank facing a reserve deficiency will first

4) borrow from other banks.

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

5) Only A and B of the above

Bank reserves include 2929

5) both A and B of the above.

Which of the following are not reported as assets on a bank's balance sheet?

ANSWER 1) Checkable deposits 2) U.S. Treasury securities 3) Deposits with other banks 4) Cash items in the process of collection

True or False? When interest rates are expected to rise in the future, a banker is likely to make long-term rather than short-term loans.

False

True or False? When interest rates are expected to rise in the future, a banker is likely to buy short-term rather than long-term bonds.

True