Econ Exam 2

If a bank has $200,000 of checkable deposits, required reserve ratio of 20%, and holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering balance sheet is

$50,000 (200,000-x)0.20=80,000-x

If ROE is 10%, capital to asset ratio is .05, then what is ROA?

0.5%

Suppose 1-year bond currently pays 0.8% next year and 0.6% two years from now. If 2-year and 3-year premiums are .05% and 0.1%, what is yield on 3 year bond today?

0.83%

Suppose the data on today's and future expected interest rates is given: Time Yield on 1 year t bond Today 0.8% Next Year 0.9%(expect) 2 Y f today 1.2%(expect) 3 Y f today 1.2%(expect) What is interest rate on 2-year bond today?

0.85%

Suppose the data on today's and future expected interest rates is given: Time Yield on 1 year t bond Today 0.8% Next Year 0.9%(expect) 2 Y f today 1.2%(expect) 3 Y f today 1.2%(expect) What is the interest rate on 3 year bond today?

0.97%

Suppose current 1 year, 2 year, and 3 year interest rates are .6, .8 and 1%. Then, according to expectations theory, expected ir on 1 year bond next year is

1%

If a bank has a capital to asset ratio of 0.1 and a return on equity of 10%, what is its return on assets?

1% Return on assets= Return on Equity/ Cap to asset ratio 10%/0.1= .1/.1= 1%

Suppose the data on today's and future expected interest rates is given: Time Yield on 1 year t bond Today 0.8% Next Year 0.9%(expect) 2 Y f today 1.2%(expect) 3 Y f today 1.2%(expect) What is interest rate on 4 year bond today?

1.025%

If current 1-year and 2-year interest rates are 1.1 and 1.2 percent, what's the expected 1-year interest rate next year according to the liquidity premium theory if the 2-year term premium is 0.1 percent?

1.1%

Suppose yields on 1-year, 2-year, and 3-year bonds currently are 0.6%, 0.8%, and 0.9%. According to expectations Hypothesis, what's the expected yield on 1-year bond 2 years from now?

1.1%

Suppose the data on today's and future expected interest rates is given: Time Yield on 1 year t bond Today 0.8% Next Year 0.9%(expect) 2 Y f today 1.2%(expect) 3 Y f today 1.2%(expect) Suppose term premim for 2 year, 3 year, and 4 year bonds are .1, .15, and .2. What is interest rate on 4 year bond today?

1.225%

Suppose yield on 1 year bond is 1% currently and investors expect it to be 1.8% next year. According to expectations hypothesis, what's the yield on 2 year bond right now? A) 0.8% B) 1.2% C) 1.4% D) 2.8%

1.4%

Suppose 1-year and 2-year bonds currently pay 4% and 3%. If 2-year term premium is 0.15%, what's the expected interest rate on 1-year bond next year?

1.7%

Suppose a bank has $10o million in assets, 80 mil in liabilities, and 20 mil in capital. If in 2013 ROA was 2%, what is bank's ROE?

10 mil

If a bank has 160,000 of checkable deposits, a rrr of 10%, holds 25,000 in reserves. Then how much maximum deposit outflow can it sustain without running into reserve deficiency?

10,000

Suppose a bank called Wise Guys initially starts with 20 million in capital. A total of 140 mil is checkable dep received. The bank purchases securities worth 55 mil and the bank then makes a 65 million commercial loans and lends another 20 mil in mortgage loans. If required reserve ratio is 10%, the bank keeps rest as excess reserves, and has no other assets or liablities, how much REQUIRED AND EXCESS reserves does this bank have?

14 and 6 million

If 1-year interest rates for the next three years, starting with this year, are expected to be 1, 1, and 1%, and the 2 year and 3 year term premiums are .5 and 1 %, then 3 year bond rate will be

2%

Suppose 4 year bond currently pays 2.2%. According to expectations theory, what's yield on 3 year bond today if 1 year bond is expected to pay 1% three years from now?

2.6%

Suppose a bank has following balance sheet: Assets Liabilities Reserves 75 mil Deposits 500 mil Securities 25 mil Borrowings 20 mil Loans 520 mil Bank Capital 100 mil Ratio is 10%. Bank faces sudden 50 mil deposit outflow. What is reserve deficiency?

20 mil

Suppose a bank called Wise Guys initially starts with 20 million in capital. A total of 140 mil is checkable dep received. The bank purchases securities worth 55 mil and the bank then makes a 65 million commercial loans and lends another 20 mil in mortgage loans. If required reserve ratio is 10%, the bank keeps rest as excess reserves, and has no other assets or liablities, how much TOTAL reserves does this bank have?

20 million

Suppose yields on 1-year bond and 2-year bonds are currently 1% and 2%. According to Expectations Hypothesis, what's the expected yield on 1-year bond next year

3%

assume the expectations theory regarding the term is correct. if current 1 year ir is 3% and 1 year ahead is 5%, then current 2 year ir should be

4%

There are ____ members of the Board of Governors of the Federal Reserve System

7

Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting the future one-year rate to be:

8%

A bank run involves:

A large number of depositors withdrawing their funds during a short time span

summary within each district, public

Beige Book

policy options, prepared by the Board, classified 5 years

Blue Book

Under the European System of Central Banks, the Executive Board is similar in structure to the ________ of the Federal Reserve System.

Board of Governors

Consider a bank assets and liabilities below. Which strategy is preferred if a bank faces a sudden $5 million deposit withdrawal? assume 10% required reserve ratio. Assets Liabilities Reserves 12 mil Deposits 100 mil Securities 40 mil Loans 58 mil Capital 10 mil

Borrow 2.5 mil on federal funds market

Suppose a bank has following balance sheet: Assets Liabilities Reserves 75 mil Deposits 500 mil Securities 25 mil Borrowings 20 mil Loans 520 mil Bank Capital 100 mil Ratio is 10%. Bank faces sudden 50 mil deposit outflow. If the bank decided to just meet its reserve deficiency by rearranging LIABILITIES, what would be appropriate strategy?

Borrow 20 mil on federal funds market

Which of the following is not an entity of the Federal Reserve System? Fed Open Market Committee Comptroller of Currency Board of Governors Federal Reserve Banks

Comptroller of Currency

What makes the Federal Reserve so unique compared to other central banks around the world is its

Decentralized Structure

Open market sale of 10 million worth of securities will

Decrease bank reserves by 10 million

lessened the influence bankers have on board of directors

Dodd-Frank Act 2010

The political business cycle refers to the phenomenon that just before elections, politicians enact _____ policies. After the elections, the bad effects of these policies (for example, ______) have to be counteracted with _____ policies

Expansionary; Higher Inflation Rate; Contractionary

One suggested method of dealing with the too-big-to-fail problem is to reimpose the restrictions that were in place under

Gass-Steagall

Which of the following Big Five investment banks had to reform and reorganize itself in order to accept the Fed's assistance package

Goldman Sachs

True

Governors have relatively long term appointments to isolate them from political pressure

US economic forecast, prepared by Board, classified for 5 years

Green Book

When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Increase; Increases

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then

Liabilities of Citibank increase by $10

Which of the following cities does not have a fed reserve bank?

Los Angeles

The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branch regulations in the state in which they rest is the

McFadden Act

If a one-year bond currently yields 4% and is expected to yield 6% next year, the liquidity premium theory suggests the yield today on a two-year bond will be:

More than 5%

The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee

New York

Suppose Bank Z has ROE of 15% and ROA of 1%. If cap to asset ratio above 10% are considered to be well capitalized, is this bank well or poorly capitalized?

Poorly Capitalized

What's the largest asset type for a typical bank?

Real Estate Loans

The legislation that overturned the prohibition on interstate banking is

Riegle-Neal Act

Considering the balance sheet for all commercial banks in U.S., largest category of liabilities is

Savings Deposits/ Time deposits

What explains a shift in bank assets from business loans to real estate loans?

Securization made real estate loans easier Commercial paper market reduced demand for loans from the corporations

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

Suppose a bank has following balance sheet: Assets Liabilities Reserves 75 mil Deposits 500 mil Securities 25 mil Borrowings 20 mil Loans 520 mil Bank Capital 100 mil Ratio is 10%. Bank faces sudden 50 mil deposit outflow. If the bank decided to just meet its reserve deficiency by rearranging ASSETS, what would be appropriate strategy?

Sell 20 mil worth of loans

Which of the following countries does not belong to Eurozone? Italy Austria Switzerland France Norway

Switzerland; Norway

When $10 million is deposited at a bank, the required reserve ratio is 10%, and the bank chooses not to make any loans but decides to hold excess reserves instead, then, in the bank's final balance sheet

The assets at the bank increase by 10 mil

If a bank has $200 million in deposits, the required reserve rate is 10 percent and the bank has $23 million in reserves:

The bank has excess reserves of $3 million

The yield on a 30 year us treasury security is 6.5%. the yield on 2 year us treasury bond is 4%. This data indicates

The yield curve is upward sloping

Which of the following statements is not true of the yield curve for U.S. Treasury securities?

The yield curve is usually inverted

Considering a bank's balance sheet, which of following statements is false

Total Bank Assets+ Total Bank Liabilities= Total Bank Capital

Loans made in Federal Funds Market

Unsecured Loans

A provision of Wall Street Reformation Act of 2010 that prohibits big banks from using customers' money in making speculative investments is called

Vlocker Rule

Which of the following banned most proprietary trading by commercial banks?

Vlocker Rule

When asset prices rise above their fundamental economic values, a(n) ________ occurs.

asset-price bubble

The monetary liabilities of the Federal Reserve include

currency in circulation and reserves

The Glass Steagall Act, before its repeal in 1999, prohibited commercial banks from

engaging in underwriting and dealing of corporate securities

The chairman of the Board of Governors is chosen from among the seven governors and serves a _____ renewable term

four year

Federal Funds Market is

interbank loan market that are unsecured

Under the expectations hypothesis, a downward-sloping yield curve suggests:

investors expect future short-term ir to fall

The Fed does not have to go through the normal congressional appropriations process because

it is self financing

The government's too-big-to-fail policy applies to:

large banks whose failure would start a widespread panic in the financial system

Considering the balance sheet for all commercial banks in us, the largest category of asset is

loans

Most of the TARP funds were used to

make direct purchases of preferred stock in banks to increase their capital

The U.S. has many banks because

many states outlawed bank branching.

The lower the bank capital

more leveraged the bank is

The payoff method used by the FDIC to address the insolvency of a bank is when the FDIC:

pays off the depositors up to the current $250,000 limit, so it is possible that some depositors will lose money

The Payoff method used by the FDIC to address the insolvency of a bank is when the FDIC:

pays off the depositors up to the current $250,000 limit, so it is possible that some depositors will suffer losses

Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.

reduces; reduces

The Gram-Leach-Bailey Act:

repealed the Glass-Steagall Act's prohibition of mergers between commercial banks and insurance or securities firms.

The Glass-Steagall Act of 1933:

required commercial banks to sell off their investment banking operations.

Under the liquidity premium theory a flat yield curve implies:

short-term interest rates are expected to decrease

Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors.

six; three

Over the last twenty years in the U.S., the number of banks has:

steadily decreased

Capital is cushion banks have against

sudden drops in value of their assets

One of the unique problems that banks face is:

they hold illiquid assets to meet liquid liabilities.