final exam quizzes 3

5) When investment banks buy or sell securities on their own account, it's called 5) _______ A) proprietary trading. B) underwriting. C) financial engineering. D) factoring.

A

8) If a bank's ratio of assets to capital is 25 and it's return on assets is -5%, what is its return on equity? 8) _______ A) -125% B) -0.2% C) -5% D) -30%

A

9) _______ 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.

A

2) Which of the following is likely to be more of a problem after the introduction of deposit insurance? 2) _______ A) moral hazard B) bank runs C) adverse selection D) contagion

A

4) The members of Federal Reserve district bank boards of directors who are bankers are known as 4) _____ A) Class A directors. B) Class B directors. C) Class C directors. D) Class D directors.

A

Money market mutual funds 3) _______ A) hold portfolios of short-term assets. B) hold portfolios of stocks. C) are always load funds. D) hold only U.S. Treasury securities.

A

7) All of the following are examples of borrowings by a bank EXCEPT 7) _______ A) repurchase agreements. B) commercial loans. C) discount loans. D) federal funds.

B

9) If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show 9) _____ A) an increase in discount loans of $2 million and a decrease in bank reserves of $2 million. B) an increase in discount loans of $2 million and an increase in bank reserves of $2 million. C) a decrease in discount loans of $2 million and an increase in bank reserves of $2 million. D) a decrease in discount loans of $2 million and a decrease in bank reserves of $2 million

B

The shadow banking system refers to 1) _______ A) pawn shops and institutions that offer payday loans. B) nonbank financial institutions such as investment banks and hedge funds. C) commercial banks. D) community banks.

B

1) Most of the Fed's earnings come from 1) _____ A) congressional appropriations. B) interest on discount loans. C) fees charged to financial institutions for check clearing. D) interest on the securities it holds.

D

3) Who owns the Federal Reserve banks? 3) _____ A) those households which have purchased stock in Federal Reserve System B) the governments of the states in which the banks are located C) the federal government D) the private commercial banks in each district which are members of the Federal Reserve System

D

6) If currency outstanding equals $700 million, checkable deposits equal $2 billion, reserves equal $200 million, and the required reserve ratio is 0.10, the money multiplier equals 6) _____ A) 3.57. B) 1.14. C) 4.35. D) 3.

D

7) Why didn't the surge in the monetary base between 2008-2012 lead to a similar surge in the money supply? 7) _____ A) The Fed increase the required reserve ratio, resulting in a much smaller money multiplier. B) Nonborrowed reserves declined, offsetting the increase in the monetary base. C) The currency-deposit ratio rose significantly, resulting in a much smaller money multiplier. D) The excess reserve-deposit ratio rose significantly, resulting in a much smaller money multiplier.

D

Which of the following activities is NOT a primary concern of investment banks? 4) _______ A) underwriting new security issues B) providing advice on new security issues C) providing advice and financing for mergers and acquisitions D) taking in deposits and making loans

D

Which of the following statements about checkable deposits is correct? 6) _______ A) All checkable deposits pay interest. B) No checkable deposits pay interest. C) Checkable deposits are a larger fraction of banks' funds today than in 1973. D) Checkable deposits are a smaller fraction of banks' funds today than in 1973.

D

10) If the required reserve ratio is 25 percent, the simple deposit multiplier is 10) _____ A) 10.0. B) 4.0. C) 5.0. D) 2.5. 

B

10) Limits on the value of the assets that commercial banks can acquire relative to their capital is known as: 10) ______ A) required reserves B) capital requirements C) asset requirements D) equity requirements

B

5) Members of the Board of Governors 5) _____ A) serve for life or good behavior. B) serve one nonrenewable fourteen-year term. C) may serve no more than three consecutive four-year terms. D) must resign when the President who has appointed them leaves office.

B

2) Which of the following is NOT considered one of the four groups in the Federal Reserve System? 2) _____ A) Board of Governors B) Federal Open Market Committee C) Federal Deposit Insurance Corporation D) Federal Reserve banks

C

8) If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of 8) _____ A) $11,000. B) $20,000. C) $21,000. D) $26,000.

C