BNAD301 Chapter 10 Part 1
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
$25,000.
In recent years the interest paid on checkable and time deposits has accounted for around ________ of total bank operating expenses, while the costs involved in servicing accounts have been approximately ________ of operating expenses.
25 percent; 50 percent
Which of the following statements are true?
A bank's balance sheet shows that total assets equal total liabilities plus equity capital.
________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.
Calling in loans
Which of the following are reported as liabilities on a bank's balance sheet?
Checkable deposits
Which of the following statements are true?
Checkable deposits are payable on demand.
Which of the following is not an asset on a bank's balance sheet?
Checkable deposits.
If a bank doubles the amount of its capital and ROA stays constant, what will happen to ROE?
Given the ROA, if bank capital doubles, then ROE will fall by half.
Which of the following has not resulted from more active liability management on the part of banks?
Increased bank holdings of cash items
Which of the following is a main responsibility of the bank manager?
Maintaining reserves at a level to minimize the cost to the bank of deposit outflows.
Which of the following are primary concerns of the bank manager?
Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows
Which of the following are transaction deposits?
Negotiable order of withdraw accounts
If the bank you own has no excess reserves and a sound customer comes in asking for a loan, should you automatically turn the customer down, explaining that you don't have any excess reserves to lend out? Why or why not? What options are available for you to provide the funds your customer needs
No. There are several ways that reserves can be acquired. For example, the bank can borrow at the discount window or in the federal funds market, or it can acquire funds by issuing negotiable CDs.
Which of the following are reported as assets on a bank's balance sheet?
Reserves
Which of the following bank assets is the most liquid?
Reserves
A bank finds that its ROE is too low because it has too much bank capital. Which of the following will not raise its ROE?
The bank can sell part of its holdings of securities and hold more excess reserves
Suppose $200,000 is deposited at a bank. The required reserve ratio is 10 percent, and the bank chooses not to hold any excess reserves but makes loans instead. What are the bank's total reserves?
Total reserves are $20,000.
The largest percentage of banks' holdings of securities consist of
Treasury and government agency securities.
If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the bank could
borrow from another bank in the federal funds market.
Holding all else constant, when a bank receives the funds for a deposited check,
cash items in the process of collection fall by the amount of the check.
If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in
deposits and reserves.
Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.
discount loans; source
The amount of assets per dollar of equity capital is called the
equity multiplier.
Banks that suffered significant losses in the 1980s made the mistake of
failing to diversify their loan portfolio.
A bank is insolvent when
its liabilities exceed its assets.
Bankers' concerns 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
liquidity management.
Large-denomination CDs are ________, so that like a bond, they have a ________degree of liquidity and can be sold in secondary markets.
negotiable; greater
Because ________ are less liquid for the depositor than ________, they earn higher interest rates.
passbook savings; checkable deposits
Net profit after taxes per dollar of assets is a basic measure of bank profitability called
return on assets.
Banks acquire the funds that they use to purchase income−earning assets from such sources as
savings accounts.
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.
Secondary reserves include
short−term Treasury securities.
The share of checkable deposits in total bank liabilities has
shrunk over time.
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet,
the liabilities of the bank increase by $1,000,000.
In the absence of regulation, banks would probably hold
too little capital.
As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________.
increase; increase
When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________.
increase; increase
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.
liabilities; assets
Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds.
liability; source
Banks generate profits by earning higher returns on their ____________ than they pay in interest on _____________.
loans; deposits
When Jane Brown writes a $100 check to her nephew, and he cashes the check, Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.
loses; loses