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.
