fin 303 test 3 #2
) A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a A) financial crisis. B) fiscal imbalance. C) free-rider problem. D) "lemons" problem.
A
New AACSB: Reflective thinking skills 6 Copyright © 2013 Pearson Education 22) Although the subprime mortgage market problem began in the United States, the first indication of the seriousness of the crisis began in A) Europe. B) Australia. C) China. D) South America.
A
New AACSB: Reflective thinking skills 15 Copyright © 2013 Pearson Education, Inc. 15) Which of the following statements most accurately describes the task of bank asset management? A) Banks seek the highest returns possible subject to minimizing risk and making adequate provisions for liquidity. B) Banks seek to have the highest liquidity possible subject to earning a positive rate of return on their operations. C) Banks seek to prevent bank failure at all cost; since a failed bank earns no profit, liquidity needs supersede the desire for profits. D) Banks seek to acquire funds in the least costly way.
A
New AACSB: Reflective thinking skills 2) When financial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a A) credit boom. B) credit bust. C) deleveraging. D) market race.
A
Previous Edition 11) A possible sequence for the three stages of a financial crisis in an advanced economy might be ________ leads to ________ leads to ________. A) asset price declines; banking crises; unanticipated decline in price level B) unanticipated decline in price level; banking crises; increase in interest rates C) banking crises; increase in interest rates; unanticipated decline in price level D) banking crises; increase in uncertainty; increase in interest rates
A
Previous Edition 15) The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk. A) principal-agent B) debt deflation C) democratization of credit D) collateralized debt
A
Previous Edition 2) A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system A) causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently. B) allows for a more efficient use of funds. C) increases economic activity. D) reduces uncertainty in the economy and increases market efficiency.
A
Previous Edition 3) When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called A) deleveraging. B) releveraging. C) capitulation. D) deflation.
A
Previous Edition 4 Copyright © 2013 Pearson Education 14) A ________ pays out cash flows from subprime mortgage-backed securities in different tranches, with the highest-rated tranch paying out first, while lower ones paid out less if there were losses on the mortgage-backed securities. A) Collateralized debt obligation (CDO) B) Adjustable-rate mortgage C) Negotiable CD D) Discount bond
A
Previous Edition 4) When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in A) a contraction of economic activity. B) an economic boom. C) an increased opportunity for growth. D) a call for government regulation.
A
Previous Edition 29) Secondary reserves are so called because A) they can be converted into cash with low transactions costs. B) they are not easily converted into cash, and are, therefore, of secondary importance to banking firms. C) 50% of these assets count toward meeting required reserves. D) they rank second to bank vault cash in importance of bank holdings.
A
Previous Edition 6 Copyright © 2013 Pearson Education, Inc. 25) The largest percentage of banks' holdings of securities consist of A) Treasury and government agency securities. B) tax-exempt municipal securities. C) state and local government securities. D) corporate securities.
A
Previous Edition 6) Most U.S. financial crises have started during periods of ________ either after the start of a recession or a stock market crash. A) high uncertainty B) low interest rates C) low asset prices D) high financial regulation
A
Previous Edition 8) Which of the following statements are true? A) Checkable deposits are payable on demand. B) Checkable deposits do not include NOW accounts. C) Checkable deposits are the primary source of bank funds. D) Demand deposits are checkable deposits that pay interest.
A
Previous Edition AACSB: Analytic skills 10 Copyright © 2013 Pearson Education, Inc. 10) When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then A) the liabilities of the First National Bank decrease by $10. B) the reserves of the First National Bank increase by $10. C) the liabilities of Citibank decrease by $10. D) the assets of Citibank decrease by $10.
A
Previous Edition AACSB: Analytic skills 10.3 General Principles of Bank Management 1) Which of the following are primary concerns of the bank manager? A) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows B) Extending loans to borrowers who will pay low interest rates, but who are poor credit risks C) Acquiring funds at a relatively high cost, so that profitable lending opportunities can be realized D) Maintaining high levels of capital and thus maximizing the returns to the owners.
A
Previous Edition AACSB: Analytic skills 11 Copyright © 2013 Pearson Education, Inc. 14) With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is A) $90. B) $100. C) $10. D) $110.
A
Previous Edition AACSB: Analytic skills 13) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bank's final balance sheet, A) the assets at the bank increase by $1 million. B) the liabilities of the bank decrease by $1 million. C) reserves increase by $200,000. D) liabilities increase by $200,000.
A
Previous Edition AACSB: Analytic skills 18) Bank capital is equal to ________ minus ________. A) total assets; total liabilities B) total liabilities; total assets C) total assets; total reserves D) total liabilities; total borrowings
A
Previous Edition AACSB: Analytic skills 3) If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $50,000. B) $40,000. C) $30,000. D) $25,000.
A
Previous Edition AACSB: Analytic skills 4) If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of A) $1.2 million. B) $1.1 million. C) $1 million. D) $900,000.
A
Previous Edition AACSB: Analytic skills 4) Which of the following are reported as liabilities on a bank's balance sheet? A) Discount loans B) Reserves C) U.S. Treasury securities D) Loans
A
Previous Edition AACSB: Analytic skills 5) If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in A) deposits and reserves. B) deposits and loans. C) capital and reserves. D) capital and loans.
A
Previous Edition AACSB: Analytic skills 8) Holding all else constant, when a bank receives the funds for a deposited check, A) cash items in the process of collection fall by the amount of the check. B) bank assets increase by the amount of the check. C) bank liabilities decrease by the amount of the check. D) bank reserves increase by the amount of required reserves.
A
Previous Edition AACSB: Dynamics of the global economy 23) Which investment bank filed for bankruptcy on September 15, 2008 making it the largest bankruptcy filing in U.S. history? A) Lehman Brothers B) Merrill Lynch C) Bear Stearns D) Goldman Sachs
A
Previous Edition AACSB: Ethical understanding and reasoning abilities 16) Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan. This created a A) severe adverse selection problem. B) decline in mortgage applications. C) call to deregulate the industry. D) decrease in the demand for houses.
A
Previous Edition AACSB: Ethical understanding and reasoning abilities 5 Copyright © 2013 Pearson Education 18) The growth of the subprime mortgage market led to A) increased demand for houses and helped fuel the boom in housing prices. B) a decline in the housing industry because of higher default risk. C) a decrease in home ownership as investors chose other assets over housing. D) decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages.
A
Previous Edition AACSB: Ethical understanding and reasoning abilities 17) Agency problems in the subprime mortgage market included all of the following except A) homeowners could refinance their houses with larger loans when their homes appreciated in value. B) mortgage originators had little incentives to make sure that the mortgage is a good credit risk. C) underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back. D) the evaluators of securities, the credit rating agencies, were subject to conflicts of interest.
A
Previous Edition AACSB: Reflective thinking skills 13) ________ is a process of bundling together smaller loans (like mortgages) into standard debt securities. A) Securitization B) Origination C) Debt deflation D) Distribution
A
Previous Edition AACSB: Reflective thinking skills 19) When housing prices began to decline after their peak in 2006, many subprime borrowers found that their mortgages were "underwater." This meant that A) the value of the house fell below the amount of the mortgage. B) the basement flooded since they could not afford to fix the leaky plumbing. C) the roof leaked during a rainstorm. D) the amount that they owed on their mortgage was less than the value of their house.
A
Previous Edition AACSB: Reflective thinking skills 3 Copyright © 2013 Pearson Education 10) A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession. This process is called A) debt deflation. B) moral hazard. C) insolvency. D) illiquidity.
A
Previous Edition AACSB: Reflective thinking skills 3) A serious consequence of a financial crisis is A) a contraction in economic activity. B) an increase in asset prices. C) financial engineering. D) financial globalization.
A
Previous Edition AACSB: Reflective thinking skills 5) A credit boom can lead to a(n) ________ such as we saw in the tech stock market in the late 1990s. A) asset-price bubble B) liability war C) decline in lending D) decrease in moral hazard 2 Copyright © 2013 Pearson Education
A
Previous Edition AACSB: Reflective thinking skills 9) Debt deflation occurs when A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness. B) rising interest rates worsen adverse selection and moral hazard problems. C) lenders reduce their lending due to declining stock prices (equity deflation) that lowers the value of collateral. D) corporations pay back their loans before the scheduled maturity date.
A
Previous Edition AACSB: Reflective thinking skills 13 Copyright © 2013 Pearson Education, Inc. 6) A $5 million deposit outflow from a bank has the immediate effect of A) reducing deposits and reserves by $5 million. B) reducing deposits and loans by $5 million. C) reducing deposits and securities by $5 million. D) reducing deposits and capital by $5 million.
A
Previous Edition AACSB: Reflective thinking skills 14) If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the bank could A) borrow from another bank in the federal funds market. B) buy U.S. Treasury bills. C) increase loans. D) buy corporate bonds.
A
Previous Edition AACSB: Reflective thinking skills 21) Which of the following has not resulted from more active liability management on the part of banks? A) Increased bank holdings of cash items B) Aggressive targeting of goals for asset growth by banks C) Increased use of negotiable CDs to raise funds D) An increased proportion of bank assets held in loans
A
Previous Edition AACSB: Reflective thinking skills 23) Modern liability management has resulted in A) increased sales of certificates of deposits to raise funds. B) increase importance of deposits as a source of funds. C) reduced borrowing by banks in the overnight loan market. D) failure by banks to coordinate management of assets and liabilities.
A
Previous Edition AACSB: Reflective thinking skills 33) Which of the following are bank assets? A) the building owned by the bank B) a discount loan C) a negotiable CD D) a customer's checking account
A
Previous Edition AACSB: Reflective thinking skills 4) When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
A
Previous Edition AACSB: Reflective thinking skills 7 Copyright © 2013 Pearson Education, Inc. 30) Banks' asset portfolios include state and local government securities because A) they help to attract business from these government entities. B) banks consider them helpful in attracting accounts of Federal employees. C) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. D) there is no default-risk with state and local government securities.
A
Previous Edition AACSB: Reflective thinking skills 7) If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n) A) banking crisis. B) financial recovery. C) reduction of the adverse selection and moral hazard problems. D) increase in information available to investors.
A
Revised AACSB: Reflective thinking skills 12) The economy recovers quickly from most recessions, but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The Great Depression. A) debt deflation B) illiquidity C) an improvement in banks' balance sheets D) increases in bond prices
A
Previous Edition 16) Bank loans from the Federal Reserve are called ________ and represent a ________ of funds. A) discount loans; use B) discount loans; source C) fed funds; use D) fed funds; source
B
Previous Edition 26) Which of the following bank assets is the most liquid? A) Consumer loans B) Reserves C) Cash items in process of collection D) U.S. government securities
B
Previous Edition AACSB: Analytic skills 12) 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, A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000.
B
Previous Edition AACSB: Analytic skills 15) A deposit outflow results in equal reductions in A) loans and reserves. B) assets and liabilities. C) reserves and capital. D) assets and capital.
B
Previous Edition AACSB: Analytic skills 19) Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds. A) liability; use B) liability; source C) asset; use D) asset; source
B
Previous Edition AACSB: Analytic skills 21) The amount of checkable deposits that banks are required by regulation to hold are the A) excess reserves. B) required reserves. C) vault cash. D) total reserves.
B
Previous Edition AACSB: Analytic skills 24) Through correspondent banking, large banks provide services to small banks, including A) loan guarantees. B) foreign exchange transactions. C) issuing stock. D) debt reduction.
B
Previous Edition AACSB: Analytic skills 6) Which of the following statements is false? A) Checkable deposits are usually the lowest cost source of bank funds. B) Checkable deposits are the primary source of bank funds. C) Checkable deposits are payable on demand. D) Checkable deposits include NOW accounts.
B
Previous Edition AACSB: Analytic skills 7) 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 A) liability management. B) liquidity management. C) managing interest rate risk. D) managing credit risk.
B
Previous Edition AACSB: Reflective thinking skills 20) If a borrower takes out a $200 million loan in a repo agreement and is asked to post $220 million of mortgage-backed securities as collateral, the "haircut" is A) 5%. B) 10%. C) 20%. D) 50%.
B
Previous Edition AACSB: Reflective thinking skills 12 Copyright © 2013 Pearson Education, Inc. 2) 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 A) $30,000. B) $25,000. C) $20,000. D) $10,000.
B
Previous Edition AACSB: Reflective thinking skills 13) Banks hold excess and secondary reserves to A) reduce the interest-rate risk problem. B) provide for deposit outflows. C) satisfy margin requirements. D) achieve higher earnings than they can with loans.
B
Previous Edition AACSB: Reflective thinking skills 18) A bank will want to hold more excess reserves (everything else equal) when A) it expects to have deposit inflows in the near future. B) brokerage commissions on selling bonds increase. C) the cost of selling loans falls. D) the discount rate decreases.
B
Previous Edition AACSB: Reflective thinking skills 2) In general, banks make profits by selling ________ liabilities and buying ________ assets. A) long-term; shorter-term B) short-term; longer-term C) illiquid; liquid D) risky; risk-free
B
Previous Edition AACSB: Reflective thinking skills 22) Banks that actively manage liabilities will most likely meet a reserve shortfall by A) calling in loans. B) borrowing federal funds. C) selling municipal bonds. D) seeking new deposits.
B
Previous Edition AACSB: Reflective thinking skills 3) Asset transformation can be described as A) borrowing long and lending short. B) borrowing short and lending long. C) borrowing and lending only for the short term. D) borrowing and lending for the long term.
B
Previous Edition AACSB: Reflective thinking skills 3) Which of the following are reported as liabilities on a bank's balance sheet? A) Reserves B) Checkable deposits C) Loans D) Deposits with other banks
B
Previous Edition AACSB: Reflective thinking skills 4 Copyright © 2013 Pearson Education, Inc. 15) Banks acquire the funds that they use to purchase income-earning assets from such sources as A) cash items in the process of collection. B) savings accounts. C) reserves. D) deposits at other banks.
B
Previous Edition AACSB: Reflective thinking skills 9) A bank with insufficient reserves can increase its reserves by A) lending federal funds. B) calling in loans. C) buying short-term Treasury securities. D) buying municipal bonds.
B
Revised AACSB: Analytic skills 22) Which of the following are reported as assets on a bank's balance sheet? A) Borrowings B) Reserves C) Savings deposits D) Bank capital
B
Revised AACSB: Analytic skills 6) When you deposit a $50 bill in the Security Pacific National Bank, A) its liabilities decrease by $50. B) its assets increase by $50. C) its reserves decrease by $50. D) its cash items in the process of collection increase by $50.
B
1 Copyright © 2013 Pearson Education, Inc. Economics of Money, Banking, and Fin. Markets, 10e (Mishkin) Chapter 10 Banking and the Management of Financial Institutions 10.1 The Bank Balance Sheet 1) Which of the following statements are true? A) A bank's assets are its sources of funds. B) A bank's liabilities are its uses of funds. C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. D) A bank's balance sheet indicates whether or not the bank is profitable.
C
New AACSB: Analytic skills 21) As "haircuts" increased during 2007-2009, financial institutions found that to borrow the same loan amount now required ________ collateral. A) less B) no C) more D) default-free
C
New AACSB: Reflective thinking skills 8 Copyright © 2013 Pearson Education, Inc. 10.2 Basic Banking 1) 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. A) loans; deposits B) securities; deposits C) liabilities; assets D) assets; liabilities
C
Previous Edition 13) Because ________ are less liquid for the depositor than ________, they earn higher interest rates. A) money market deposit accounts; time deposits B) checkable deposits; passbook savings C) passbook savings; checkable deposits D) passbook savings; time deposits
C
Previous Edition 17) Which of the following is not a source of borrowings for a bank? A) Federal funds B) Eurodollars C) Transaction deposits D) Discount loans
C
Previous Edition 28) Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves. A) low; short-term B) low; long-term C) high; short-term D) high; long-term
C
Previous Edition 32) The most important category of assets on a bank's balance sheet is A) discount loans. B) securities. C) loans. D) cash items in the process of collection.
C
Previous Edition AACSB: Analytic skills 11) When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank, then A) the assets of First National rise by $50. B) the assets of Chemical Bank rise by $50. C) the reserves at First National fall by $50. D) the liabilities at Chemical Bank rise by $50.
C
Previous Edition AACSB: Analytic skills 11) Which of the following is not a nontransaction deposit? A) Savings accounts B) Small-denomination time deposits C) Negotiable order of withdrawal accounts D) Certificate of deposit
C
Previous Edition AACSB: Analytic skills 12) Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature. A) nonnegotiable; secondary B) nonnegotiable; primary C) negotiable; secondary D) negotiable; primary
C
Previous Edition AACSB: Analytic skills 2 Copyright © 2013 Pearson Education, Inc. 5) The share of checkable deposits in total bank liabilities has A) expanded moderately over time. B) expanded dramatically over time. C) shrunk over time. D) remained virtually unchanged since 1960.
C
Previous Edition AACSB: Analytic skills 5 Copyright © 2013 Pearson Education, Inc. 20) Bank reserves include A) deposits at the Fed and short-term treasury securities. B) vault cash and short-term Treasury securities. C) vault cash and deposits at the Fed. D) deposits at other banks and deposits at the Fed.
C
Previous Edition AACSB: Analytic skills 7) When you deposit $50 in currency at Old National Bank, A) its assets increase by less than $50 because of reserve requirements. B) its reserves increase by less than $50 because of reserve requirements. C) its liabilities increase by $50. D) its liabilities decrease by $50.
C
Previous Edition AACSB: Reflective thinking skills 1 Copyright © 2013 Pearson Education 9.2 Dynamics of Financial Crises in Advanced Economies 1) Financial crises in advanced economies might start from a A) debt deflation. B) currency crisis. C) mismanagement of financial innovations. D) currency mismatch.
C
Previous Edition AACSB: Reflective thinking skills 12) ________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow. A) Selling securities B) Selling loans C) Calling in loans D) Selling negotiable CDs
C
Previous Edition AACSB: Reflective thinking skills 14 Copyright © 2013 Pearson Education, Inc. 11) In general, banks would prefer to acquire funds quickly by ________ rather than ________. A) reducing loans; selling securities B) reducing loans; borrowing from the Fed C) borrowing from the Fed; reducing loans D) "calling in" loans; selling securities
C
Previous Edition AACSB: Reflective thinking skills 16 Copyright © 2013 Pearson Education, Inc. 19) As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________. A) decrease; increase B) increase; decrease C) increase; increase D) decrease; not be affected
C
Previous Edition AACSB: Reflective thinking skills 17) Banks that suffered significant losses in the 1980s made the mistake of A) holding too many liquid assets. B) minimizing default risk. C) failing to diversify their loan portfolio. D) holding only safe securities.
C
Previous Edition AACSB: Reflective thinking skills 27) Secondary reserves include A) deposits at Federal Reserve Banks. B) deposits at other large banks. C) short-term Treasury securities. D) state and local government securities.
C
Previous Edition AACSB: Reflective thinking skills 3 Copyright © 2013 Pearson Education, Inc. 10) Which of the following are transaction deposits? A) Savings accounts B) Small-denomination time deposits C) Negotiable order of withdraw accounts D) Certificates of deposit
C
Previous Edition AACSB: Reflective thinking skills 7) 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. A) 45 percent; 55 percent B) 55 percent; 4 percent C) 25 percent; 50 percent D) 50 percent; 30 percent
C
Previous Edition AACSB: Reflective thinking skills 8) If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can A) reduce deposits by $3 million. B) increase loans by $3 million. C) sell $3 million of securities. D) repay its discount loans from the Fed.
C
Previous Edition AACSB: Reflective thinking skills 9) When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then A) the liabilities of the First National Bank increase by $10. B) the reserves of the First National Bank increase by $ 10. C) the liabilities of Citibank increase by $10. D) the assets of Citibank fall by $10.
C
Revised AACSB: Reflective thinking skills 31) Bank's make their profits primarily by issuing A) equity. B) negotiable CDs. C) loans. D) NOW accounts.
C
Previous Edition AACSB: Analytic skills 23) Which of the following are not reported as assets on a bank's balance sheet? A) Cash items in the process of collection B) Deposits with other banks C) U.S. Treasury securities D) Checkable deposits
D
Previous Edition AACSB: Analytic skills 34) Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n) ________ for the borrowing bank and a(n) ________ for the lending bank. A) asset; asset B) asset; liability C) liability; liability D) liability; asset
D
Previous Edition AACSB: Reflective thinking skills 8) In a bank panic, the source of contagion is the A) free-rider problem. B) too-big-to-fail problem. C) transactions cost problem. D) asymmetric information problem.
D
Previous Edition AACSB: Reflective thinking skills 10) Of the following, which would be the first choice for a bank facing a reserve deficiency? A) Call in loans B) Borrow from the Fed C) Sell securities D) Borrow from other banks
D
Previous Edition AACSB: Reflective thinking skills 14) Because ________ are less liquid for the depositor than ________, they earn higher interest rates. A) passbook savings; time deposits B) money market deposit accounts; time deposits C) money market deposit accounts; passbook savings D) time deposits; passbook savings
D
Previous Edition AACSB: Reflective thinking skills 16) The goals of bank asset management include A) maximizing risk. B) minimizing liquidity. C) lending at high interest rates regardless of risk. D) purchasing securities with high returns and low risk.
D
Previous Edition AACSB: Reflective thinking skills 2) Which of the following statements is false? A) A bank's assets are its uses of funds. B) A bank issues liabilities to acquire funds. C) The bank's assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet.
D
Previous Edition AACSB: Reflective thinking skills 20) Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure? A) Excess reserves B) Secondary reserves C) Bank capital D) Mortgages
D
Previous Edition AACSB: Reflective thinking skills 9 Copyright © 2013 Pearson Education, Inc. 5) 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. A) gains; gains B) gains; loses C) loses; gains D) loses; loses
D
Previous Edition AACSB: Reflective thinking skills 9) Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates. A) less; higher B) less; lower C) more; higher D) more; lower
D
New AACSB: Reflective thinking skills 16) Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.
Security National Bank Assets Liabilities Reserves +$250 Checkable deposits +$250
