M&B chapter 9

Which of the following statements is FALSE? Question options: A bank issues liabilities to acquire funds. A bank's assets are its uses of funds. Bank capital is recorded as an asset on the bank balance sheet. The bank's assets provide the bank with income.

Bank capital is recorded as an asset on the bank balance sheet.

Of the following, which would be the last choice for a bank facing a reserve deficiency? Question options: Sell securities. Borrow from other banks. Call in loans. Borrow from the Fed.

Call in loans.

Which of the following statements is FALSE? Question options: Checkable deposits are short-term liabilities of banks. Checkable deposits are the primary source of bank funds. Checkable deposits are payable on demand. Checkable deposits are usually the lowest cost source of bank funds.

Checkable deposits are the primary source of bank funds.

Collateral requirements lessen the consequences of ________ because the collateral reduces the lender's losses in the case of a loan default and it reduces ________ because the borrower has more to lose from a default. Question options: diversification; moral hazard adverse selection; diversification moral hazard; adverse selection adverse selection; moral hazard

adverse selection; moral hazard

All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets, then ________ in interest rates will ________ bank profits. Question options: an increase; increase a decline; not affect a decline; reduce an increase; reduce

an increase; reduce

Asset transformation can be described as Question options: borrowing long and lending short. borrowing and lending only for the short term. borrowing short and lending long. borrowing and lending for the long term.

borrowing short and lending long.

A bank with insufficient reserves can increase its reserves by Question options: buying municipal bonds. lending federal funds. calling in loans. buying short-term Treasury securities.

calling in loans.

Which of the following are reported as liabilities on a bank's balance sheet? Question options: reserves checkable deposits consumer loans deposits with other banks

checkable deposits

All of the following are non-transaction deposits EXCEPT Question options: savings accounts. checkable deposits. certificates of deposit. small-denomination time deposits.

checkable deposits.

When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in Question options: collusive behavior. credit rationing. coercive bargaining. strategic holding out.

credit rationing.

If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to Question options: increase by $1.5 million. decline by $15 million. increase by $15 million. decline by $1.5 million.

decline by $1.5 million.

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in Question options: deposits and loans. deposits and reserves. capital and loans. capital and reserves.

deposits and reserves.

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds. Question options: fed funds; use discount loans; use discount loans; source fed funds; source

discount loans; source

The amount of assets per dollar of equity capital is called the Question options: equity multiplier. asset ratio. asset multiplier. equity ratio.

equity multiplier.

As the costs associated with deposit outflows ________, the banks willingness to hold excess reserves will ________. Question options: increase; increase increase; decrease decrease; increase decrease; not be affected

increase; increase

Holding large amounts of bank capital helps prevent bank failures (a bank cannot satisfy its obligations to pay its depositors and other creditors) because Question options: it can be used to absorb the losses resulting from bad loans. it makes it easier to call in loans. it means that the bank has a higher income. it makes loans easier to sell.

it can be used to absorb the losses resulting from bad loans.

A bank that wants to monitor the check payment practices of its commercial borrowers, so that moral hazard can be reduced, will require borrowers to Question options: purchase the bank's CDs. keep compensating balances in a checking account at the bank. place a bank officer on their board of directors. place a corporate officer on the bank's board of directors.

keep compensating balances in a checking account at the bank.

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. Question options: asset; asset asset; liability liability; liability liability; asset

liability; asset

Bankers' concern 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 Question options: liquidity management. managing interest rate risk. liability management. managing credit risk.

liquidity management.

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. Question options: gains; loses loses; loses gains; gains loses; gains

loses; loses

Which of the following are the primary concerns of the bank manager? Question options: maintaining high levels of capital and thus maximizing the returns to the owners acquiring funds at a relatively high cost, so that profitable lending opportunities can be realized maintaining sufficient reserves to minimize the cost to the bank of deposit outflows extending loans to borrowers who will pay low interest rates, but who are poor credit risks

maintaining sufficient reserves to minimize the cost to the bank of deposit outflows

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. Question options: reduces; increases reduces; reduces increases; reduces increases; increases

reduces; reduces

Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called Question options: proscription bonds. liens. restrictive covenants. due-on-sale clauses.

restrictive covenants.

Because ________ are less liquid for the depositor than ________, they earn higher interest rates. Question options: money market deposit accounts; time deposits savings accounts; time deposits savings accounts; checkable deposits checkable deposits; savings accounts

savings accounts; checkable deposits

Bank capital is equal to ________ minus ________. Question options: total assets; total reserves total liabilities; total assets total liabilities; total borrowings total assets; total liabilities

total assets; total liabilities

Examples of off-balance-sheet activities include Question options: borrowing from other banks. extending loans to depositors. trading activities. selling negotiable CDs.

trading activities.

Bank reserves include Question options: vault cash and short-term Treasury securities. vault cash and deposits at the Fed. deposits at other banks and deposits at the Fed. deposits at the Fed and short-term treasury securities.

vault cash and deposits at the Fed.