Final Exam Part 5

32 Questions

Settings
Please wait...
Bank Quizzes & Trivia

Questions and Answers
  • 1. 
    Considering the balance sheet for all commercial banks in the U.S., the largest category of assets is:
    • A. 

      Cash items

    • B. 

      U.S. Government Securities

    • C. 

      Required reserves

    • D. 

      Loans

  • 2. 
    Considering the balance sheet for all commercial banks in the U.S., the largest category of liabilities is:
    • A. 

      Borrowing from other banks in the U.S.

    • B. 

      Savings deposits and time deposits

    • C. 

      Checkable deposits

    • D. 

      Borrowings from non-banks in the U.S.

  • 3. 
    Considering the balance sheet for all commercial banks in the U.S., the net worth of banks is:
    • A. 

      About 5 times the total assets

    • B. 

      About 1/11 of total assets

    • C. 

      Just about the same as total assets

    • D. 

      About the same as total liabilities

  • 4. 
    A bank's reserves include:
    • A. 

      Vault cash

    • B. 

      U.S. Treasury Securities

    • C. 

      The bank's loan portfolio

    • D. 

      U.S. Treasury bills and vault cash

  • 5. 
    Secondary reserves for banks are:
    • A. 

      The same as the bank's net worth

    • B. 

      Mainly the bank's liquid securities

    • C. 

      Vault cash

    • D. 

      Deposits the bank has at the Federal Reserve

  • 6. 
    One thing that is common for all bank loans is that they are:
    • A. 

      Securitized

    • B. 

      Liquid

    • C. 

      Part of the banks' assets

    • D. 

      Unsecured

  • 7. 
    Checkable deposits have decreased since the 1970's mainly because:
    • A. 

      Regulators allowed higher rates to be paid on these accounts and banks found them to be highly unprofitable

    • B. 

      People prefer to use credit cards rather than writing checks

    • C. 

      These deposit accounts offer little or no interest so depositors find them to be expensive

    • D. 

      As banks added fees to these accounts people increased their holdings of currency

  • 8. 
    Which of the following is a bank liability?
    • A. 

      Mortgage loans

    • B. 

      Demand deposits

    • C. 

      Reserves

    • D. 

      U.S. Treasury securities

  • 9. 
    Repurchase agreements are usually used by banks that:
    • A. 

      Have a need for long-term financing

    • B. 

      Need cash for a very short period of time

    • C. 

      Have negative net worth

    • D. 

      Cannot obtain financing from any other source

  • 10. 
    Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its capital by $1million and its assets by $10 million, then the bank's:
    • A. 

      Risk increases and its leverage decreases

    • B. 

      Liabilities decrease and its leverage increases

    • C. 

      Leverage decreases and its liabilities increase

    • D. 

      Leverage and risk increases

  • 11. 
    If a bank has $100 million in assets and a net worth of $10 million, its debt-to-equity ratio is:
    • A. 

      10 to 1

    • B. 

      5 to 1

    • C. 

      9 to 1

    • D. 

      0.1 to 1

  • 12. 
    Everything else equal, if the ratio of bank assets to bank capital increases, the bank's return on equity should:
    • A. 

      Remain constant

    • B. 

      Decrease

    • C. 

      Increase

    • D. 

      Cannot be determined from the information provided

  • 13. 
    Net interest income for a bank is:
    • A. 

      The difference between gross income and net income after taxes

    • B. 

      The interest banks earn from uses of funds

    • C. 

      The difference between interest income and interest expense

    • D. 

      The difference between interest income and total expenses

  • 14. 
    A bank's Return on Equity (ROE) is calculated by:
    • A. 

      Dividing the bank's net profit after taxes by the bank's capital

    • B. 

      Dividing the banks liabilities by the bank's capital

    • C. 

      Taking the bank's assets plus the net profit after taxes and dividing this sum by the bank's capital

    • D. 

      Dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities

  • 15. 
    • A. 

      Liquidity risk

    • B. 

      Operational risk

    • C. 

      Interest rate risk

    • D. 

      Credit risk

  • 16. 
    The difference between a bank's reserves and its required reserves is: 
    • A. 

      Profits

    • B. 

      Net interest income

    • C. 

      Excess reserves

    • D. 

      Vault cash

  • 17. 
    If a bank has deposits of $250 million, reserves that total $30 million and has a required reserve rate of 10 percent:
    • A. 

      The bank is short of required reserves

    • B. 

      The bank has excess reserves of $27.5 million

    • C. 

      The bank has excess reserves of $5 million

    • D. 

      The bank has excess reserves of $3 million

  • 18. 
    A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:
    • A. 

      Hold a lot in highly liquid securities

    • B. 

      Make sure that most of its assets are in small business loans

    • C. 

      Have a high ratio of loans to securities

    • D. 

      Limit withdrawals by customers

  • 19. 
    If Bank A sells some its loans to Bank B for cash, everything else equal:
    • A. 

      Bank A's assets decrease and Bank B's assets increase

    • B. 

      Bank A becomes less liquid while Bank B becomes more liquid

    • C. 

      Banks A's total assets do not change, but Bank A is more liquid

    • D. 

      Bank A's liabilities decrease by the amount of the loans that are sold

  • 20. 
    A bank that meets deposit withdrawal by borrowing additional funds will alter:
    • A. 

      The asset side of their balance sheet

    • B. 

      The liabilities side of the balance sheet

    • C. 

      The amount of bank capital

    • D. 

      The asset and liabilities side of the balance sheet

  • 21. 
    An expected appreciation of the dollar, everything else held constant, should cause:
    • A. 

      The supply of dollars to increase

    • B. 

      The demand for dollars to increase

    • C. 

      The demand for dollars to decrease

    • D. 

      The dollar to depreciate now relative to other currencies

  • 22. 
    If U.S. assets are seen as having greater risk relative to foreign assets in the market for foreign exchange, this should cause:
    • A. 

      The demand for dollars to increase

    • B. 

      The supply of dollars to decrease

    • C. 

      The supply of dollars to increase

    • D. 

      The dollar to appreciate

  • 23. 
    Reserves in the banking system will increase if the Fed:
    • A. 

      Buys euros or sells dollars

    • B. 

      Sells euros or buys dollars

    • C. 

      Buys both euros and dollars at the same time

    • D. 

      Sells both euros and dollars at the same time

  • 24. 
    The impact on the foreign exchange market for dollars resulting from the Fed purchasing euros will be:
    • A. 

      A decrease in the demand for dollars

    • B. 

      An increase in the demand for dollars

    • C. 

      An increase in the supply of euros

    • D. 

      An increase in the demand for dollars and an increase in the supply of euros

  • 25. 
    A foreign exchange intervention by a central bank affects the value of a country's currency because it:
    • A. 

      Alters banking system reserves

    • B. 

      Changes domestic interest rates

    • C. 

      Results in a fixed exchange rate

    • D. 

      Alters banking system reserves and it changes domestic interest rates

  • 26. 
    Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds. One result of this will be that:
    • A. 

      The dollar depreciates

    • B. 

      The euro depreciates

    • C. 

      Both the dollar and the euro depreciate

    • D. 

      The dollar appreciates and the euro depreciates

  • 27. 
    A sterilized foreign exchange intervention would:
    • A. 

      Alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged

    • B. 

      Alter the liability side of the central bank's balance sheet but leave the asset side unchanged

    • C. 

      Leave the central bank's balance sheet unchanged

    • D. 

      Not alter the central bank's holdings of international reserves

  • 28. 
    If the Fed were to purchase euros for dollars and at the same time sell U.S. Treasury securities in the open market, this would be an example of:
    • A. 

      An unsterilized foreign exchange intervention

    • B. 

      The Fed not changing their balance sheet at all

    • C. 

      A sterilized foreign exchange intervention

    • D. 

      The Fed altering the domestic monetary base

  • 29. 
    In September of 2000, the Federal Reserve Bank of New York sold dollars in exchange for euro. To keep the federal funds rate on target, the Open Market desk:
    • A. 

      Sold U.S. Treasury bonds

    • B. 

      Bought U.S. Treasury bonds

    • C. 

      Bought dollars

    • D. 

      Sold dollars

  • 30. 
    An advantage of fixed exchange rates for a country that suffers from bouts of high inflation is:
    • A. 

      It makes imports less expensive

    • B. 

      It establishes a credible low inflation policy

    • C. 

      It unties policymakers' hands so they can alter the reserves of the banking system as needed

    • D. 

      Policymakers will have increased control over domestic interest rates

  • 31. 
    A fixed exchange rate policy:
    • A. 

      Decreases central bank policy accountability and transparency

    • B. 

      Strengthens domestic interest rate policy

    • C. 

      Will likely make domestic inflation more volatile

    • D. 

      Imports monetary policy

  • 32. 
    A country with a fixed exchange rate policy that is experiencing an economic slowdown will find:
    • A. 

      Their central bank will reduce the domestic interest rate in order to fend off the slowdown

    • B. 

      Their currency will depreciate to stimulate exports

    • C. 

      Their bonds will become less attractive to foreign investors

    • D. 

      The stabilization mechanism that policy makers could have used is completely shut down