Final Exam Part 5

32 Questions | Total Attempts: 74

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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 late-night news report says the president of a local bank is about to be arrested for embezzling money from the bank at which he works. This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits. This is an example of:
    • 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