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1、1 Economics of Money, Banking, and Financial Markets, 11e, Global Edition (Mishkin) Chapter 9 Banking and the Management of Financial Institutions 9.1 The Bank Balance Sheet 1) Which of the following statements are TRUE? A) A banks assets are its sources of funds. B) A banks liabilities are its uses
2、 of funds. C) A banks balance sheet shows that total assets equal total liabilities plus equity capital. D) A banks balance sheet indicates whether or not the bank is profitable. Answer: C AACSB: Reflective Thinking 2) Which of the following statements is FALSE? A) A banks assets are its uses of fun
3、ds. B) A bank issues liabilities to acquire funds. C) The banks assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet. Answer: D AACSB: Reflective Thinking 3) Which of the following are reported as liabilities on a banks balance sheet? A) reserves B)
4、checkable deposits C) consumer loans D) deposits with other banks Answer: B AACSB: Analytical Thinking 4) Which of the following are reported as liabilities on a banks balance sheet? A) discount loans B) reserves C) U.S. Treasury securities D) real estate loans Answer: A AACSB: Analytical Thinking 5
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. Answer: C AACSB: Analytical Thinking 2 6) Which of the following statements is FALSE? A) Checkable de
6、posits 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. Answer: B AACSB: Reflective Thinking 7) In recent years the interest paid on checkable and non
7、transaction 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 Answer: C AACSB: Ap
8、plication of Knowledge 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) Checkable deposits are assets for the bank. Answer: A AACSB: Reflective
9、 Thinking 9) Because checking accounts are _ liquid for the depositor than savings accounts, they earn _ interest rates. A) less; higher B) less; lower C) more; higher D) more; lower Answer: D AACSB: Reflective Thinking 10) Which of the following are transaction deposits? A) savings accounts B) smal
10、l-denomination time deposits C) checkable deposits D) certificates of deposit Answer: C AACSB: Analytical Thinking 3 11) All of the following are nontransaction deposits EXCEPT A) savings accounts. B) small-denomination time deposits. C) checkable deposits. D) certificates of deposit. Answer: C AACS
11、B: Analytical Thinking 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 Answer: C AACSB: Application of Knowledge 13) Because _ are less liq
12、uid for the depositor than _, they earn higher interest rates. A) money market deposit accounts; time deposits B) checkable deposits; savings accounts C) savings accounts; checkable deposits D) savings accounts; time deposits Answer: C AACSB: Reflective Thinking 14) Because _ are less liquid for the
13、 depositor than _, they earn higher interest rates. A) savings accounts; time deposits B) money market deposit accounts; time deposits C) money market deposit accounts; savings accounts D) time deposits; savings accounts Answer: D AACSB: Reflective Thinking 15) Banks acquire the funds that they use
14、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. Answer: B AACSB: Application of Knowledge 4 16) Bank loans from the Federal Reserve are called _ and represent a _ of funds. A) discount lo
15、ans; use B) discount loans; source C) fed funds; use D) fed funds; source Answer: B AACSB: Application of Knowledge 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 Answer: C AACSB: Analytical Thinking 18)
16、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 Answer: A AACSB: Analytical Thinking 19) Bank _ is/are listed on the liability side of the banks balance sheet. A) reserves
17、 B) capital C) securities D) cash items Answer: B AACSB: Application of Knowledge 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 t
18、he Fed. Answer: C AACSB: Analytical Thinking 5 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. Answer: B AACSB: Analytical Thinking 22) Which of the following are reported as assets
19、 on a banks balance sheet? A) borrowings B) reserves C) savings deposits D) bank capital Answer: B AACSB: Analytical Thinking 23) Which of the following are NOT reported as assets on a banks balance sheet? A) cash items in the process of collection B) deposits with other banks C) U.S. Treasury secur
20、ities D) checkable deposits Answer: D AACSB: Analytical Thinking 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. Answer: B AACSB: Application of Knowledge 25) The larg
21、est 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. Answer: A AACSB: Application of Knowledge 26) Which of the following bank assets is the most
22、liquid? A) consumer loans B) reserves C) state and local government securities D) U.S. government securities Answer: B AACSB: Reflective Thinking 6 27) Secondary reserves include A) deposits at Federal Reserve Banks. B) deposits at other large banks. C) short-term U.S. government securities. D) stat
23、e and local government securities. Answer: C AACSB: Application of Knowledge 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 Answer: C AACSB: Application of Knowledge 29) Seconda
24、ry 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
25、 cash in importance of bank holdings. Answer: A AACSB: Reflective Thinking 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)
26、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. Answer: A AACSB: Reflective Thinking 31) Banks make their profits primarily
27、by issuing A) equity. B) negotiable CDs. C) loans. D) NOW accounts. Answer: C AACSB: Application of Knowledge 7 32) The most important category of assets on a banks balance sheet is A) other assets. B) securities. C) loans. D) cash items in the process of collection. Answer: C AACSB: Reflective Thin
28、king 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 customers checking account Answer: A AACSB: Analytical Thinking 34) Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from
29、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 Answer: D AACSB: Reflective Thinking 9.2 Basic Banking 1) Banks earn profits by selling _ with attractive combination
30、s 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 Answer: C AACSB: Reflective Thinking 2) In general, banks make profits by selling _ liabilities and buyi
31、ng _ assets. A) long-term; shorter-term B) short-term; longer-term C) illiquid; liquid D) risky; risk-free Answer: B AACSB: Reflective Thinking 8 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 th
32、e short term. D) borrowing and lending for the long term. Answer: B AACSB: Reflective Thinking 4) When a new depositor opens a checking account at the First National Bank, the banks assets _ and its liabilities _. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decreas
33、e Answer: A AACSB: Reflective Thinking 5) When Jane Brown writes a $100 check to her nephew and he cashes the check, Ms. Browns bank _ assets of $100 and _ liabilities of $100. A) gains; gains B) gains; loses C) loses; gains D) loses; loses Answer: D AACSB: Analytical Thinking 6) When you deposit a
34、$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. Answer: B AACSB: Analytical Thinking 7) When you deposit $50 in currency at Old National
35、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. Answer: C AACSB: Analytical Thinking 9 8) Holding all else constant, when a
36、 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. Answer
37、: A AACSB: Reflective Thinking 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 inc
38、rease by $10. D) the assets of Citibank fall by $10. Answer: C AACSB: Analytical Thinking 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 Nation
39、al Bank increase by $10. C) the liabilities of Citibank decrease by $10. D) the assets of Citibank decrease by $10. Answer: A AACSB: Analytical Thinking 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
40、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. Answer: C AACSB: Analytical Thinking 12) When $1 million is deposited at a bank, the required reserve ratio is 20 p
41、ercent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the banks 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 increas
42、e by $160,000. Answer: B AACSB: Analytical Thinking 10 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 banks final balance sheet A) the assets at the bank increase by $1
43、 million. B) the liabilities of the bank decrease by $1 million. C) reserves increase by $200,000. D) liabilities increase by $200,000. Answer: A AACSB: Analytical Thinking 14) With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is A)
44、$90. B) $100. C) $10. D) $110. Answer: A AACSB: Analytical Thinking 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. Answer: B AACSB: Reflective Thinking 16) A $100 deposit into my checking account
45、at My Bank increases my checkable deposits by $100, and the banks _ by $100. A) reserves B) loans C) capital D) securities Answer: A AACSB: Application of Knowledge 17) Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking
46、 account and another individual withdraws $750 in cash from her checking account. Answer: Security National Bank Assets Liabilities Reserves +$250 Checkable deposits +$250 AACSB: Analytical Thinking 11 9.3 General Principles of Bank Management 1) Which of the following are primary concerns of the ba
47、nk 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)
48、 maintaining high levels of capital and thus maximizing the returns to the owners Answer: A AACSB: Reflective Thinking 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 al
49、tering its balance sheet is A) $30,000. B) $25,000. C) $20,000. D) $10,000. Answer: B AACSB: Analytical Thinking 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
50、 its balance sheet is A) $50,000. B) $40,000. C) $30,000. D) $25,000. Answer: A AACSB: Analytical Thinking 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 outfl
51、ow of A) $1.2 million. B) $1.1 million. C) $1 million. D) $900,000. Answer: A AACSB: Analytical Thinking 12 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 re
52、serves. D) capital and loans. Answer: A AACSB: Reflective Thinking 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 dep
53、osits and capital by $5 million. Answer: A AACSB: Analytical Thinking 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 ma
54、nagement. C) managing interest rate risk. D) managing credit risk. Answer: B AACSB: Reflective Thinking 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 m
55、illion of securities. D) repay its discount loans from the Fed. Answer: C AACSB: Reflective Thinking 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. Answer: B AACSB:
56、Reflective Thinking 13 10) Of the following, which would be the last 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. Answer: A AACSB: Reflective Thinking 11) In general, banks would prefer to acquire funds quick
57、ly 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 Answer: C AACSB: Reflective Thinking 12) _ may antagonize customers and thus can be a very costly way of acquiring
58、funds to meet an unexpected deposit outflow. A) Selling securities B) Selling loans C) Calling in loans D) Selling negotiable CDs Answer: C AACSB: Reflective Thinking 13) Banks hold excess and secondary reserves to A) reduce the interest-rate risk problem. B) provide for unexpected deposit outflows.
59、 C) satisfy margin requirements. D) achieve higher earnings than they can with loans. Answer: B AACSB: Reflective Thinking 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
60、bills. C) increase loans. D) buy corporate bonds. Answer: A AACSB: Reflective Thinking 14 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 liquid
61、ity. 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
62、least costly way. Answer: A AACSB: Reflective Thinking 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. Answer: D AACSB: Reflective Thinking 17) B
63、anks 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. Answer: C AACSB: Reflective Thinking 18) A bank will want to hold more excess reserves
64、(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. Answer: B AACSB: Reflective Thinking 19) As the costs associated with deposit outflows _, the
65、 banks willingness to hold excess reserves will _. A) decrease; increase B) increase; decrease C) increase; increase D) decrease; not be affected Answer: C AACSB: Reflective Thinking 15 20) Which of the following would a bank NOT hold as insurance against the highest cost of deposit outflow-bank fai
66、lure? A) excess reserves B) secondary reserves C) bank capital D) mortgages Answer: D AACSB: Reflective Thinking 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
67、 growth by banks C) increased use of negotiable CDs to raise funds D) an increased proportion of bank assets held in loans Answer: A AACSB: Reflective Thinking 22) Banks that actively manage liabilities will most likely meet a reserve shortfall by A) calling in loans. B) borrowing federal funds. C)
68、selling municipal bonds. D) seeking new deposits. Answer: B AACSB: Reflective Thinking 23) Modern liability management has resulted in A) increased sales of negotiable CDs to raise funds. B) increase importance of deposits as a source of funds. C) reduced borrowing by banks in the overnight loan mar
69、ket. D) failure by banks to coordinate management of assets and liabilities. Answer: A AACSB: Reflective Thinking 24) A bank failure occurs whenever A) a bank cannot satisfy its obligations to pay its depositors and other creditors. B) a bank suffers a large deposit outflow. C) a bank has to call in
70、 a large volume of loans. D) a bank refuses to make new loans. Answer: A AACSB: Reflective Thinking 16 25) A bank is insolvent when A) its liabilities exceed its assets. B) its assets exceed its liabilities. C) its capital exceeds its liabilities. D) its assets increase in value. Answer: A AACSB: An
71、alytical Thinking 26) Holding large amounts of bank capital helps prevent bank failures because A) it means that the bank has a higher income. B) it makes loans easier to sell. C) it can be used to absorb the losses resulting from bad loans. D) it makes it easier to call in loans. Answer: C AACSB: R
72、eflective Thinking 27) Net profit after taxes per dollar of assets is a basic measure of bank profitability called A) return on assets. B) return on capital. C) return on equity. D) return on investment. Answer: A AACSB: Application of Knowledge 28) Net profit after taxes per dollar of equity capita
73、l is a basic measure of bank profitability called A) return on assets. B) return on capital. C) return on equity. D) return on investment. Answer: C AACSB: Application of Knowledge 29) The amount of assets per dollar of equity capital is called the A) asset ratio. B) equity ratio. C) equity multipli
74、er. D) asset multiplier. Answer: C AACSB: Application of Knowledge 17 30) For a given return on assets, the lower is bank capital A) the lower is the return for the owners of the bank. B) the higher is the return for the owners of the bank. C) the lower is the credit risk for the owners of the bank.
75、 D) the lower the possibility of bank failure. Answer: B AACSB: Reflective Thinking 31) 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. A) reduces; reduces B
76、) increases; increases C) reduces; increases D) increases; reduces Answer: A AACSB: Reflective Thinking 32) In the absence of regulation, banks would probably hold A) too much capital, reducing the efficiency of the payments system. B) too much capital, reducing the profitability of banks. C) too li
77、ttle capital. D) too much capital, making it more difficult to obtain loans. Answer: C AACSB: Reflective Thinking 33) Banks hold capital because A) they are required to by regulatory authorities. B) higher capital increases the returns to the owners. C) it increases the likelihood of bankruptcy. D)
78、higher capital increases the return on equity. Answer: A AACSB: Reflective Thinking 34) Conditions that likely contributed to a credit crunch during the global financial crisis include A) capital shortfalls caused in part by falling real estate prices. B) regulated hikes in bank capital requirements
79、. C) falling interest rates that raised interest rate risk, causing banks to choose to hold more capital. D) increases in reserve requirements. Answer: A AACSB: Reflective Thinking 18 35) Which of the following would NOT be a way to increase the return on equity? A) Buy back bank stock. B) Pay highe
80、r dividends. C) Acquire new funds by selling negotiable CDs and increase assets with them. D) Sell more bank stock. Answer: D AACSB: Reflective Thinking 36) If a bank needs to raise the amount of capital relative to assets, a bank manager might choose to A) buy back bank stock. B) pay higher dividen
81、ds. C) shrink the size of the bank. D) sell securities the bank owns and put the funds into the reserve account. Answer: C AACSB: Reflective Thinking 37) Your bank has the following balance sheet: Assets Liabilities Reserves$ 50 million Checkable deposits $200 million Securities 50 million Loans 150
82、 million Bank capital 50 million If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million? Answer: After the deposit outflow, the bank will have a reserve shortfall of $15 million. The bank manager could try to borrow in
83、 the Federal Funds market, take out a discount loan from the Federal Reserve, sell $15 million of the securities the bank owns, sell off $15 million of the loans the bank owns, or lastly call-in $15 million of loans. All of the actions will be costly to the bank. The bank manager should try to acqui
84、re the funds with the least costly method. AACSB: Reflective Thinking 9.4 Managing Credit Risk 1) Banks face the problem of _ in loan markets because bad credit risks are the ones most likely to seek bank loans. A) adverse selection B) moral hazard C) moral suasion D) intentional fraud Answer: A AAC
85、SB: Ethical understanding and reasoning abilities 19 2) If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of A) adverse credit risk. B) adverse selection. C) moral hazar
86、d. D) lemon lenders. Answer: B AACSB: Ethical understanding and reasoning abilities 3) Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the A) adverse selection problem. B) lemon problem. C) adverse credit risk problem. D) moral hazard
87、problem. Answer: D AACSB: Ethical understanding and reasoning abilities 4) In order to reduce the _ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones. A) moral hazard B) adverse selection C) moral suasion D) adverse
88、lending Answer: B AACSB: Reflective Thinking 5) In one sense _ appears surprising since it means that the bank is not _ its portfolio of loans and thus is exposing itself to more risk. A) specialization in lending; diversifying B) specialization in lending; rationing C) credit rationing; diversifyin
89、g D) screening; rationing Answer: A AACSB: Reflective Thinking 6) From the standpoint of _, specialization in lending is surprising but makes perfect sense when one considers the _ problem. A) moral hazard; diversification B) diversification; moral hazard C) adverse selection; diversification D) div
90、ersification; adverse selection Answer: D AACSB: Reflective Thinking 20 7) Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called A) proscription bonds. B) restrictive covenants. C) due-on-sale clauses. D) liens. Answer: B AACSB: Application of Kn
91、owledge 8) To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also A) monitor and enforce them. B) be willing to rewrite the contract if the borrower cannot comply with the restrictions. C) trus
92、t the borrower to do the right thing. D) be prepared to extend the deadline when the borrower needs more time to comply. Answer: A AACSB: Reflective Thinking 9) Long-term customer relationships _ the cost of information collection and make it easier to _ credit risks. A) reduce; screen B) increase;
93、screen C) reduce; increase D) increase; increase Answer: A AACSB: Analytical Thinking 10) Unanticipated moral hazard contingencies can be reduced by A) screening. B) long-term customer relationships. C) specialization in lending. D) credit rationing. Answer: B AACSB: Reflective Thinking 11) A banks
94、commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called A) an adjustable gap loan. B) an adjustable portfolio loan. C) loan commitment. D) pre-credit loan line. Answer: C AACSB: Application of Knowledge 21 12) Property pr
95、omised to the lender as compensation if the borrower defaults is called A) collateral. B) deductibles. C) restrictive covenants. D) contingencies. Answer: A AACSB: Application of Knowledge 13) Collateral requirements lessen the consequences of _ because the collateral reduces the lenders losses in t
96、he case of a loan default and it reduces _ because the borrower has more to lose from a default. A) adverse selection; moral hazard B) moral hazard; adverse selection C) adverse selection; diversification D) diversification; moral hazard Answer: A AACSB: Reflective Thinking 14) A bank that wants to
97、monitor the check payment practices of its commercial borrowers, so that moral hazard can be reduced, will require borrowers to A) place a bank officer on their board of directors. B) place a corporate officer on the banks board of directors. C) keep compensating balances in a checking account at th
98、e bank. D) purchase the banks CDs. Answer: C AACSB: Reflective Thinking 15) Of the following methods that banks might use to reduce moral hazard problems, the one not legally permitted in the United States is the A) requirement that firms keep compensating balances at the banks from which they obtai
99、n their loans. B) requirement that firms place on their board of directors an officer from the bank. C) inclusion of restrictive covenants in loan contracts. D) requirement that individuals provide detailed credit histories to bank loan officers. Answer: B AACSB: Reflective Thinking 16) When a lende
100、r 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 A) coercive bargaining. B) strategic holding out. C) credit rationing. D) collusive behavior. Answer: C AACSB: Application of Knowledge 22 17) When banks offe
101、r borrowers smaller loans than they have requested, banks are said to A) shave credit. B) rediscount the loan. C) raze credit. D) ration credit. Answer: D AACSB: Application of Knowledge 18) Credit risk management tools include A) deductibles. B) collateral. C) interest rate swaps. D) duration analy
102、sis. Answer: B AACSB: Analytical Thinking 19) How can specializing in lending help to reduce the adverse selection problem in lending? Answer: Reducing the adverse selection problem requires the banks to acquire information to screen bad credit risks from good credit risks. It is easier for banks to
103、 obtain information about local businesses. Also if the bank lends to firms in a few specific industries they will become more knowledgeable about those industries and a better judge of creditworthiness in those industries. AACSB: Reflective Thinking 9.5 Managing Interest-Rate Risk 1) Risk that is r
104、elated to the uncertainty about interest rate movements is called A) default risk. B) interest-rate risk. C) the problem of moral hazard. D) security risk. Answer: B AACSB: Application of Knowledge 2) All else the same, if a banks liabilities are more sensitive to interest rate fluctuations than are
105、 its assets, then _ in interest rates will _ bank profits. A) an increase; increase B) an increase; reduce C) a decline; reduce D) a decline; not affect Answer: B AACSB: Reflective Thinking 23 3) If a bank has _ rate-sensitive assets than liabilities, then _ in interest rates will increase bank prof
106、its. A) more; a decline B) more; an increase C) fewer; an increase D) fewer; a surge Answer: B AACSB: Reflective Thinking 4) If a bank has _ rate-sensitive assets than liabilities, a _ in interest rates will reduce bank profits, while a _ in interest rates will raise bank profits. A) more; rise; dec
107、line B) more; decline; rise C) fewer; decline; decline D) fewer; rise; rise Answer: B AACSB: Reflective Thinking 5) If a banks liabilities are more sensitive to interest rate movements than are its assets, then A) an increase in interest rates will reduce bank profits. B) a decrease in interest rate
108、s will reduce bank profits. C) interest rates changes will not impact bank profits. D) an increase in interest rates will increase bank profits. Answer: A AACSB: Reflective Thinking 6) If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then A) an increas
109、e in interest rates will reduce bank profits. B) a decrease in interest rates will reduce bank profits. C) interest rate changes will not impact bank profits. D) a decrease in interest rates will increase bank profits. Answer: B AACSB: Analytical Thinking 7) The difference of rate-sensitive liabilit
110、ies and rate-sensitive assets is known as the A) duration. B) interest-sensitivity index. C) rate-risk index. D) gap. Answer: D AACSB: Application of Knowledge 24 8) 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
111、profits to A) increase by $15 million. B) increase by $1.5 million. C) decline by $15 million. D) decline by $1.5 million. Answer: D AACSB: Analytical Thinking 9) Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap times the change in the interest rate is ca
112、lled A) basic duration analysis. B) basic gap analysis. C) interest-exposure analysis. D) gap-exposure analysis. Answer: B AACSB: Application of Knowledge 10) Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap for several maturity subintervals times the cha
113、nge in the interest rate is called A) basic gap analysis. B) the maturity bucket approach to gap analysis. C) the segmented maturity approach to gap analysis. D) the segmented maturity approach to interest-exposure analysis. Answer: B AACSB: Application of Knowledge First National Bank Assets Liabil
114、ities Rate-sensitive $20 million $50 million Fixed-rate $80 million $50 million 11) If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will A) decline by $0.5 million. B) decline by $1.5 million. C) decline by $2.5 million. D) increase by $
115、1.5 million. Answer: B AACSB: Analytical Thinking 25 12) Assuming that the average duration of its assets is five years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to decline by _ of th
116、e total original asset value. A) 5 percent B) 10 percent C) 15 percent D) 25 percent Answer: B AACSB: Analytical Thinking First National Bank Assets Liabilities Rate-sensitive $40 million $50 million Fixed-rate $60 million $50 million 13) If interest rates rise by 5 percentage points, say from 10 to
117、 15%, bank profits (measured using gap analysis) will A) decline by $0.5 million. B) decline by $1.5 million. C) decline by $2.5 million. D) increase by $2.0 million. Answer: A AACSB: Analytical Thinking 14) Assuming that the average duration of its assets is four years, while the average duration o
118、f its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to _ by _ of the total original asset value. A) decline; 5 percent B) decline; 10 percent C) decline; 15 percent D) increase; 20 percent Answer: A AACSB: Analytical Think
119、ing 15) Duration analysis involves comparing the average duration of the banks _ to the average duration of its _. A) securities portfolio; non-deposit liabilities B) assets; liabilities C) loan portfolio; deposit liabilities D) assets; deposit liabilities Answer: B AACSB: Application of Knowledge 2
120、6 16) Because of an expected rise in interest rates in the future, a banker will likely A) make long-term rather than short-term loans. B) buy short-term rather than long-term bonds. C) buy long-term rather than short-term bonds. D) make either short or long-term loans; expectations of future intere
121、st rates are irrelevant. Answer: B AACSB: Reflective Thinking 17) If a banker expects interest rates to fall in the future, her best strategy for the present is A) to increase the duration of the banks liabilities. B) to buy short-term bonds. C) to sell long-term certificates of deposit. D) to incre
122、ase the duration of the banks assets. Answer: D AACSB: Reflective Thinking 18) Bruce the Bank Manager can reduce interest rate risk by _ the duration of the banks assets to increase their rate sensitivity or, alternatively, _ the duration of the banks liabilities. A) shortening; lengthening B) short
123、ening; shortening C) lengthening; lengthening D) lengthening; shortening Answer: A AACSB: Reflective Thinking 19) Your bank has the following balance sheet Assets Liabilities Rate-sensitive$100 million Rate-sensitive$75 million Fixed-rate 100 million Fixed-rate 125 million What would happen to bank
124、profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements? Answer: The banks profits would go down because it has more interest-rate sensitive assets than liabilities. In order to reduce interest-ra
125、te sensitivity, the bank manager could use financial derivatives such as interest-rate swaps, options, or futures. The bank manager could also try to adjust the balance sheet so that the banks profits are not vulnerable to the movement of the interest rate. AACSB: Reflective Thinking 27 9.6 Off-Bala
126、nce-Sheet Activities 1) Examples of off-balance-sheet activities include A) trading activities. B) extending loans to depositors. C) borrowing from other banks. D) selling negotiable CDs. Answer: A AACSB: Analytical Thinking 2) Banks earn profits from off-balance sheet loan sales A) by foreclosing o
127、n delinquent accounts. B) by selling the loans at discounted prices. C) by selling existing loans for more than the original loan amount. D) by calling-in loans before the maturity date. Answer: C AACSB: Reflective Thinking 3) All of the following are examples of off-balance sheet activities that ge
128、nerate fee income for banks EXCEPT A) foreign exchange trades. B) guaranteeing debt securities. C) back-up lines of credit. D) selling negotiable CDs. Answer: D AACSB: Analytical Thinking 4) Which of the following is NOT an example of a backup line of credit? A) loan commitments B) overdraft privile
129、ges C) standby letters of credit D) mortgages Answer: D AACSB: Analytical Thinking 5) Off-balance sheet activities involving guarantees of securities and back-up credit lines A) have no impact on the risk a bank faces. B) greatly reduce the risk a bank faces. C) increase the risk a bank faces. D) sl
130、ightly reduce the risk a bank faces. Answer: C AACSB: Reflective Thinking 28 6) When banks involved in trading activities attempt to outguess markets, they are A) forecasting. B) diversifying. C) speculating. D) engaging in riskless arbitrage. Answer: C AACSB: Application of Knowledge 7) Traders wor
131、king for banks are subject to the A) principal-agent problem. B) free-rider problem. C) double-jeopardy problem. D) exchange-risk problem. Answer: A AACSB: Application of Knowledge 8) A reason why rogue traders have bankrupt their banks is due to A) the separation of trading activities from the book
132、keepers. B) stringent supervision of trading activities by bank management. C) accounting errors. D) a failure to maintain proper internal controls. Answer: D AACSB: Reflective Thinking 9) One way for banks to reduce the principal-agent problems associated with trading activities is to A) set limits
133、 on the total amount of a traders transactions. B) make sure that the person conducting the trades is also the person responsible for recording the transactions. C) encourage traders to take on more risk if the potential rewards are higher. D) reduce the regulations on the traders so that they have
134、more flexibility in conducting trades. Answer: A AACSB: Reflective Thinking 10) The principal-agent problem that exists for bank trading activities can be reduced through A) creation of internal controls that combine trading activities with bookkeeping. B) creation of internal controls that separate
135、 trading activities from bookkeeping. C) elimination of regulation of banking. D) elimination of internal controls. Answer: B AACSB: Reflective Thinking 29 11) Banks develop statistical models to calculate their maximum loss over a given time period. This approach is known as the A) stress-testing a
136、pproach. B) value-at-risk approach. C) trading-loss approach. D) doomsday approach. Answer: B AACSB: Application of Knowledge 12) When banks calculate the losses the institution would incur if an unusual combination of bad events happened, the bank is using the _ approach. A) stress-test B) value-at
137、-risk C) trading-loss D) maximum value Answer: A AACSB: Application of Knowledge 9.7 Web Appendix 1: Duration Gap Analysis 1) Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 perce
138、nt, the net worth of the bank falls by A) $1 million. B) $2.4 million. C) $3.6 million. D) $4.8 million. Answer: D AACSB: Analytical Thinking 2) Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. The duration gap for this bank is
139、 A) 0.5 year. B) 1 year. C) 1.5 years. D) 2 years. Answer: C AACSB: Analytical Thinking 3) If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2 years would experience a decrease in its net worth of A) 0.9 percent of its assets. B) 0.9 percent of its liabilities. C
140、) 1.8 percent of its liabilities. D) 1.8 percent of its assets. Answer: D AACSB: Analytical Thinking 30 4) One of the problems in conducting a duration gap analysis is that the duration gap is calculated assuming that interest rates for all maturities are the same. That means that the yield curve is
141、 A) flat. B) slightly upward sloping. C) steeply upward sloping. D) downward sloping. Answer: A AACSB: Reflective Thinking 9.8 Web Appendix 2: Measuring Bank Performance 1) Most of a banks operating income results from A) interest on assets. B) service charges on deposit accounts. C) off-balance-she
142、et activities. D) fees from standby lines of credit. Answer: A AACSB: Reflective Thinking 2) All of the following are operating expenses for a bank EXCEPT A) service charges on deposit accounts. B) salaries and employee benefits. C) rent on buildings. D) servicing costs of equipment such as computer
143、s. Answer: A AACSB: Reflective Thinking 3) When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank A) can set aside $1 million of its earnings in its loan loss reserves account. B) reduces its reported earnings by $1, even though
144、 it has not yet actually lost the $1 million. C) reduces its assets immediately by $1 million, even though it has not yet lost the $1 million. D) reduces its reserves by $1 million, so that they can use those funds later. Answer: A AACSB: Reflective Thinking 4) For banks A) return on assets exceeds
145、return on equity. B) return on assets equals return on equity. C) return on equity exceeds return on assets. D) return on equity is another name for net interest margin. Answer: C AACSB: Reflective Thinking 31 5) Interest income minus interest expenses divided by assets is a measure of bank performa
146、nce known as the A) operating income. B) net interest margin. C) return on assets. D) return on equity. Answer: B AACSB: Application of Knowledge 6) Based on the Net Interest Margin the poor bank performance in the late 1980s A) was not the result of interest-rate movements. B) was not the result of risky loans made in the early 1980s. C) resulted from a narrowing of the gap between interest earned on assets and inters paid on liabilities. D) resulted from a huge decrease in provisions for loan losses. Answer: A AACSB: Reflective Thinking
