Ch.9 Flashcards
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.
A. an increase; increase
B. a decline; reduce
C. a decline; not affect
D. an increase; reduce
D
When you deposit a $50 bill in the Security Pacific National Bank
A. its liabilities decrease by $50.
B. its cash items in the process of collection increase by $50.
C. its assets increase by $50.
D. its reserves decrease by $50.
C
Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.
A. discount loans; source
B. fed funds; use
C. fed funds; source
D. discount loans; use
A
Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.
A. increase; screen
B. reduce; screen
C. reduce; increase
D. increase; increase
B
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
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. maintaining high levels of capital and thus maximizing the returns to the owners
D. acquiring funds at a relatively high cost, so that profitable lending opportunities can be realized
A
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 reserves increase by the amount of required reserves.
D. bank liabilities decrease by the amount of the check.
A
Bank ________ is/are listed on the liability side of the bank’s balance sheet.
A. securities
B. reserves
C. cash items
D. capital
D
First National Bank
Rate sensitive (Assets:20 mil, Liabilities: 50 mil)
Fixed rate (Assets: 80 mil, Liabilities: 50 mil)
If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will
A. decline by $1.5 million.
B. decline by $0.5 million.
C. decline by $2.5 million.
D. increase by $1.5 million.
A
Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap for several maturity subintervals times the change in the interest rate is called
Incorrect Response
A. basic gap analysis.
B. the segmented maturity approach to gap analysis.
C. the maturity bucket approach to gap analysis.
D. the segmented maturity approach to interest-exposure analysis.
C
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 bank’s assets.
B. to increase the duration of the bank’s liabilities.
C. to buy short-term bonds.
D. to sell long-term certificates of deposit.
A
A deposit outflow results in equal reductions in
A. assets and capital.
B. assets and liabilities.
C. loans and reserves.
D. reserves and capital.
B
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
A. coercive bargaining.
B. collusive behavior.
C. credit rationing.
D. strategic holding out.
C
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
If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then
A. interest rate changes will not impact bank profits.
B. an increase in interest rates will reduce bank profits.
C. a decrease in interest rates will increase bank profits.
D. a decrease in interest rates will reduce bank profits.
D
