Chapter 23

Question 1

compensating balances

Answer 1

: A required minimum amount
of funds that a firm receiving a loan must keep in
a checking account at the bank.

Question 2

credit rationing

Answer 2

A lender’s refusing to make loans
even though borrowers are willing to pay the
stated interest rate or even a higher rate or
restricting the size of loans to less than the
amount being sought.

Question 3

duration gap analysis

Answer 3

: A measurement of the sensitivity of the market value of a bank’s assets and
liabilities to changes in interest rates.

Question 4

gap analysis

Answer 4

A measurement of the sensitivity
of bank profits to changes in interest rates,
calculated by subtracting the amount of
rate-sensitive liabilities minus rate-sensitive
assets. (Also called income gap
analysis.)

Question 5

loan commitment

Answer 5

A bank’s commitment (for a specified future period of time) to provide a firm with
loans up to a given amount at an interest rate
that is tied to some market interest rate.