Topic 4 Flashcards
In the last 30 years, the number of banks with branches has \_\_\_\_, while the number of unit banks has \_\_\_\_\_. A. Increased; increased B. Decreased; decreased C. Increased; decreased D. Decreased; increased
C. Increased; decreased
The majority of banks have a ______
A. State charters
B. Federal charter
C. Both a state and a federal charter
A. State charters
The U.S. has many banks because:
A. small banks are more profitable than large banks
B. many states outlawed bank branching
C. the Great Depression caused the failure of the large banks, leaving many small banks
D. the Glass-Steagall Act forced the splitting up of large banks.
B. many states outlawed bank branching
Considering a bank’s balance sheet, which of the following statements is false?
A. Assets + Liabilities = Capital
B. Assets = Liabilities + Capital
C. Liabilities = Assets - Capital
D. Capital = Assets - Liabilities
A. Assets + Liabilities = Capital
A mortgage loan appears as a ____ on a bank’s balance sheet and as a ____ on a person’s balance sheet.
A. Asset; equity B. Asset; liability C. Liability; equity D. Liability; asset E. Equity; asset F. Equity; liability
B. Asset; liability
One measure of a bank’s profitability is “net interest income”. This is based on the idea that
A. A bank pays higher interest rates to deposits than it receives from loans
B. A bank receives higher interest rates on its assets relative to what it pays for its liabilities
C. A bank’s liabilities earn interest income
B. A bank receives higher interest rates on its assets relative to what it pays for its liabilities
Which of the following statements is not true?
A. The largest source of funds for banks to lend comes from the owner’s capital.
B. Transaction deposits make up less than 10 percent of banks sources of funds.
C. The largest sources of funds for banks are non-transactions accounts.
D. Borrowings are a larger source of funds for banks than transaction deposits.
A. The largest source of funds for banks to lend comes from the owner’s capital.
A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors. 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.
A. liquidity risk.
Interest rate risk arises because
A. A bank’s assets tend to be more interest rate sensitive than its liabilities
B. A bank’s liabilities tend to be more interest rate sensitive than its assets
C. A bank’s capital tends to increase when interest rates rise
B. A bank’s liabilities tend to be more interest rate sensitive than its assets
Credit risk is a bigger problem for
A. larger banks because they have more loans
B. larger banks because they tend to be geographically concentrated
C. smaller banks because they tend to have less diversified markets
D. smaller banks because they have lower amounts of capital
C. smaller banks because they tend to have less diversified markets
Insurance companies perform all of the following functions performed by financial intermediaries except:
A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
D. supplying liquidity.
D. supplying liquidity
In general, finance companies differ from banks
A. In their composition of assets
B. In their composition of liabilities
C. In their composition of equity
D. Both A and B
B. In their composition of liabilities
A bank run can occur when
A. A bank is insolvent B. A bank has liquidity risk C. A bank doesn’t have enough cash on hand D. A bank’s leverage increases E. Both C and D are correct
C. A bank doesn’t have enough cash on hand
A “lender of last resort” is
A. A bank that people with bad credit can borrow from
B. A large bank that lends to other banks
C. The Federal Reserve in the U.S.
D. Another name for being able to borrow from your parents
C. The Federal Reserve in the U.S.
Deposit insurance is believed to have
A. Increased leverage B. Decreased leverage C. Increased risk taking D. Decreased risk taking E. Both A and C F. Both B and C
E. Both A and C
