Question 1

Banks want to hold as little cash as possible because holding cash

Accepted Answer

A)  provides very little liquidity.
B)  offers a minimal rate of return.
C)  is risky.
D)  provides too much liquidity.E) B) and D)
F) None of the above

Question 2

Which of the following is the most liquid of a bank's assets?

Accepted Answer

A)  Business loans
B)  Consumer loans
C)  Securities
D)  CashE) B) and D)
F) A) and C)

Question 3

Why are US Treasury securities an attractive asset for banks?

Accepted Answer

A)  They are backed by the global banking system.
B)  They have a short term to maturity.
C)  They offer a high rate of return.
D)  They have a low default risk.E) None of the above
F) B) and C)

Question 4

Which two of these activities define the essence of how a bank functions?

Accepted Answer

A)  Banks take deposits and disperse funds.
B)  Banks disperse funds and make loans.
C)  Banks take deposits and buy US Treasury securities.
D)  Banks take deposits and make loans.E) A) and B)
F) A) and C) D

Question 5

Regulation Q, part of the Banking Act of 1933, prohibited banks from paying

Accepted Answer

A)  interest on checking accounts.
B)  interest on savings accounts.
C)  higher interest on checking accounts than they did on savings accounts.
D)  higher interest on savings accounts than they did on checking accounts.E) B) and C)
F) A) and D)

Question 6

One very important function that banks perform in a society is matching savers with borrowers.

Accepted Answer

A) True 
 B)False

Question 7

Liquidity is important to banks because it

Accepted Answer

A)  allows them to earn a high rate of return.
B)  allows them to meet the cash needs of their depositors.
C)  lowers their cost of doing business.
D)  increases their profits.E) A) and B)
F) All of the above

Question 8

Over the past several decades, shrinking interest rate spreads have led banks to turn to fee-based services to generate revenue.

Accepted Answer

A) True 
 B)False

Question 9

Which of these are among the liabilities on a bank's balance sheet?

Accepted Answer

A)  Cash and savings accounts
B)  Bonds and cash
C)  Consumer loans and demand deposits
D)  Demand deposits and savings accountsE) A) and B)
F) A) and C)

Question 10

The business of banking can best be described in which of these ways?

Accepted Answer

A)  Converting short-term liabilities into short-term assets
B)  Converting long-term liabilities into long-term assets
C)  Converting monetary deposits into loans
D)  Creating new liabilitiesE) A) and B)
F) A) and C)

Question 11

If a bank made a self-liquidating inventory loan, it would be making a __________ loan.

Accepted Answer

A)  long-term business
B)  long-term consumer
C)  short-term business
D)  short-term consumerE) All of the above
F) C) and D)

Question 12

Banks will most often use financial derivatives, known as derivative contracts, for which of these purposes?

Accepted Answer

A)  To improve their liquidity position
B)  To hedge exchange rate or interest rate risk
C)  To balance a risky loan portfolio
D)  To bolster their reserve positionE) B) and C)
F) All of the above B

Question 13

Banks must weigh the risk versus the return in deciding

Accepted Answer

A)  what to hold in their portfolio of assets.
B)  what interest rate to pay on deposit accounts.
C)  whether to become a Federal Reserve bank.
D)  what portion of their deposits to hold in the form of reserves.E) C) and D)
F) All of the above

Question 14

The Dodd-Frank Act allowed banks, for the first time, to

Accepted Answer

A)  issue certificates of deposit.
B)  pay interest on savings accounts.
C)  pay interest on demand deposits.
D)  purchase junk bonds.E) B) and D)
F) A) and C)

Question 15

What are two common names for smaller banks?

Accepted Answer

A)  Community or retail banks
B)  State or community banks
C)  Mini or retail banks
D)  Local or state banksE) B) and C)
F) A) and D)

Question 16

US government securities are the most liquid assets that banks hold.

Accepted Answer

A) True 
 B)False

Question 17

What do economists mean when they say that banks perform the function of asset transformation?

Accepted Answer

Asset transformation is the process by w...

Question 18

What are transaction accounts? Give examples.

Accepted Answer

Transaction accounts are accounts from w...

Question 19

Savings accounts and certificates of deposit are commonly referred to as __________ accounts.

Accepted Answer

A)  transaction
B)  nontransaction
C)  liquidity
D)  interest rateE) A) and D)
F) A) and C)

Question 20

What is the term for mortgages that are pooled together and then sold to investors?

Accepted Answer

A)  Mortgage-backed securities
B)  Pooled mortgages
C)  Mortgage-backed assets
D)  Risk-free mortgage securitiesE) B) and C)
F) A) and B) A

Exam 12: Bank Management

Banks want to hold as little cash as possible because holding cash

Correct AnswerverifiedShow Answer

Which of the following is the most liquid of a bank's assets?

Correct AnswerverifiedShow Answer

Why are US Treasury securities an attractive asset for banks?

Correct AnswerverifiedShow Answer

Which two of these activities define the essence of how a bank functions?

Correct AnswerverifiedD

Regulation Q, part of the Banking Act of 1933, prohibited banks from paying

Correct AnswerverifiedShow Answer

One very important function that banks perform in a society is matching savers with borrowers.

Correct AnswerverifiedShow Answer

Liquidity is important to banks because it

Correct AnswerverifiedShow Answer

Over the past several decades, shrinking interest rate spreads have led banks to turn to fee-based services to generate revenue.

Correct AnswerverifiedShow Answer

Which of these are among the liabilities on a bank's balance sheet?

Correct AnswerverifiedShow Answer

The business of banking can best be described in which of these ways?

Correct AnswerverifiedShow Answer

If a bank made a self-liquidating inventory loan, it would be making a __________ loan.

Correct AnswerverifiedShow Answer

Banks will most often use financial derivatives, known as derivative contracts, for which of these purposes?

Correct AnswerverifiedB

Banks must weigh the risk versus the return in deciding

Correct AnswerverifiedShow Answer

The Dodd-Frank Act allowed banks, for the first time, to

Correct AnswerverifiedShow Answer

What are two common names for smaller banks?

Correct AnswerverifiedShow Answer

US government securities are the most liquid assets that banks hold.

Correct AnswerverifiedShow Answer

What do economists mean when they say that banks perform the function of asset transformation?

Correct AnswerverifiedAsset transformation is the process by w...View AnswerShow Answer

What are transaction accounts? Give examples.

Correct AnswerverifiedTransaction accounts are accounts from w...View AnswerShow Answer

Savings accounts and certificates of deposit are commonly referred to as __________ accounts.

Correct AnswerverifiedShow Answer

What is the term for mortgages that are pooled together and then sold to investors?

Correct AnswerverifiedA

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D

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B

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Asset transformation is the process by w...
View Answer

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Transaction accounts are accounts from w...
View Answer

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A