Question 1

Which of the following statements about checkable deposits is correct?

Accepted Answer

A)  Checkable deposits are a larger fraction of banks' funds today than in 1973.
B)  Checkable deposits are a smaller fraction of banks' funds today than in 1973.
C)  All checkable deposits pay interest.
D)  No checkable deposits pay interest.E) C) and D)
F) B) and D)

Question 2

Bank capital is

Accepted Answer

A)  the current market value of the bank's physical assets.
B)  the historical or original value of the bank's physical assets.
C)  the capital contributed by the bank's shareholders plus accumulated retained profits.
D)  the sum of the value of the bank's assets plus the value of the bank's liabilities.E) B) and C)
F) C) and D)

Question 3

A cash item in the process of collection is

Accepted Answer

A)  a U.S. Treasury bill that has matured, but for which the bank has not yet received payment.
B)  a car loan payment that is due but not yet received by the bank.
C)  a check drawn against another bank, from whom the funds have not yet been collected.
D)  currency that has been deposited in the bank, but not yet formally counted and entered into the bank's balance sheet.E) All of the above
F) C) and D)

Question 4

Banks make use of the federal funds market in part to

Accepted Answer

A)  pay their tax liabilities.
B)  manage liquidity risk.
C)  deal with moral hazard.
D)  deal with adverse selection.E) A) and B)
F) A) and C)

Question 5

By 2012, what share of U.S. assets were held by the 10 largest banks in the United States?

Accepted Answer

A)  10%
B)  29%
C)  55%
D)  68%E) None of the above
F) All of the above

Question 6

If you have $2 million in a CD at a commercial bank that is a member of the FDIC, how much of your funds are uninsured?

Accepted Answer

A)  $0
B)  $1 million
C)  $1.75 million
D)  $2 millionE) All of the above
F) None of the above

Question 7

Which asset is sometimes referred to as a bank's secondary reserves?

Accepted Answer

A)  vault cash
B)  U) S. government securities
C)  repurchase agreements
D)  federal fundsE) C) and D)
F) B) and D)

Question 8

In order to reduce the likelihood of excessive leverage in the banking system, governments have traditionally

Accepted Answer

A)  imposed capital requirements on commercial banks.
B)  imposed capital requirement on investment banks.
C)  imposed capital requirements on both commercial and investment banks.
D)  imposed asset requirements on all banks.E) None of the above
F) A) and D)

Question 9

Which of the following is NOT covered by federal deposit insurance?

Accepted Answer

A)  savings account
B)  money market mutual funds
C)  checking account
D)  money market deposit accountE) None of the above
F) B) and D)

Question 10

What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries?

Accepted Answer

A)  Economies of scale are greater in banking in the United States than in banking in other countries.
B)  legislation that led to the development of state and national banks
C)  the Federal Reserve System
D)  the National BankE) C) and D)
F) B) and D)

Question 11

The difference between a demand deposit and a NOW account is that

Accepted Answer

A)  checks may not be written against NOW account balances.
B)  demand deposits pay no interest.
C)  NOW accounts pay no interest.
D)  checks may not be written against demand deposit balances.E) None of the above
F) B) and C)

Question 12

If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

Accepted Answer

A)  0) 2%
B)  2) 1%
C)  5%
D)  20%E) None of the above
F) All of the above

Question 13

Excess reserves equal

Accepted Answer

A)  total reserves less required reserves.
B)  required reserves less total reserves.
C)  total reserves plus required reserves.
D)  required reserves divided by total reserves.E) None of the above
F) A) and D)

Question 14

When a bank issues a checkable deposit and loans the funds out to a business, it has transformed

Accepted Answer

A)  a financial asset for a saver into a liability for a borrower.
B)  a financial liability for a saver into a financial asset for a borrower.
C)  a short-term liability to a borrower into a long-term asset to a saver.
D)  one liability into another liability.E) A) and B)
F) B) and C)

Question 15

A loan officer uses a credit scoring system to

Accepted Answer

A)  compare the interest rate on a loan to interest rates on other assets with comparable risk.
B)  keep track of the fraction of a bank's assets tied up in loans to a single individual or business.
C)  predict statistically whether an individual is likely to default on a loan.
D)  match any particular loan with the deposits being used to fund it.E) A) and B)
F) None of the above

Question 16

Collateral is

Accepted Answer

A)  the interest rate that banks charge high-quality borrowers.
B)  assets pledged to the bank in the event the borrower defaults.
C)  the difference between the value of a bank's assets and the value of a bank's liabilities.
D)  required reserves minus excess reserves.E) A) and C)
F) C) and D)

Question 17

When bank loan officers screen loan applicants to eliminate potentially bad risks, they are attempting to mitigate the problem of

Accepted Answer

A)  adverse selection.
B)  moral hazard.
C)  interest rate risk.
D)  illiquidity.E) B) and D)
F) B) and C)

Question 18

Congress introduced deposit insurance in response to

Accepted Answer

A)  the savings-and-loan crisis of the 1980s.
B)  the banking crisis of the 1930s.
C)  the demise of the Second Bank of the United States in 1836.
D)  the demise of the First Bank of the United States in 1811.E) A) and B)
F) A) and C)

Question 19

Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

Accepted Answer

A)  Demand deposits pay interest, whereas NOW accounts do not pay interest.
B)  Businesses may not hold NOW accounts.
C)  Checks may be written against demand deposits, but not against NOW accounts.
D)  Demand deposits are more liquid than NOW accounts.E) A) and D)
F) B) and C)

Question 20

As of 2012, about how many banks were there in the United States?

Accepted Answer

A)  57
B)  2000
C)  6200
D)  14,000E) B) and D)
F) A) and B)

Exam 10: The Economics of Banking

Congress introduced deposit insurance in response to

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Which of the following statements about checkable deposits is correct?

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As of 2012, about how many banks were there in the United States?

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In order to reduce the likelihood of excessive leverage in the banking system, governments have traditionally

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When a bank issues a checkable deposit and loans the funds out to a business, it has transformed

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Collateral is

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Banks make use of the federal funds market in part to

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Which asset is sometimes referred to as a bank's secondary reserves?

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A cash item in the process of collection is

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What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries?

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Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?

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A loan officer uses a credit scoring system to

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If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

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Which of the following is NOT covered by federal deposit insurance?

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Excess reserves equal

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Bank capital is

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The difference between a demand deposit and a NOW account is that

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If you have $2 million in a CD at a commercial bank that is a member of the FDIC, how much of your funds are uninsured?

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When bank loan officers screen loan applicants to eliminate potentially bad risks, they are attempting to mitigate the problem of

Correct AnswerverifiedShow Answer

By 2012, what share of U.S. assets were held by the 10 largest banks in the United States?

Correct AnswerverifiedShow Answer

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