C9,The Banking Firm and the Management of Financial Institution

Chapter 9 The Banking Firm and the Management of Financial Institutions � Multiple Choice 1) A bank’s balance sheet (a) shows that total assets equals total liabilities plus equity capital. (b) lists sources and uses of bank funds. (c) indicates whether or not the bank is profitable. (d) does all of the above. (e) does only (a) and (b) of the above. Answer: E Question Status: Previous Edition 2) A bank’s balance sheet (a) shows that total assets equals total liabilities plus equity capital. (b) lists sources and uses of bank funds. (c) indicates whether or not the bank is solvent. (d) does all of the above. (e) does only (a) and (b) of the above. Answer: D Question Status: Previous Edition 3) Which of the following statements are true? (a) A bank’s assets are its sources of funds. (b) A bank’s liabilities are its uses of funds. (c) A bank’s balance sheet shows that total assets equal total liabilities plus equity capital. (d) Each of the above. Answer: C Question Status: Previous Edition 304 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 4) Which of the following statements are true? (a) A bank’s assets are its uses of funds. (b) A bank’s liabilities are its sources of funds. (c) A bank’s balance sheet has the property that total assets equal the sum of total liabilities and equity capital. (d) Each of the above are true. (e) Only (a) and (b) of the above are true. Answer: D Question Status: Previous Edition 5) Which of the following statements is true? (a) A bank’s assets are its uses of funds. (b) A bank’s assets are its sources of funds. (c) A bank’s liabilities are its uses of funds. (d) Only (b) and (c) of the above are true. Answer: A Question Status: Previous Edition 6) Which of the following statements is false? (a) A bank’s assets are its uses of funds. (b) A bank issues liabilities to acquire funds. (c) The bank’s assets provide the bank with income. (d) Bank capital is an asset in the bank balance sheet. Answer: D Question Status: Previous Edition 7) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Reserves (b) Checkable deposits (c) Loans (d) Deposits with other banks Answer: B Question Status: Previous Edition 8) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Discount loans (b) Checkable deposits (c) U.S. Treasury securities (d) Only (a) and (b) of the above Answer: D Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 305 9) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Reserves (b) Small denomination time deposits (c) Loans (d) Deposits with other banks Answer: B Question Status: Previous Edition 10) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Nontransaction deposits (b) Bank capital (c) Loans (d) Only (a) and (b) of the above (e) Only (b) and (c) of the above Answer: D Question Status: Previous Edition 11) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Discount loans (b) Cash items in the process of collection (c) State government securities (d) All of the above (e) Only (a) and (b) of the above Answer: A Question Status: Previous Edition 12) Which of the following are reported as liabilities on a bank’s balance sheet? (a) Bank capital (b) Loans (c) Reserves (d) All of the above (e) Only (a) and (b) of the above Answer: A Question Status: Study Guide 13) The share of checkable deposits in total bank liabilities has (a) expanded moderately over time. (b) expanded dramatically over time. (c) shrunk over time. (d) remained virtually unchanged since 1960. Answer: C Question Status: Previous Edition 306 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 14) Checkable deposits and money market deposit accounts are (a) payable on demand. (b) liabilities of the banks. (c) assets of the banks. (d) only (a) and (b) of the above. (e) only (a) and (c) of the above. Answer: D Question Status: Previous Edition 15) Which of the following statements is false? (a) Checkable deposits are usually the lowest cost source of bank funds. (b) Checkable deposits are the primary source of bank funds. (c) Checkable deposits are payable on demand. (d) Checkable deposits include NOW accounts. Answer: B Question Status: Previous Edition 16) In recent years the interest paid on checkable and time deposits has accounted for around _____ of total bank operating expenses, while the costs involved in servicing accounts have been approximately _____ of operating expenses. (a) 45 percent; 55 percent (b) 55 percent; 4 percent (c) 30 percent; 50 percent (d) 50 percent; 30 percent Answer: C Question Status: Previous Edition 17) In recent years the interest paid on checkable and time deposits has accounted for around (a) 60 percent of total bank operating expenses. (b) 45 percent of total bank operating expenses. (c) 30 percent of total bank operating expenses. (d) 20 percent of total bank operating expenses. Answer: C Question Status: Previous Edition 18) In recent years the costs involved in servicing checkable and time deposit accounts have been approximately (a) 65 percent of total bank operating expenses. (b) 75 percent of total bank operating expenses. (c) 50 percent of total bank operating expenses. (d) 25 percent of total bank operating expenses. Answer: C Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 307 19) Which of the following statements is false? (a) The expenses involved in servicing accounts (salaries, building rent, etc.) make up over half the costs of running a bank. (b) Nontransaction deposits are the primary source of bank funds. (c) Demand deposits are checkable deposits that pay no interest. (d) Technically, savings deposits are not payable on demand. Answer: A Question Status: Previous Edition 20) Which of the following statements are true? (a) Checkable deposits are usually the lowest cost source of bank funds. (b) Checkable deposits are payable on demand. (c) Checkable deposits include NOW accounts. (d) All of the above are true. Answer: D Question Status: Previous Edition 21) Which of the following statements are true? (a) Checkable deposits are payable on demand. (b) Checkable deposits include NOW accounts. (c) Checkable deposits are the primary source of bank funds. (d) All of the above are true. (e) Only (a) and (b) of the above are true. Answer: E Question Status: Previous Edition 22) Which of the following statements are true? (a) Nontransaction deposits are the primary source of bank funds. (b) Demand deposits are checkable deposits that pay no interest. (c) Technically, savings deposits are not payable on demand. (d) All of the above are true. (e) Only (a) and (b) of the above are true. Answer: D Question Status: Previous Edition 23) Which of the following statements are true? (a) Demand deposits are the primary source of bank funds. (b) Demand deposits are checkable deposits that pay no interest. (c) The expenses involved in servicing accounts (salaries, building rent, etc.) make up over half the costs of running a bank. (d) Only (a) and (b) of the above are true. Answer: B Question Status: Previous Edition 308 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 24) Which of the following are transaction deposits? (a) Savings accounts (b) Small-denomination time deposits (c) Negotiable order of withdraw accounts (d) Certificates of deposit Answer: C Question Status: Previous Edition 25) Which of the following are not nontransaction deposits? (a) Savings accounts (b) Small-denomination time deposits (c) Negotiable order of withdraw accounts (d) Certificates of deposit Answer: C Question Status: Previous Edition 26) Which of the following are nontransaction deposits? (a) Savings accounts (b) Small-denomination time deposits (c) Certificates of deposit (d) All of the above (e) Only (a) and (b) of the above. Answer: D Question Status: Previous Edition 27) Which of the following are nontransaction deposits? (a) Savings accounts (b) Small-denomination time deposits (c) Negotiable order of withdraw accounts (d) All of the above (e) Only (a) and (b) of the above Answer: E Question Status: Previous Edition 28) Large-denomination CDs are _____, so that like a bond they can be resold in a _____ market before they mature. (a) nonnegotiable; secondary (b) nonnegotiable; primary (c) negotiable; secondary (d) negotiable; primary Answer: C Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 309 29) Because checking accounts are _____ liquid for the depositor than passbook savings, they earn _____ interest rates. (a) less; higher (b) less; lower (c) more; higher (d) more; lower Answer: D Question Status: Previous Edition 30) Because passbook savings are _____ liquid for the depositor than checking accounts, they earn _____ interest rates. (a) less; higher (b) less; lower (c) more; higher (d) more; lower Answer: A Question Status: Previous Edition 31) Because _____ are less liquid for the depositor than _____, they earn higher interest rates. (a) money market deposit accounts; time deposits (b) checkable deposits; passbook savings (c) passbook savings; checkable deposits (d) passbook savings; time deposits Answer: C Question Status: Previous Edition 32) Because time deposits are _____ liquid for the depositor than passbook savings, they earn _____ interest rates. (a) less; higher (b) less; lower (c) more; higher (d) more; lower Answer: A Question Status: Previous Edition 33) Because _____ are less liquid for the depositor than _____, they earn higher interest rates. (a) passbook savings; time deposits (b) money market deposit accounts; time deposits (c) money market deposit accounts; passbook savings (d) time deposits; passbook savings Answer: D Question Status: Previous Edition 310 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 34) Bank capital is listed on the _____ side of the bank’s balance sheet because it represents a _____ of funds. (a) liability; use (b) liability; source (c) asset; use (d) asset; source Answer: B Question Status: Previous Edition 35) Banks acquire funds from such sources as (a) checkable deposits. (b) savings accounts. (c) reserves. (d) all of the above. (e) only (a) and (b) of the above. Answer: E Question Status: Previous Edition 36) Banks acquire funds from such sources as (a) bank capital. (b) cash items in the process of collection. (c) reserves. (d) only (a) and (b) of the above. Answer: A Question Status: Previous Edition 37) Banks acquire the funds that they use to purchase income-earning assets from such sources as (a) checkable deposits. (b) savings accounts. (c) reserves. (d) all of the above. (e) only (a) and (b) of the above. Answer: E Question Status: Previous Edition 38) Banks acquire the funds that they use to purchase income-earning assets from such sources as (a) bank capital. (b) cash items in the process of collection. (c) reserves. (d) all of the above. (e) only (a) and (b) of the above. Answer: A Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 311 39) Bank loans from the Federal Reserve are called _____ and represent a _____ of funds. (a) discount loans; use (b) discount loans; source (c) fed funds; use (d) fed funds; source Answer: B Question Status: Previous Edition 40) Bank reserves (a) equal bank deposits at the Fed. (b) include holdings of U.S. government securities. (c) can be divided up into required and excess reserves. (d) all of the above. (e) both (a) and (c) of the above. Answer: C Question Status: Study Guide 41) Bank reserves include (a) deposits at the Fed. (b) vault cash. (c) short-term Treasury securities. (d) all of the above. (e) both (a) and (b) of the above. Answer: E Question Status: New 42) Bank reserves include (a) deposits at the Fed and short-term treasury securities. (b) vault cash and short-term Treasury securities. (c) short-term Treasury securities and municipal securities. (d) deposits at other banks and deposits at the Fed. (e) vault cash and deposits at the Fed. Answer: E Question Status: New 43) The fraction of checkable deposits that banks are required by regulation to hold are (a) excess reserves. (b) required reserves. (c) vault cash. (d) all of the above. (e) both (a) and (b) of the above. Answer: B Question Status: New 312 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 44) The sum of reserves, cash items in the process of collection, and deposits in other banks are know as (a) secondary reserves. (b) cash items. (c) liquid items. (d) compensating balances. (e) correspondent balances. Answer: B Question Status: Study Guide 45) Which of the following are reported as assets on a bank’s balance sheet? (a) U.S. Treasury securities (b) Loans (c) Discount loans from the Fed (d) Only (a) and (b) of the above Answer: D Question Status: Previous Edition 46) Which of the following are reported as assets on a bank’s balance sheet? (a) Discount loans from the Fed (b) Loans (c) Borrowings (d) Only (a) and (b) of the above Answer: B Question Status: Previous Edition 47) Which of the following are reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Loans (c) Borrowings (d) Only (a) and (b) of the above Answer: D Question Status: Previous Edition 48) Which of the following are reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Checkable deposits (c) Borrowings (d) Bank capital Answer: A Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 313 49) Which of the following are reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Deposits with other banks (c) Checkable deposits (d) Bank capital (e) Only (a) and (b) of the above Answer: E Question Status: Previous Edition 50) Which of the following are reported as assets on a bank’s balance sheet? (a) U.S. Treasury securities (b) Reserves (c) Loans (d) All of the above (e) Only (a) and (b) of the above Answer: D Question Status: Previous Edition 51) Which of the following are reported as assets on a bank’s balance sheet? (a) Discount loans from the Fed (b) Loans (c) Reserves (d) Only (a) and (b) of the above (e) Only (b) and (c) of the above Answer: E Question Status: Previous Edition 52) Which of the following are reported as assets on a bank’s balance sheet? (a) Borrowings (b) Reserves (c) Savings deposits (d) Bank capital (e) Only (a) and (b) of the above Answer: B Question Status: Previous Edition 53) Which of the following are reported as assets on a bank’s balance sheet? (a) Reserves (b) Checkable deposits (c) Borrowings (d) Bank capital Answer: A Question Status: Previous Edition 314 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 54) Which of the following are reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Deposits with other banks (c) U.S. Treasury securities (d) All of the above Answer: D Question Status: Previous Edition 55) Which of the following are not reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Deposits with other banks (c) U.S. Treasury securities (d) Checkable deposits Answer: D Question Status: Previous Edition 56) Which of the following are not reported as assets on a bank’s balance sheet? (a) Cash items in the process of collection (b) Borrowings (c) U.S. Treasury securities (d) Reserves Answer: B Question Status: Previous Edition 57) Which of the following are not reported as assets on a bank’s balance sheet? (a) Discount loans from the Fed (b) Loans (c) Reserves (d) Only (a) and (b) of the above Answer: A Question Status: Previous Edition 58) Which of the following are not reported as assets on a bank’s balance sheet? (a) Borrowings (b) Savings deposits (c) Reserves (d) Only (a) and (b) of the above Answer: D Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 315 59) Through correspondent banking, large banks provide services to small banks, including (a) check collection. (b) foreign exchange transactions. (c) issuing stock. (d) all of the above. (e) both (a) and (b) of the above. Answer: E Question Status: New 60) Through correspondent banking, large banks provide services to small banks, including (a) check collection. (b) foreign exchange transactions. (c) help with security purchases. (d) all of the above. (e) both (a) and (b) of the above. Answer: D Question Status: New 61) Banks’ holdings of securities consist primarily of (a) Treasury and government agency securities. (b) tax-exempt municipal securities. (c) state and local government securities. (d) corporate securities. Answer: A Question Status: Previous Edition 62) Which of the following bank assets is the most liquid? (a) Consumer loans (b) Reserves (c) Cash items in process of collection (d) U.S. government securities Answer: B Question Status: Previous Edition 63) Of the following bank assets, the most liquid is (a) consumer loans. (b) state and local government securities. (c) physical capital. (d) U.S. government securities. (e) commercial loans. Answer: D Question Status: Study Guide 316 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition 64) The most important category of assets on a bank’s balance sheet is (a) discount loans. (b) securities. (c) gold. (d) cash items in the process of collection. (e) none of the above. Answer: E Question Status: Previous Edition 65) The most important category of assets on a bank’s balance sheet is (a) discount loans. (b) securities. (c) loans. (d) cash items in the process of collection. Answer: C Question Status: Previous Edition 66) Which of the following bank assets is the least liquid? (a) Reserves (b) Secondary reserves (c) Deposits with other banks (d) Cash items in process of collection Answer: B Question Status: Previous Edition 67) Secondary reserves include (a) deposits at Federal Reserve Banks. (b) deposits at other large banks. (c) short-term Treasury securities. (d) state and local government securities. (e) all of the above. Answer: C Question Status: New 68) Because of their _____ liquidity, _____ U.S. government securities are called secondary reserves. (a) low; short-term (b) low; long-term (c) high; short-term (d) high; long-term Answer: C Question Status: Previous Edition Chapter 9 The Banking Firm and the Management of Financial Institutions 317 69) Secondary reserves are so called because (a) they can be converted into cash with low transactions costs. (b) they are not easily converted into cash, and are, therefore, of secondary importance to banking firms. (c) 50% of these assets count toward meeting required reserves. (d) of none of the above. Answer: A Question Status: Previous Edition 70) Banks’ holdings of securities consist primarily of (a) Treasury and government agency securities. (b) tax-ex