Financial Markets and Institutions, 8e (Mishkin)
1) Which of the following statements is 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) All of the above are true.
2) 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.
3) 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) A bank’s assets provide the bank with income.
D) Bank capital is an asset on the bank balance sheet.
4) A bank’s balance sheet
A) shows that total assets equal 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.
5) 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
6) 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 B and C of the above
7) 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.
8) 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.
9) 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.
10) 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
11) 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
12) Which of the following is checkable deposits?
A) Savings accounts
B) Small-denomination time deposits
C) Money market deposit accounts
D) Certificates of deposit
13) Which of the following are not checkable deposits?
A) Savings accounts
B) Small-denomination time deposits
C) Negotiable order of withdrawal accounts
D) All of the above
E) Only A and B of the above
14) Which of the following are checkable deposits?
A) Savings accounts
B) Small-denomination time deposits
C) Negotiable order of withdrawal accounts
D) Certificates of deposit
15) 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
16) 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
17) Which of the following would substitute for discount loans?
A) Loans to businesses
B) Repurchase agreements
C) Investing in Eurodollars
D) Loans to bank holding companies
E) Reverse repurchase agreements
18) 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
19) 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
20) 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
21) 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
22) 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
23) 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
24) Secondary reserves ________.
A) can be converted into cash with low transaction costs
B) are not easily converted into cash and are, therefore, of secondary importance to banks
C) count toward meeting required reserves, but only at a rate of $0.50 per dollar of secondary
reserves
D) of none of the above.
25) 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.
26) Which of the following bank assets are the least liquid?
A) Reserves
B) Mortgage loans
C) Cash items in process of collection
D) Deposits with other banks
27) Which of the following bank assets are the most liquid?
A) Consumer loans
B) Reserves
C) Cash items in process of collection
D) U.S. government securities
28) Loans
A) are the largest category of bank assets.
B) provide most of the bank’s revenues.
C) earn the highest return of all bank assets.
D) do all of the above.
E) are only A and B of the above.
29) A bank’s largest source of funds is its
A) nontransaction deposits.
B) checking deposits.
C) borrowing from the Fed.
D) federal funds.
30) Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and
return, and using the proceeds to buy ________ with a different set of characteristics.
A) loans; deposits
B) securities; deposits
C) liabilities; assets
D) assets; liabilities
31) In general, banks make profits by selling ________ liabilities and buying ________ assets.
A) long-term; shorter-term
B) short-term; longer-term
C) illiquid; liquid
D) risky; risk-free
32) When you deposit $50 in the First National Bank,
A) its liabilities decrease by $50.
B) its assets increase by $50.
C) its reserves increase by $50.
D) only B and C of the above occur.
33) When you deposit $50 in the First National Bank,
A) its liabilities decrease by $50.
B) its assets increase by $50.
C) its reserves decrease by $50.
D) only B and C of the above occur.
34) When you deposit $50 in currency at the Old National Bank,
A) its assets increase by $50.
B) its reserves increase by less than $50 because of reserve requirements.
C) its liabilities decrease by $50.
D) only A and B of the above occur.
35) When you deposit $50 in currency at the Old National Bank,
A) its assets increase by less than $50 because of reserve requirements.
B) its reserves increase by less than $50 because of reserve requirements.
C) its liabilities increase by $50.
D) only A and B of the above occur.
36) When a $10 check written on the First National Bank is deposited in an account at the
Second National Bank, then
A) the liabilities of the First National Bank decrease by $10.
B) the reserves of the First National Bank increase by $10.
C) the liabilities of the Second National Bank decrease by $10.
D) the assets of Second National Bank decrease by $10.
37) When a $10 check written on the First National Bank is deposited in an account at the
Second National Bank, then
A) the liabilities of the First National Bank decrease by $10.
B) the liabilities of the Second National Bank increase by $10.
C) the reserves of the First National Bank increase by $10.
D) all of the above occur.
E) only A and B of the above occur.
38) Holding all else constant, when a bank receives the funds for a deposited check,
A) cash items in process of collection fall by the amount of the check.
B) bank assets increase by the amount of the check.
C) bank liabilities decrease by the amount of the check.
D) all of the above occur.
39) Holding all else constant, when a bank receives the funds for a deposited check,
A) cash items in process of collection fall by the amount of the check.
B) bank assets remain unchanged.
C) bank liabilities decrease by the amount of the check.
D) all of the above occur.
E) only A and B of the above occur.
40) A bank manager has which of the following concerns?
A) To acquire funds at low cost
B) To minimize risk by diversifying asset holdings
C) To have enough ready cash to meet deposit outflows
D) All of the above
41) Which of the following are primary concerns of a bank manager?
A) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows
B) Extending loans to borrowers who will pay high interest rates, but who are also good credit
risks
C) Acquiring funds at a relatively low cost, so that profitable lending opportunities can be
realized
D) All of the above
42) Bankers’ concern regarding the optimal mix of excess reserves, secondary reserves,
borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an
example of
A) liability management.
B) liquidity management.
C) managing interest-rate risk.
D) none of the above.
43) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank
chooses not to hold any excess reserves but instead makes loans, then in the bank’s final balance
sheet,
A) the assets at the bank increase by $200,000.
B) the liabilities of the bank increase by $200,000.
C) reserves increase by $200,000.
D) all of the above occur.
44) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank
chooses not to hold any excess reserves but instead makes loans, then in the bank’s final balance
sheet,
A) the assets at the bank increase by $800,000.
B) the liabilities of the bank increase by $1,000,000.
C) the liabilities of the bank increase by $800,000.
D) reserves increase by $160,000.
45) If a bank has $1 million of deposits, a required reserve ratio of 20 percent, and $300,000 in
reserves, it need not rearrange its balance sheet if there is a deposit outflow of
A) $50,000.
B) $75,000.
C) $150,000.
D) either A or B of the above.
46) If a bank has $100,000 of deposits, a required reserve ratio of 20 percent, and $40,000 in
reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is
A) $30,000.
B) $25,000.
C) $20,000.
D) $10,000.