Chapter 12 – Depository Institutions: Banks and Bank Management
Multiple Choice Questions
1. Which of the following correctly portrays a bank’s balance sheet?
A. Total Bank Liabilities = Total Bank Capital + Total Bank Assets
2. Considering a bank’s balance sheet, which of the following statements is true?
D. Total Bank Assets + Total Bank Liabilities = Total Bank Capital
3. Considering a bank’s balance sheet, which of the following statements is false?
D. Total Bank Capital = Total Bank Assets – Total Bank Liabilities
Chapter 12 – Depository Institutions: Banks and Bank Management
4. A bank’s net worth is synonymous with it’s:
A. Assets
5. Considering the balance sheet for all commercial banks in the U.S., the largest category of
assets is:
A. Cash items
6. Considering the balance sheet for all commercial banks in the U.S., the largest category of
liabilities is:
D. Borrowings from non-banks in the U.S.
Chapter 12 – Depository Institutions: Banks and Bank Management
7. Considering the balance sheet for all commercial banks in the U.S., the net worth of banks
is:
D. About the same as total liabilities
8. Considering the balance sheet for all commercial banks in the U.S., the net worth of banks
D. About 4 times total liabilities
9. The total assets of commercial banks in 2010 amounted to:
Chapter 12 – Depository Institutions: Banks and Bank Management
10. A bank’s reserves include:
A. U.S. Treasury bills
11. A bank’s reserves include:
D. U.S. Treasury bills and vault cash
12. A category of assets for banks is cash items in the process of collection. This is:
D. Payments from the FDIC insurance fund due the bank
Chapter 12 – Depository Institutions: Banks and Bank Management
13. Banks do not hold a lot of their assets in the form of cash mainly because of:
A. Regulation
14. Bank’s hold marketable securities as part of their assets. For U.S. banks these marketable
securities include:
A. Stocks and bonds
D. Deposits the bank has at the Federal Reserve
Chapter 12 – Depository Institutions: Banks and Bank Management
16. Over the past half century, the proportion of banks’ total assets held as securities has:
D. Not changed because securities are not a part of bank assets
17. Considering U.S. commercial banks, loans account for:
A. About one-third of total assets
18. One thing that is common for all bank loans is that they are:
Chapter 12 – Depository Institutions: Banks and Bank Management
19. Savings and loans primarily provide:
A. Large commercial loans
20. Commercial banks differ from credit unions in the following way:
D. Credit unions do not have to hold reserves while commercial banks do
21. Commercial banks increased their involvement in mortgages over the years due to:
D. The reduced risk of borrowers’ defaulting on mortgage loans
Chapter 12 – Depository Institutions: Banks and Bank Management
D. Borrowing is a larger source of funds for banks than transaction deposits
23. Checkable deposits have decreased since the 1970’s mainly because:
A. Regulators allowed higher rates to be paid on these accounts and banks found them to be
highly unprofitable
24. The primary difference in certificates of deposit (CDs) that are equal to or less than
$100,000 and those over $100,000 (other than the amount) is:
D. CDs greater than $100,000 are issued for only six months or less
Chapter 12 – Depository Institutions: Banks and Bank Management
25. The federal funds market:
A. Is the term used for bank borrowing from the Federal Reserve System
26. Loans made in the federal funds market:
A. Are highly collateralized
27. Which of the following statements best completes this sentence: “On a bank’s balance
sheet¼. “?
A. Liabilities show the uses of funds and assets show the sources of funds
Chapter 12 – Depository Institutions: Banks and Bank Management
28. Which of the following statements best completes this sentence: “On a bank’s balance
sheet¼. “?
A. Assets show the sources of funds and the net worth shows the uses of funds
29. Which of the following is a bank liability?
D. U.S. Treasury securities
30. Which of the following is a bank asset?
A. Demand deposits
Chapter 12 – Depository Institutions: Banks and Bank Management
31. Which of the following is not a bank liability?
D. Federal fund borrowings
32. Which of the following is not a bank asset?
A. Securities
33. Which of the following statements regarding checkable deposits is most accurate?
Chapter 12 – Depository Institutions: Banks and Bank Management
34. A non-transaction deposit would include each of the following, except:
D. A certificate of deposit
35. A repurchase agreement is:
A. An asset that represents the value of all collateral repossessed by the bank and held for sale
36. Repurchase agreements are usually used by banks that:
D. Cannot obtain financing from any other source
Chapter 12 – Depository Institutions: Banks and Bank Management
37. Capital is the cushion banks have against:
D. Moral hazard
38. Money Center Banks differ from community banks in all of the following ways except:
D. They are actively engaged in the money market
39. Savings and loan institutions:
D. Are owned by depositors who also have a common bond
Chapter 12 – Depository Institutions: Banks and Bank Management
40. Of the more than 8000 banks in the United States at the end of 2009, by far the greatest
numbers of them were:
A. Regional banks
41. Suppose a particular bank is very large in terms of assets, and makes consumer and
residential loans as well as commercial and industrial loan. The bank is probably a:
D. Savings bank
42. Suppose a particular depository institution that specializes in residential mortgages is
owned by its depositors. The institution is probably a:
A. Regional or super-regional bank
Chapter 12 – Depository Institutions: Banks and Bank Management
43. If a bank sells off all of its assets and pays all of its liabilities, the amount remaining
would be its:
A. Net profit
44. A bank’s loan loss reserves are:
A. The amount of loans that have defaulted in the past twelve months
45. The largest liability for commercial banks in the U.S. is:
D. Borrowing from the Federal Reserve
Chapter 12 – Depository Institutions: Banks and Bank Management
46. Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its capital
by $1million and its assets by $10 million, then the bank’s:
A. Risk increases and its leverage decreases
47. Which of the following bank assets would be categorized as secondary reserves?
D. Deposits at the Federal Reserve
48. If a bank has $100 million in assets and a net worth of $10 million, its debt-to-equity ratio
is:
Chapter 12 – Depository Institutions: Banks and Bank Management
49. If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio
is:
D. 0.15 to 1
50. If a bank increases its assets by adding $1 to capital for every $1 added to assets:
D. The answer cannot be determined from the information in the question
51. If a bank increases its assets by adding $1 to capital for every $1 added to assets:
Chapter 12 – Depository Institutions: Banks and Bank Management
52. A bank’s Return on Assets (ROA) is calculated by dividing:
D. The bank’s assets less its net profit after taxes by its net worth
53. A bank’s Return on Equity (ROE) is calculated by:
D. Dividing the bank’s net profit after taxes by the sum of the bank’s assets and its liabilities
54. Everything else equal, if the ratio of bank assets to bank capital increases, the bank’s
return on equity should:
Chapter 12 – Depository Institutions: Banks and Bank Management
55. Everything else equal, if the ratio of bank assets to bank capital decreases, the bank’s
return on equity should:
D. Cannot be determined from the information provided
56. If a bank’s return on equity remains constant, but the ratio of bank assets to bank capital
increases:
D. The bank must be unprofitable
57. If a bank’s return on equity remains constant, but the ratio of bank assets to bank capital
decreases:
D. The bank must be unprofitable
Chapter 12 – Depository Institutions: Banks and Bank Management
58. The tendency for large banks to have a higher return on equity than small banks suggests:
59. Net interest income for a bank is:
A. The difference between gross income and net income after taxes
60. A bank’s net interest margin is calculated by taking net interest income and:
D. Subtracting taxes