1. Dollar denominated CDs issued outside the U.S. are called _________________________.
2. The CDs large foreign banks sell through their U.S. branches are called
_________________________.
3. When a bank buys funds from other financial institutions in order to cover good quality loan
demand and to satisfy deposit reserve requirements they are practicing
_________________________.
4. When the first priority of a bank is to make loans to all good quality loan customers they are
following the _________________________.
5. Originally __________________ consisted exclusively of deposits held by U.S. banks at the
Federal Reserve banks which were loaned from one bank to another.
6. _________________________ is the short-term notes, with maturities ranging from 3 to 4 days
to 9 months, issued by well known companies.
7. A _________________________ is the temporary sale of high-quality, easily-liquidated assets
accompanied by the agreement to buy back those assets on a future specific date at a
predetermined price.
8. Because the interest rate on CDs, commercial paper and other nondeposit borrowings (except
borrowings from the Federal Reserve discount window) are determined by supply and demand
conditions in the market they all face __________________ risk.
9. The spread between current and expected loans and investments and the current and expected
deposit inflows and other sources of funds is known as the _________________________.
10. A(n) _________________________ is an interest bearing receipt for funds issued by a bank with
a minimum denomination of $100,000.
11. Because there is a danger that the bank in need of funds will not be able to find someone willing
to grant the bank a loan at a reasonable rate, they face _________________________.
12. The Federal Reserve will make loans through its _________________________.
13. The securities most often used in a repurchase agreement are _________________________.
14. Virtually all nondeposit borrowing of a bank are ______-term rather than _______-term debt.
15. Repurchase Agreements (RPs) are very similar to Federal Funds and are often viewed as
____________ federal funds transactions.
16. A repurchase agreement (RP) whereby the collateral is specifically identified is known as a
conventional or ____________ RP.
17. A ______________ repurchase agreement (RP) is one in which the underlying collateral is not
identified precisely and thus allows some substitution.
18. The type of discount window loan with generally the highest rates of interest is known as
___________ credit.
19. The type of discount window loan with generally the lowest rate of interest is known as
__________ credit.
20. Federal Reserve balances of banks can be transferred from one institution to another in seconds
through the Fed’s wire transfer network called the .
21. One of the three types of loans in the Fed Funds market, are unwritten
agreements, negotiated via wire or telephone, with the borrowed funds returned the next day.
22. One of the three types of loans in the Fed Funds market, are longer-term Fed
Funds contracts lasting several days, weeks or months, often accompanied by a written contract.
23. One of the three types of loans in the Fed Funds market, are automatically
renewed each day unless either the borrower or lender decides to end this agreement.
24. When financial institution borrows in the RP market, this loan is listed as .
25. are nondeposit borrowings that are fully collateralized by home
mortgages and have maturities ranging from overnight to 20 years.
26. The traditional and principal source of bank funds is deposits.
27. Asset management (i.e., conversion of assets to cash) is regarded as an interest-sensitive approach
to raising funds.
28. Deposits have been growing faster than nondeposit sources of funds in recent years among U.S.
banks.
29. Federal funds today consist exclusively of deposits held at the Federal Reserve banks.
30. There are no reserve requirements on Federal funds borrowings in the U.S.
31. Accommodating banks buy and sell Federal funds simultaneously.
32. Loans of Federal funds under a continuing contract are automatically renewed each day unless
either the borrower or the lender decides to end the agreement.
33. The loan from a Federal Reserve bank which normally lasts only a few days and is designed to
provide immediate aid in meeting a bank’s legal reserve requirement is known as extended credit.
34. Yankee CDs are issued by large savings and loan associations and other nonbank savings
institutions.
35. The volume of variable-rate CDs exceeds the volume of fixed-rate CDs among U.S. banks.
36. Liability management is considered to be an interest-sensitive approach to raising bank funds.
37. Funds raised by the use of liability management techniques are considered to be flexible.
38. Liability management banking calls for using price (the interest rate offered) as the control lever
to regulate incoming funds.
39. The most common type of federal funds loans are term loans.
40. Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied
by a written contract, are called continuing contracts.
41. According to the FDIC Improvement Act undercapitalized U.S. banks cannot be granted discount
window loans for more than 60 days in each 120-day period.
42. The largest foreign banks active in the United States sell CDs through their U.S. branches called
Yankee CDs.
43. Under current federal law commercial banks in the United States can issue commercial paper as
direct obligations of the banks.
44. Nondeposit funds do have the advantage of quick availability compared to most types of deposits,
but are not as stable a funding source for banks as are time and savings deposits.
45. Longer-term federal funds contracts which are automatically renewed each day unless either the
borrower or the lender decides to end the agreement are called term loans,
46. The main use of federal funds today is still the traditional one. Federal funds provide a
mechanism that allows banks short of legal reserves to tap into immediately available funds from
other institutions possessing temporarily idle funds.
47. One of the factors to consider when a bank chooses among nondeposit funding sources is the
relative cost. In general, the cheapest source of short-term funds is the Fed Funds market.
48. There are no restrictions on getting a Federal Reserve loan and because it is the cheapest source
of short-term funds most banks will use this source of funds exclusively.
49. CDs must be issued with maturities of at least 7 days.
50. Loans from the Fed Funds market must be backed by collateral.
51. In recent years financial institutions have gotten better at managing interest rate risk.
52. Large banks depend more on nondeposit borrowings than small banks.
53. Although there is an active federal funds spot market, there is currently no associated futures
market for federal funds.
54. Repurchase Agreement (RPs) transactions are perceived to be less risky than equivalent federal
funds transactions.
55. Interest rates in the Repurchase Agreement (RP) market are quoted on a 360-day basis.
56. Seasonal credit discount window loans generally have the highest interest rates.
57. Primary credit is defined as loans available for short terms and normally considered beneficial for
the borrower because it carries an interest rate slightly below the target Fed funds rate.
58. When the general credit conditions are tight, there is a possibility that not every borrower will be
accommodated by a lender. This chance of credit rationing is referred to as credit availability risk.
59. The size of a financial institution has an effect on the type of nondeposit funding source that it
will consider. For example, larger depository institutions have the credit standing to sell the
largest negotiable CDs, while the Fed funds market is suitable for smaller institutions.
60. Only federal regulators can limit the terms (amount, frequency, and use) of borrower funds by the
U.S. depository institutions.
61. The doctrine that the first priority of a bank is to make loans to all those customers from whom
the bank expects to receive positive net earnings is called the:
A) Funds management doctrine
B) Customer relationship doctrine
C) Loan priority doctrine
D) Revenue flows doctrine
E) None of the above.
62. The doctrine that banks should be able to buy the reserves they need to cover good-quality loan
requests is known as:
A) Funds Management
B) Asset Management
C) Liability Management
D) Asset-Liability Coordinated Management
E) None of the above.
63. With liability management banking the control lever to regulate incoming bank funds is:
A) Management discretion
B) The volume of loan demand the bank faces.
C) Deposit growth
D) Price
E) None of the above.
64. The most popular domestic source of borrowed reserves for U.S. banks is:
A) Federal funds market
B) Money market negotiable CDs
C) Eurodollar market
D) Borrowings from the Federal Reserve Banks
E) Commercial paper market
65. The phrase “short-term borrowings of immediately available money” refers to:
A) Negotiable CDs
B) Eurodollar deposits
C) Commercial paper issues
D) Borrowings of legal reserves at the Federal Reserve banks
E) None of the above.
66. Large time deposits are generally referred to as:
A) Mini CDs.
B) Jumbo CDs.
C) Large CDs.
D) Giant CDs.
E) Super CDs.
67. The source of short-term funds for commercial banks that was developed to tap temporary surplus
funds held by large corporate and wealthy individual customers is:
A) Federal funds.
B) Commercial paper.
C) Eurodollar deposits.
D) Negotiable CDs.
E) None of the above.
68. First National Bank has new loan requests of $225 million, needs to purchase $100 million in
U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines
of $135 million. Deposits received today total $215 million and the bank expects to bring in an
additional $100 million next week. What is First National’s estimated funds gap for the coming
week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.
69. First National Bank has new loan requests of $175 million, needs to purchase $50 million in U.S.
Treasury securities to meet pledging requirements, and anticipates draws against credit lines of
$45 million. Deposits received today total $140 million and the bank expects to bring in an
additional $230 million next week. What is First National’s estimated funds gap for the coming
week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.
70. Factors that will affect a bank’s decision as to which nondeposit sources of funds it will use to
cover its projected funds gap include which of the following?
A) The relative cost of raising the funds.
B) The length of time the funds will be required.
C) The risk associated with each source of funds.
D) The size of the bank.
E) All of the above.
71. First National Bank is planning to raise $30 million through an offering of negotiable CDs. The
current rate for similar CDs is 5.5%. Noninterest cost rate for CDs is 0.25 percent. First National
pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other
immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of
borrowing in the CD market?
A) 6.9%
B) 7.2%
C) 6.0%
D) 5.5%
E) None of the above.
72. CDs that are sold by the largest foreign banks through their U.S. branches are called:
A) Thrift CDs.
B) Domestic CDs.
C) EuroCDs.
D) Yankee CDs.
E) None of the above.
73. Accommodating banks perform what role?
A) They act as intermediaries in the Eurodollar market.
B) They issue negotiable CDs for themselves and for other banks.
C) They sell commercial paper to raise funds for themselves and other firms belonging to their
bank holding company.
D) They buy and sell federal funds simultaneously in order to make a market for reserves of
customer banks.
E) None of the above.
74. A federal funds loan that is automatically renewed each day unless either the borrower or the
lender decides to end the loan agreement is known as a:
A) Overnight loan.
B) Continuing contract.
C) Term loan.
D) Rollover loan agreement
E) None of the above
75. Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied
by a written contract, are known as:
A) Term loans.
B) Continuing contracts
C) Rollover loans.
D) Federal funds mutuality agreements
E) None of the above
76. The federal law that restricts Federal Reserve lending to undercapitalized banks and to banks that
are “viable entities” is the:
A) Riegle Community Development and Regulatory Improvement Act
B) FDIC Improvement Act.
C) Financial Institutions Reform, Recovery, and Enforcement Act.
D) Depository Institutions Deregulation and Monetary Control Act.
E) None of the above.
77. The bank funding source that is really a “hybrid” account is the:
A) Federal funds loan.
B) Repurchase agreement.
C) Negotiable CD.
D) Eurodollar deposit.
E) None of the above.
78. A bank plans on borrowing $150 million through an RP transaction collateralized by T-bills. The
bank plans on borrowing the money for 5 days and the current RP rate is 5.25 percent. What is
this bank’s total interest cost in dollars?
A) $7,875,000
B) $107,877
C) $21,875
D) $109,375
E) None of the above
79. Suppose a bank promises an annual return of 6.5 percent on a three month (90 day) $150,000
CD) What will be the total amount due the customer at the end of the three month period?
A) $152,437.50
B) $2,437.50
C) $150,000
D) $152,404.11
E) None of the above
80. The short-term notes, with maturities ranging from 3 or 4 days to 9 months, issued by well known
companies are known as:
A) Negotiable CDs
B) Commercial paper
C) Federal funds
D) Repurchase agreements
E) None of the above
81. The TRC Bank is planning on raising $500 million in a new offering of commercial paper
through its holding company. The plan on using $475 million of it to fund new loans. The
current interest rate for similar commercial paper is 6.45 percent and they expect .25 percent in
issuing costs. What is the effective rate of interest on this issue of commercial paper?
A) 6.65%
B) 6.45%
C) 7.05%
D) 6.79%
E) None of the above
82. An agreement where one party agrees to sell T-bills to another party and at the same time agrees
to buy them back at a set price is known as:
A) A repurchase agreement
B) Commercial paper
C) Federal Funds
D) Negotiable CDs
E) None of the above
83. Which of the following is not an advantage of using a repurchase agreement?
A) The bank gains excess reserves which can used to make new deposits
B) The bank makes use of high-quality but low yielding assets without losing them permanently
C) If the agreement is made with a bank who keeps a checkable deposit with the bank it can
reduce both the bank’s deposits and reserve requirements
D) The interest rate the bank has to pay is usually low
E) All of the above are advantages of using a repurchase agreement
84. Which of the following is an example of a longer term nondeposit funding source?
A) Federal funds
B) Repurchase agreements
C) Capital notes and debentures
D) Negotiable CDs
E) None of the above
85. Suppose a bank expects to issue 45 day negotiable CDs for $150 million. The interest rate on
these CDs is 6.35%. What is the dollar amount in interest the bank will owe on these CDs at the
end of the 45 days?
A) $9,525,000
B) $1,190,625
C) $76,200,000
D) $6,750,000
E) None of the above
86. Dollar denominated CDs issued by banks outside the United States are known as:
A) Domestic CDs
B) Euro CDs
C) Yankee CDs
D) Commercial paper
E) None of the above
87. A repurchase agreement (RP) in which the collateral is specifically identified is known as:
A) A conventional RP
B) A General Collateral Finance RP
C) A specific RP
D) A general RP
E) An individual RP
88. A conventional Repurchase Agreement (RP) is ________ flexible for the borrower than (as) a
General Collateral Finance RP.
A) More
B) Less
C) As
D) Unknown
E) None of the above
89. The following types of loans are all available at the discount window except:
A) Adjustment credit
B) Primary credit
C) Secondary credit
D) Seasonal credit
E) None of the above
90. In addition to the Federal Reserve, another governmental agency has also been loaning large
amounts of money to banks and thrift institutions and is known as the:
A) FDIC
B) OCC
C) OTS
D) FHLB
E) RTC
91. The Bridges State Bank has new loan requests of $315 and wants to purchase $125 million in
U.S. Treasury securities and anticipates draws on lines of credit in the amount of $65 million.
Deposits received today totaling $205 million and the bank expects to bring in an additional $185
million in deposits next week. What is the estimated funds gap for the Bridges State Bank?
A) $505 million
B) $390 million
C) $115 million
D) $315 million
E) None of the above
92. The Williams National Bank has new loan requests of $585 million and wants to purchase $160
in U.S. Treasury securities. They also anticipate draws on lines of credit in the amount of $120
million. This bank received deposits totaling $300 million and they expect to bring in an
additional $340 million in deposits next week. What is the estimated funds gap of the Williams
National Bank?
A) $225 million
B) $585 million
C) $640 million
D) $865 million
E) None of the above
93. The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with
that in the negotiable CD market. They are making sure to include the noninterest costs and the
deposit insurance costs as well as the amount of money that will actually be available for new
loans. Which factor that affects a bank’s use of nondeposit sources of funds is the bank
examining?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
94. The First State Bank of Summerville knows that, if they issue commercial paper through a
subsidiary, money is very tight and the interest rate on the commercial paper may very high.
What factor that affects a bank’s use of nondeposit sources of funds is the bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
95. The First State Bank of Summerville knows that, if they issue a large amount of the negotiable
CD, money is tight. As a result, they choose to ration the credit and lend only to their most loyal
clients. What risk factor that affects a bank’s use of nondeposit sources of funds is the concern
here?
A) Interest rate changes
B) The length of time the funds will be required
C) The relative cost of raising the funds
D) Credit availability
E) Regulations
96. The manager of the First National Bank of Edmond needs $100 million this afternoon to satisfy
an unexpected loan demand from an excellent customer of the bank. What factor that affects a
bank’s use of nondeposit sources of funds is the manager concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
97. The First State Bank of Summerville needs to raise $500,000 in nondeposit sources of funds.
They know that the Eurodollar market requires a minimum denomination of $1 million. What
factor that affects a bank’s use of nondeposit sources of funds is this bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
98. Bank of America is concerned because they have heard that the Federal Reserve Board may
impose legal reserve requirements on money borrowed in the Fed Funds market. Which factor
that affects a bank’s use of nondeposit sources of funds is this bank concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
99. The Bank of Boulder is planning on issuing $45 million in negotiable CDs. Currently other
similar CDs have an interest rate of 4.75%. The Bank of Boulder has estimated that its
noninterest costs of issuing these CDs are .15%. The Bank of Boulder must pay a deposit
insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only
$40 million of the funds raised will be fully invested. What is the effective cost rate for the Bank
of Boulder to borrow in the CD market? (Round your answer to the nearest .01%)
A) 4.75%
B) 4.90%
C) 5.10%
D) 5.79%
E) None of the above
100. The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs.
Currently other similar CDs have an interest rate of 5.15%. The Lawrence Bank of Cleveland has
estimated that is noninterest costs of issuing these CDs will be .2%. The Lawrence Bank of
Cleveland must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to
other immediate cash needs, only $50 of the funds raised will be full invested. What is the
effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your
answer to the nearest .01%)
A) 6.71%
B) 6.42%
C) 5.58%
D) 5.15%
E) None of the above
101. CDs issued by savings institutions are called:
A) Thrift CDs
B) Domestic CDs
C) Euro CDs
D) Yankee CDs
E) Variable rate CDs
102. When a foreign branch lends a Eurodeposit to its home office in the U.S., how is this listed on the
balance sheet of the home office?
A) Loan from Subsidiary
B) Liabilities to Foreign Branches
C) Securities Sold under Agreement to Repurchase
D) Bankers Acceptance
E) None of the above
103. A Fed Funds loan that is an unwritten agreement negotiated via wire or telephone with the
borrowed funds returned the next day is known as:
A) An overnight loan
B) A continuing contract
C) A term loan
D) A daytime loan
E) None of the above
104. A bank plans on borrowing $225 million for 10 days through a RP transaction collateralized by
T-Bills. The current RP rate is 4.5%. What is this bank’s total interest cost in dollars?
A) $10,125,000
B) $1,125,000
C) $281,250
D) $28,125
E) None of the above
105. A bank plans on borrowing $450 million for 20 days through a RP transaction collateralized by
T-Bills. The current RP rate is 6.25%. What is this bank’s total interest cost in dollars?
A) $28,125,000
B) $78,125
C) $1,406,250
D) $1,562,500
E) None of the above
106. A bank promises an annual return of 7.75 percent on a 180 day, $250,000 CD. What will be the
total amount due the customer at the end of the six month period?
A) $269,375.00
B) $259,687.50
C) $9687.50
D) $250,000.00
E) None of the above
107. A bank promises an annual return of 4.85% on a 60 day, $300,000 CD. What will be the total
amount due to the customer at the end of the two month period?
A) $302,425
B) $314,550
C) $14,550
D) $2,425
E) None of the above
108. The HTR Bank is planning on raising $750 million in a new offering of commercial paper
through its holding company. They plan on using $725 million of it to fund new loans. The
current interest rate for similar commercial paper is 7.15% and they expect .15% in issuing costs.
What is the effective rate of interest on this issue of commercial paper?
A) 7.30%
B) 7.15%
C) 7.40%
D) 7.55%
E) None of the above
109. The Carter State Bank is planning on raising $600 million in a new offering of commercial paper
through its holding company. They plan on using $500 million of it to fund new loans. The
current interest rate for similar commercial paper is 4.85% and they expect .3% in issuing costs.
What is the effective rate of interest on this issue of commercial paper?
A) 5.15%
B) 6.18%
C) 5.82%
D) 4.85%
E) None of the above
110. Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what
credit facilities used by several European central banks?
A) The Vince credit facilities
B) The Adam Smith credit facilities
C) The Lombard credit facilities
D) The Lower Back credit facilities
E) None of the above