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CHAPTER 13
TRUE-FALSE QUESTIONS
the number of branches decreased.
banks.
floating-rate loans rather than fixed rate loans.
Fed if it were planning to purchase a life insurance company.
banks in the U.S. has been increasing dramatically.
commercial banks, which means banks buy and sell Fed Funds to adjust liquidity.
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MULTIPLE-CHOICE QUESTIONS
a. rising/falling b. falling/stable c. falling/rising d. rising/rising.
a. long-term growth
b. deposit growth
c. bank safety
d. long-term profit maximization
a. they have proportionally more fixed assets
b. they have proportionally more agricultural loans
c. they have proportionally less capital
d. they have proportionally more deposits
a. partnership b. bank holding company c. single charter d. branch
a. banks have sought to locate close to their customers.
b. states have eased bank branching restrictions.
c. state and federal bank regulators prefer branches to bank holding companies.
d. “a” and “b”
a. small; large banks.
b. large; large banks.
c. small; small banks.
d. large; bank holding companies
a. an increasing number of branches.
b. the rapid growth of deposits from the growing number of households.
c. improved technological financial innovation.
d. merger of banks and bank holding companies.
a. real assets.
b. the financial liabilities of deficit spending units in the economy.
c. deposits from many sectors of the economy.
d. reserves.
a. fed funds purchased
b. consumer loans
c. deposits in other banks
d. government securities
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a. U.S. Treasury deposits
b. deposits in other banks
c. demand deposits
d. certificates of deposit
a. time deposits.
b. demand deposits.
c. U.S. Treasury deposits.
d. interest-bearing transaction deposits.
a. transaction accounts; time deposits
b. borrowed funds; capital stock
c. time deposits; borrowed funds
d. large time deposits > $100,000; transaction accounts
a. reserves b. correspondent deposits c. flexibility accounts d. fed funds
a. demand deposit b. NOW account c. savings account d. MMDA
a. reducing taxes
b. expanding geographically
c. diversifying services
d. complying with federal regulations.
a. 1933 b. 1935 c. 1956 d. 1980
a. Fed b. FDIC c. OCC d. FTC
a. often subsidiaries of bank holding companies
b. the largest category of financial institution
c. the main transmitters of monetary policy
d. all of the above
a. economies of scale
b. geographic diversification
c. service diversification
d. largely unregulated
a. repurchase agreements
b. standby letters of credit
c. loan brokerage
d. securitization
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a. Fed Funds purchased b. Eurodollars c. Banker’s acceptances d. SLC
a. corporate cash management.
b. a source of funds for banks.
c. to support loan brokerage activities.
d. a method of paying interest to demand depositors.
a. foreign deposits accepted overseas by branches of American banks.
b. drafts drawn on a bank by a corporation to pay for merchandise.
c. used in international trade.
d. a source of funds for large banks.
a. T-bills b. Fed Funds sold c. municipal bonds d. T-bonds
a. merchant discount fees
b. sale of credit cards
c. annual fees from credit card customers
d. interest from credit card balances
a. Trust operations involve banks acting in a fiduciary capacity
b. Smaller banks tend to offer trust services through correspondent relationships
c. A large portion of bank trust assets are managed for pension funds
d. all of the above
a. high after-tax yields.
b. low default risk.
c. high marketability.
d. service to local communities.
a. investments b. consumer loans c. demand deposits d. commercial loans
a. Formation of financial holding companies
b. Commercial banking and insurance in the same holding company
c. Insurance and investment banking in the same holding company
d. Any or all of the above
a. the bank establishes a liability.
b. the bank substitutes its creditworthiness for that of its customer.
c. the bank assures a loan applicant that credit will soon be granted.
d. the bank pays a customer to guarantee the bank’s obligations.
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a. fixed-rate loans
b. long-term, fixed rate loans
c. floating-rate loans adjusted infrequently
d. floating-rate loans adjusted frequently
a. They are insured by FDIC.
b. They are short-term money market sources of funds.
c. They are an important source of bank liquidity.
d. Some entail pledging collateral; others do not.
a. capital stock b. undivided profits c. capital notes d. special reserve accounts
a. competitive return to the bank’s shareholders
b. administrative costs of making the loan
c. the interest rate on the funding source
d. adjustment for default risk
a. the difference between the rate earned by the bank and the rate paid by the bank
b. the rate differential between the cost of funds and the loan rate.
c. the discount of the loan at the Window
d. the fee collected at the maturity of the loan
a. they are marketable
b. they are liquid
c. they provide capital
d. they provide income
when a bank’s deposit balance in the Fed increases, the bank has increased its fed funds
.
a. increase; sold
b. decrease; sold
c. increase; purchased
d. decrease; purchased
a. Eurodollars b. fed funds c. certificate of deposit d. repurchase agreement
a. fed funds rate b. eurodollar rate c. discount rate d. repo rate
a. common stock b. repurchase agreements c. commercial paper d. treasury bonds
a. commercial loans b. real estate loans c. consumer loans d. agricultural loans.
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a. Fed funds sold
b. reserves at Federal Reserve banks
c. balances at other banks
d. cash items in the process of collection
a. liquidity b. low default risk c. income d. all of the preceding
a. the Fed increases one of their asset accounts and decreases the other
b. Bank A posts an increase in its asset account, federal funds sold
c. Bank B posts an increase in its asset account, federal funds sold
d. the Fed increases the deposit accounts of both Bank A and Bank B
year?
a. term loans b. line of credit c. revolving credit d. mortgage loan
years would encourage loan originators to make
a. variable rate loans.
b. loans closely tied to the prime rate.
c. fixed-rate loans.
d. very short-term loans.
rate:
a. bank cost of funds
b. the commercial paper rate
c. competitor prime rates
d. the federal reserve discount rate
a. base rate b. default risk premium c. term premium d. nonprice adjustments
a. a source of fee income
b. a nondeposit source of funds
c. a contingent liability
d. “a” and “c”
a. selling loan participations to investors.
b. bringing loan customers together to share funds.
c. originating loans, but not funding the complete loan.
d. assisting customers in selling their real estate.
a. the bank provides credit enhancements.
b. the bank provides the source of funds for the loan securitization.
c. the bank originates the loans.
d. the value of the securities sold to investors exceeds that of the securitized loans.
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U.S. banking industry between 1980’s to 2010’s:
a. there are less banks but more branches
b. there are many community banks but a few very large banks
c. bank holding companies dominate the major market share
d. small banks in general engage more hedging activities than the large banks
e. large banks’ major funding sources are non-depository funds
clearing, foreign exchange trading, etc. The above items are examples of
a. Correspondent banking
b. Trust services
c. Off balance sheet assets
d. Economies of scope
e. Credit derivatives
bank liabilities tend to have __________ maturities and _________ liquidity than/as bank
assts.
a. lower; greater
b. longer; lower
c. equal; equal
a. Federal Deposit Insurance Corporation
b. Department of Banking in each state
c. Federal Reserve Bank in each district
d. Office of Comptroller of the Currency
e. Any of the above may grant a charter and approve a merger
years was:
a. Real estate loans
b. Commercial and industrial loans
c. Consumer loans
d. U.S. government agents loans
e. Inter-bank loans
or recognized as income on the income statement is a/an
a. Loan commitment
b. Off balance sheet liability
c. Loan sold without recourse
d. Net charge off
e. Off balance sheet asset
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a. A bank leasing its office facilities instead of buying
b. A bank buying equipment and then leasing the item to a customer
c. A customer buying equipment and then leasing it to a bank
d. A bank leasing computer equipment
e. None of the above
ESSAY QUESTIONS
1. Why has the bank holding company form of organization been so popular?
2. What are the major economic differences between bank loans and investments? Aren’t both
intended to generate profits?
3. What are the major economic differences between deposits and borrowed funds? Aren’t both
intended to finance loans and investments cost-effectively?
4. How does regulation “tax” bank assets and liabilities?
5. Why can banks operate with so much more leverage (so much less equity capital) than ordinary
businesses?
6. Why the ROA for commercial banks is typically quite low as compared to non-financial firms?
Give such a low ROA, how can commercial banks attract investors?