Archives: Quiz

A bank’s core deposits are: a. vault cash. b. stable deposits that are not typically withdrawn over short periods of time. c. the bank’s deposits at the Federal Reserve. d. the most interest rate sensitive liabilities of a bank. e. […]

Which of the following is not an objective of a bank’s investment portfolio? a. Meeting capital requirements b. Maintaining liquidity c. Diversifying credit risk d. Managing interest rate exposure e. Preserving capital Answer: Which of the following would be considered […]

Which of the following is not a weakness of risk-based capital standards? a. They ignore interest rate risk. b. They ignore the value of deposit insurance. c. They ignore changes in the market value of assets. d. They ignore credit […]

Which of the following is not true regarding common stock? a. Common stock has no maturity. b. New issues of common stock may dilute existing shareholder equity. c. Common stock is a permanent source of funds. d. Dividends paid are […]

A bank is going to issue $10,000,000 in 5-year par value bonds that pay a 5% annual coupon. The bank must pay .7% of the face value in floatation costs. What is the bank’s effective cost of borrowing? a. 5.0% […]

What is 1st State’s return on equity? a. 0.6% b. 3.8% c. 5.0% d. 8.2% e. 9.8% Answer: If a bond is selling at par value, then: a. the yield to maturity is less than the coupon rate. b. the […]

As market rates rise, prepayment speed _______, while modified duration _________. a. slows, lengthens b. slows, shortens c. accelerates, lengthens d. accelerates, shortens e. accelerates, is unaffected Answer: Total operating expense is comparable to _________ for a non-financial firm. a. […]

Which of the following is not one of the essential issues in evaluating commercial loan requests? a. The structure of the borrower’s board of directors. b. The character of the borrower. c. The use of the loan proceeds. d. The […]

Recoveries refer to: a. the dollar value of loans actually written off as uncollectible. b. the dollar amount of loans that were previously charged-off but now collected. c. net charge-offs. d. loans not currently accruing interest. e. loans that regulators […]

Which of the following are lenders prohibited from asking on a credit application? a. The applicant’s income b. If the applicant has a telephone c. If the applicant has declared bankruptcy in the past d. How long the applicant has […]

The Federal Reserve directly controls the discount rate. Answer: Credit cards typically provide lower risk-adjusted returns than other types of consumer loans. Answer: False The greater the compounding frequency, the higher the present value, everything else the same. Answer: False […]

The duration of a liability that does not pay interest must be equal to 0. Answer: The Internet has led to larger spreads for more standardized loan products. Answer: False Periodic GAP analysis compares rate-sensitive assets and rate-sensitive liabilities across […]

“Locals” trade futures for their own account. Answer: Subordinated bank debt is federally insured. Answer: False Relative to larger banks, smaller banks rely more on non-interest income as a source of revenue. Answer: False When constructing ratios, average balance sheet […]

Effective duration considers a security’s embedded options. Answer: In general, bank capital ratios have increased over the last 100 years. Answer: False Speculators focus on avoiding or reducing risk. Answer: False There is a constant relationship between changes in a […]

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized. Answer: On the cash-based income statement, depreciation is a source of funds. Answer: True Core deposits […]

Assuming no compensatory actions by the Fed, a sharp increase in k would cause a. a decrease in B b. an increase in B c. an increase in M d. none of the above Answer: The regulatory body in charge […]

It is clear that the long-run movement in the monetary base is dominated by a. bank reserves b. discounts and advances c. Treasury deposits at the Federal Reserve d. the Fed portfolio of securities Answer: Which of the following has […]

If equilibrium output is below potential, then a. the unemployment rate must be at the natural rate of unemployment b. the unemployment rate must be above the natural rate of unemployment c. the unemployment rate must be below the natural […]

The risk premium tends to vary in the following manner relative to the business cycle: a. countercyclically b. procyclically c. about the same over all phases of the business cycle d. unrelated to business cycle conditions Answer: An increase in […]

The NAIRU a. stays constant over time b. is easily measurable c. is known to policymakers d. is characterized by none of the above Answer: A $1,000 sale of government securities by the Federal Reserve to the public will cause […]

Adoption of an inflation targeting regime tends to a. reduce the central bank’s flexibility b. reduce the instability of output caused by supply shocks c. reduce the transparency of the central bank d. do all of the above Answer: The […]

Today, our money is “backed” a. by an implicit faith that our government will keep the growth of money in reasonable moderation b. by a combination of gold certificates and silver certificates c. 25% by gold certificates held by the […]

Other things being equal, the present value of a bond increases with: a. higher annual coupons (dollar returns promised from the bond) b. lower market yields c. both of the above d. none of the above Answer: Which type of […]

Over long periods of time (say 30 years or more), investors would have received the highest returns by investing in a. stocks b. corporate bonds c. government bonds d. gold Answer: The decline in interest rates is most pronounced in: […]

Inflation targeting involves a. setting acceptable inflation at a single level–for example, 4 percent b. setting acceptable inflation within a band of acceptable inflation rates–for example, between 4 and 6 percent c. either of the above d. neither of the […]

Which was not a motive for establishing the Federal Reserve System? a. to combat inflation and unemployment b. to provide for the issue of currency c. to provide a lender of last resort d. to improve the system of check […]

In the United States, banks may be chartered by a. the federal government b. state governments c. both of the above d. neither of the above Answer: Desperate for a double mocha latte from Starbucks, you withdraw $2 from your […]

As a general rule, over the last few decades a. the government has run deficits far more often than it has generated surpluses b. the government has generated surpluses far more often than it has run deficits c. the government […]

Suppose a 360-day Treasury bill issued today sells at a discount rate of 5 percent. Suppose interest rates remain constant in the next year. We can state that, 180 days from now, the price of this Treasury bill will be […]

Interest rates typically display a ____ pattern. a. countercyclical b. cyclically neutral c. procyclical d. none of the above Answer: Which of the following would increase real interest rates? a. an increase in the rate of time preference b. an […]

The Federal Reserve implements its open market operations tool by a. making changes in the interest rate at which it lends funds to banks b. changing the fraction of deposits that banks must hold as reserves c. buying and selling […]

Due to the nature of their business, savings and loan associations and mutual savings banks experience problems when: a. short-term interest rates rise sharply b. long-term yields rise sharply relative to short-term yields c. deposits increase rapidly d. financial intermediation […]

The expectations theory of term structure assumes that: a. ascending yield curves prevail the most frequently b. investors attempt to maximize returns over some horizon c. investors have preferences for long-term securities d. borrowers have preferences for long-term securities Answer: […]

Which stock market index do most economists believe best represents the performance of the typical American’s stock market portfolio? a. the Dow-Jones Industrial Average b. the NASDAQ index c. the Russell 2000 d. the S&P 500 Index Answer: On U.S. […]

Relative to 30 years ago, the most rapid growth in exchange market activities has been in response to growth in a. capital flows b. merchandise trade flows c. nontradable goods d. services flows Answer: Which of the following may be […]

In a sharply expanding economy: a. demand for funds rises and interest rates fall b. demand for funds rises and interest rates rise c. demand for funds falls and interest rates fall d. demand for funds falls and interest rates […]

The ECB is generally regarded to be ____ independent than the Federal Reserve. a. approximately equally b. less c. more d. we cannot generalize about the independence of the ECB Answer: A particular type of financial intermediary obtains funds through […]

The fundamental principle illustrated by the production of the fishing net in the Crusoe and Friday example is: a. the role played by financial intermediaries in economic growth b. the role of investment in calling forth saving c. the importance […]

A bond has a coupon rate of 8 percent, has 3 years to maturity, and sells for $1,200. Its yield to maturity is: a. 12.21 percent b. 6.67 percent c. 5.55 percent d. 1.11 percent Answer: Which of the following […]

The most fundamental cause of the first S&L industry crisis in the early 1980s was a. the deposit insurance system b. fraud and dishonesty in the S&L industry c. government policies and regulations d. the policy of forbearance Answer: Keynesians […]

A credit crunch a. is a sharp decrease in banks’ willingness to lend b. often results from restrictive Federal Reserve actions c. is accurately represented by both of the above d. is accurately represented by neither of the above Answer: […]

The existence of financial intermediaries has the following consequence: a. it increases interest rates, hurting home buyers b. it hurts small savers by creating another “middleman” c. it stimulates saving and investment, thus helping growth d. none of the above […]

If an inflation targeting regime increases the central bank’s credibility in targeting inflation, the magnitude by which the AS curve shifts leftward due to inflation expectations is a. reduced b. increased c. constant d. not enough information is given to […]

During the Great Depression of the 1930s a. the excess reserve ratio increased b. the currency ratio increased c. both of the above occurred d. neither of the above occurred Answer: Empirically, larger budget deficits have not been proven to […]

Wage and price controls were used to restrain inflation during the ____ administration. a. Eisenhower b. Nixon c. Johnson d. Kennedy Answer: In the 1920s, farmers in the United States a. enjoyed rapidly rising agricultural prices b. saw farm profits […]

Liabilities of commercial banks may be divided into the following categories: a. demand deposits, time deposits, and borrowings b. demand deposits, time deposits, and securities c. demand deposits, time deposits, and loans d. loans, demand deposits, and other liabilities Answer: […]

An increase in the discount rate charged to banks who borrow at the Fed will cause the excess reserve ratio to ____ and the multiplier to ____. a. increase; increase b. decrease; decrease c. increase; decrease d. decrease; increase Answer: […]

Other things being equal, an increase in the minimum wage will lead to a. greater consumer income, stimulating AD and thus reducing prices and output b. higher costs of production, reducing AS and decreasing prices and output c. increased input […]

Which of the following is a function performed by the twelve Federal Reserve banks? a. conducting research on regional and national economic issues b. clearing checks c. withdrawing old or damaged currency from circulation d. all of the above Answer: […]

“Cash items in the process of collection” refers to a. checks deposited in a particular bank which have not yet been credited to that bank b. accounts payable to local merchants, etc., due to trade credit arrangements c. checks written […]