Banking Quiz

Which of the following are primary concerns of the bank manager?

• Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows

• Extending loans to borrowers who will pay high interest rates, but who are also good credit risks

• Acquiring funds at a relatively low cost, so that profitable lending opportunities can be realized

• All of the above

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in

• equal reductions in deposits and reserves.

• equal reductions in deposits and securities.

• equal reductions in capital and loans.

• equal reductions in capital and reserves.

In general, banks would prefer to meet deposit outflows by _____ rather than _____.

• selling loans; selling securities

• selling loans; borrowing from the Fed

• borrowing from the Fed; selling loans

• "calling in" loans; selling securities

The _____ are the costs associated with deposit outflows, the _____ excess reserves banks will want to hold.

• lower; more

• higher; less

• higher; more

• None of the above, since deposit outflows cannot be anticipated.

Banks that suffered significant losses in the 1980s made the mistake of

• holding too many liquid assets.

• minimizing default risk.

• failing to diversify their loan portfolio.

• holding only safe securities.

The goals of bank asset management include

• maximizing risk.

• minimizing liquidity

• lending at high interest rates regardless of risk.

• purchasing securities with high returns and low risk.

Which of the following has not resulted from more active liability management on the part of banks?

• Increased bank holdings of cash items

• Aggressive targeting of goals for asset growth by banks

• Increased use of negotiable CDs to raise funds

• An increased proportion of bank assets held in loans

Banks that actively manage liabilities will most likely meet a reserve shortfall by

• calling in loans.

• borrowing federal funds.

• selling municipal bonds.

• seeking new deposits.

When a bank's _____ exceed it ______, it is ______.

• assets; liabilities; illiquid

• assets; capital; illiquid

• capital; assets; insolvent

• liabilities; assets; insolvent

The likelihood of bank failure increases when

• a bank holds more U.S. government securities.

• a bank suffers large deposit outflows.

• a bank holds more excess reserves.

• all of the above.