Chap 2 Banking Concepts Quiz

What is the primary purpose of a bank’s balance sheet?

• To show assets, liabilities, and equity

• To list profits for the year

• To display tax calculations

• To forecast future earnings

Which of the following is considered a primary reserve for a bank?

• U.S. government bonds

• Vault cash

• Corporate loans

• Real estate investments

What does "Net Loans" represent in a bank’s balance sheet?

• Total loans issued minus interest earned

• Total loans issued minus allowances for loan losses

• Total loans minus non-performing assets

• Gross loans plus interest income

Federal funds sold by a bank are typically:

• Long-term investments

• Overnight loans to other banks

• Real estate loans

• Consumer loans

Which type of deposit is most likely to be considered a core deposit?

• Large CDs

• Negotiable orders of withdrawal (NOW) accounts

• Foreign deposits

• Brokered deposits

What is the purpose of an allowance for loan losses account?

• To track interest income on loans

• To hedge against market risks

• To account for potential loan defaults

• To reserve funds for regulatory penalties

A trading account asset in a bank’s financial statement is:

• An asset held for long-term appreciation

• An asset purchased for short-term profit from price movements

• A loan issued to consumers

• A liability in foreign exchange transactions

Which type of risk is associated with maturity transformation in banks?

• Liquidity risk

• Market risk

• Operational risk

• Credit risk

Maple Bank has a high operating efficiency ratio. What does this indicate?

• The bank has high operating expenses relative to revenues

• The bank’s employees are less productive

• The bank is efficient in generating revenue from its expenses

• The bank faces high levels of credit risk

Pinewood Credit Union offers savings accounts with minimal restrictions. These deposits are classified as:

• Volatile funds

• Core deposits

• Secondary reserves

• Off-balance-sheet items