(Q2) Assignment 9 343 (Chapter 9)

Which of the following statements is FALSE?

• The bank's assets provide the bank with income.

• Bank capital is recorded as an asset on the bank balance sheet.

• A bank's assets are its uses of funds.

• A bank issues liabilities to acquire funds.

Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and return, and using the proceeds to buy ________ with a different set of characteristics.

• assets; liabilities

• liabilities; assets

• securities; deposits

• loans; deposits

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is

• $90.

• $110.

• $100.

• $10.

Asset transformation can be described as

• borrowing and lending for the long term.

• borrowing long and lending short.

• borrowing and lending only for the short term.

• borrowing short and lending long.

In general, banks make profits by selling ________ liabilities and buying ________ assets.

• short-term; longer-term

• illiquid; liquid

• risky; risk-free

• long-term; shorter-term

Which of the following are reported as liabilities on a bank's balance sheet?

• checkable deposits

• deposits with other banks

• consumer loans

• reserves

Which of the following bank assets is the most liquid?

• state and local government securities

• consumer loans

• U.S. government securities

• reserves

Bank's make their profits primarily by issuing

• negotiable CDs.

• equity.

• loans.

• NOW accounts.

The amount of checkable deposits that banks are required by regulation to hold are the

• required reserves.

• total reserves.

• excess reserves.

• vault cash.

Bank reserves include

• deposits at the Fed and short-term treasury securities.

• vault cash and deposits at the Fed.

• deposits at other banks and deposits at the Fed.

• vault cash and short-term Treasury securities.