ECO 301 EXAM 2 QUESTIONS WITH VERIFIED
ANSWERS
Which of the following are reported as liabilities on the banks balance sheet?
A) Deposits with other banks
B) Loans
C) Checkable deposits
D) Reserves - Answers - Checkable deposits
Which of the following statements are true?
A) Checkable deposits do not include NOW accounts
B) Checkable deposits are the primary source of bank funds
C) Demand deposits are checkable deposits that pay interest
D) Checkable deposits are payable demand - Answers - Demand deposits are
checkable deposits that pay interest
Bank capital is listed on the _ side of the bank's balance sheet because it represents a _
of funds - Answers - liability, source
Secondary reserves include
A) deposits at Federal Reserve Banks
B) deposits at other large banks
C) state and local government securities
D) short-term Treasury securities - Answers - short-term treasury securities
In general, banks make profits by selling _ liabilities and buying _ assets. - Answers -
short-term, longer-term
When Jane Browns writes a $100 check to her nephew (who lives in another state), Ms.
Brown's bank _ assets of $100 and _ liabilities of $100 - Answers - loses, loses
Holding all else constant, when a bank receives the finds for the deposited check,
A) bank reserves increase by the amount of the required reserves
B) Bank liabilities decrease by the amount of the check
C) cash items in the process of collection fall by the amount of the check
D) bank assets increase by the amount of the check - Answers - cash items in the
process of collection fall by the amount of the check
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to hold any excess reserves but makes loans instead, then, in the
bank's final balance sheet
A) the liabilities of the bank increase by 800,000
B) the assets at the bank increase by $800,000
, C) reserves increase by $160,000
D) the liabilities of the bank increase by $1,000,000 - Answers - the liabilities of the bank
increase by $1,000,000
If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent,
and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain
without altering its balance sheet is - Answers - 25,000
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $20 million in reserves, then it will not have enough reserves to support a
deposit outflow of - Answers - $1.2 million
If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve
requirements, the bank can
A) reduce deposits by $3 million
B) repay its discount loans from the Fed.
C) sell $3 million of securities
D) increase loans by $3 million - Answers - sell $3 million of securities
In general, banks would prefer to acquire funds quickly by _ rather than _ - Answers -
borrowing from the fed, reducing loans
Net profit after taxes per dollar of assets is a basic measure of bank profitability called -
Answers - return on assets
For a given return on assets, the lower bank capital - Answers - the higher is the return
for the owners of the bank
If borrowers with the most risky investment project seek bank loans in higher proportion
to those borrowers with the safest investment projects, banks are said to face the
problem of - Answers - adverse selection
All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations
than are its assets, then _ in interest rates will _ bank profits - Answers - an increase,
reduce
If a bank's liabilities are more sensitive to interest rate movements than are its assets,
then - Answers - An increase in interest rates will reduce bank profits
If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage
point increase in interest rates will cause profits to - Answers - decline by $1.5 million
If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits
(measured using gap analysis) will - Answers - decline by $1.5 million
ANSWERS
Which of the following are reported as liabilities on the banks balance sheet?
A) Deposits with other banks
B) Loans
C) Checkable deposits
D) Reserves - Answers - Checkable deposits
Which of the following statements are true?
A) Checkable deposits do not include NOW accounts
B) Checkable deposits are the primary source of bank funds
C) Demand deposits are checkable deposits that pay interest
D) Checkable deposits are payable demand - Answers - Demand deposits are
checkable deposits that pay interest
Bank capital is listed on the _ side of the bank's balance sheet because it represents a _
of funds - Answers - liability, source
Secondary reserves include
A) deposits at Federal Reserve Banks
B) deposits at other large banks
C) state and local government securities
D) short-term Treasury securities - Answers - short-term treasury securities
In general, banks make profits by selling _ liabilities and buying _ assets. - Answers -
short-term, longer-term
When Jane Browns writes a $100 check to her nephew (who lives in another state), Ms.
Brown's bank _ assets of $100 and _ liabilities of $100 - Answers - loses, loses
Holding all else constant, when a bank receives the finds for the deposited check,
A) bank reserves increase by the amount of the required reserves
B) Bank liabilities decrease by the amount of the check
C) cash items in the process of collection fall by the amount of the check
D) bank assets increase by the amount of the check - Answers - cash items in the
process of collection fall by the amount of the check
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to hold any excess reserves but makes loans instead, then, in the
bank's final balance sheet
A) the liabilities of the bank increase by 800,000
B) the assets at the bank increase by $800,000
, C) reserves increase by $160,000
D) the liabilities of the bank increase by $1,000,000 - Answers - the liabilities of the bank
increase by $1,000,000
If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent,
and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain
without altering its balance sheet is - Answers - 25,000
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $20 million in reserves, then it will not have enough reserves to support a
deposit outflow of - Answers - $1.2 million
If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve
requirements, the bank can
A) reduce deposits by $3 million
B) repay its discount loans from the Fed.
C) sell $3 million of securities
D) increase loans by $3 million - Answers - sell $3 million of securities
In general, banks would prefer to acquire funds quickly by _ rather than _ - Answers -
borrowing from the fed, reducing loans
Net profit after taxes per dollar of assets is a basic measure of bank profitability called -
Answers - return on assets
For a given return on assets, the lower bank capital - Answers - the higher is the return
for the owners of the bank
If borrowers with the most risky investment project seek bank loans in higher proportion
to those borrowers with the safest investment projects, banks are said to face the
problem of - Answers - adverse selection
All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations
than are its assets, then _ in interest rates will _ bank profits - Answers - an increase,
reduce
If a bank's liabilities are more sensitive to interest rate movements than are its assets,
then - Answers - An increase in interest rates will reduce bank profits
If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage
point increase in interest rates will cause profits to - Answers - decline by $1.5 million
If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits
(measured using gap analysis) will - Answers - decline by $1.5 million
