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Multiple Choice



1

Which of the following correctly states the relationship regarding banks' balance sheets:
A)Total Bank Liabilities = Total Bank capital + Total Bank Assets.
B)Total Bank Assets = Total Bank Liabilities + Total Bank Capital.
C)Total Bank Assets = Total Bank Liabilities – Total Bank Capital.
D)Total Bank Assets = Total Bank Capital – Total Bank Liabilities.
2

Which of the following correctly states the relationship regarding banks' balance sheets:
A)Total Bank Liabilities = Total Bank capital + Total Bank Assets
B)Total Bank Assets = Total Bank Capital – Total Bank Liabilities
C)Total Bank Assets = Total Bank Liabilities – Total Bank Capital
D)Total Bank Assets = Total Bank Liabilities + Total Bank Capital.
3

Considering the balance sheet for all commercial banks in the U.S., the net worth of banks is:
A)About 20 times total liabilities
B)About 7 times total assets.
C)About the same as total assets.
D)About 10 times total liabilities.
4

A bank's reserves do not include:
A)U.S. Treasury bills.
B)Currency in the bank.
C)The bank's deposits at the Federal Reserve.
D)Currency in ATM machines.
5

Bank's hold marketable securities as part of their assets. For U.S. banks these marketable securities do not include:
A)Common stocks
B)The bonds of the U.S. Treasury.
C)U.S. Treasury Bills.
D)All of the above
6

For U.S. Commercial banks:
A)Loans make up about one-third of total assets.
B)Loans make-up one-half of total assets.
C)Loans make up about two-thirds of total assets.
D)Loans make up two-thirds of liabilities.
7

The federal funds market:
A)Is the inter-bank market where excess reserves from one bank can be loaned to another bank.
B)Is the lending to banks by the U.S. Treasury when banks face liquidity emergencies.
C)Is the term used for bank borrowing from the Federal Reserve System.
D)Is the borrowing by American banks from foreign lenders.
8

Which of the following is a bank liability:
A)Reserves.
B)U.S. Treasury bonds.
C)Loans.
D)Federal fund borrowings.
9

Repurchase agreements are usually used by banks that:
A)Have a need for long-term equity financing.
B)Have negative net worth.
C)Need cash for a very short period of time.
D)Cannot obtain financing from any other source.
10

If a bank sells off all of its assets and pays all of its liabilities the amount remaining would be:
A)Net profit.
B)Net worth.
C)Reserves.
D)Excess reserves.
11

If a bank has $200 million in assets and a net worth of $25 million, its debt to equity ratio is:
A)10 to 1
B)7 to 1
C)8.75 to 1
D)8 to 1
12

A bank's Return on Equity is calculated by:
A)Dividing the banks liabilities by the bank's capital.
B)Dividing the bank's net profit after taxes by the bank's capital.
C)Taking the bank's assets plus the net profit after taxes and dividing this sum by the bank's capital.
D)Dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities.
13

The difference between a bank's reserves and their required reserves is:
A)Equity.
B)Excess reserves.
C)Net interest income.
D)Nothing, they are the same thing.
14

If a bank has deposits of $300 million, reserves that total $40 million and has a required reserve rate of 10 percent:
A)The bank is short of required reserves.
B)The bank has excess reserves of $10 million.
C)The bank has excess reserves of $5 million.
D)The bank has a net profit of $10 million.
15

One way for a bank to deal with credit risk is to:
A)Add a mark-up to the cost of funds for a specific borrower based on the borrower's credit history.
B)Charge all borrowers from the same industry an average rate for that industry.
C)Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries.
D)Limit the number of loans made in any year.
16

The procedure that estimates the interest rate sensitivity of a bank's assets and liabilities is called:
A)Managing credit risk.
B)Gap analysis.
C)Trading risk minimization.
D)Bank managerial finance.
E)Estimating operating risk differential.





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