Chapter 12

Managing and Pricing Deposit Services

Fill in the Blank Questions
1. A(n) _________________________ requires the bank to honor withdrawals immediately upon
request.
Answer: demand deposit
2. A(n) _________________________ is an interest bearing checking account and gives the bank
the right to insist on prior notice beore customer withdrawals can be honored.
Answer: !egotiable order o withdrawal (!"#)
$. A(n) _________________________ is a short%maturity deposit which pays a competitive interest
rate. "nly & preauthori'ed drats per month are allowed and only $ o these can be by check.
Answer: money market deposit account
(. _________________________ are designed to attract unds rom customers who wish to set
aside money in anticipation o uture e)penditures or inancial emergencies.
Answer: *hrit deposits
+. _________________________ are the stable base o deposited unds that are not highly sensitive
to movements in market interest rates and tend to remain with a depository institution.
Answer: ,ore deposits
&. -ome people eel that everyone is entitled access to a minimum level o inancial service no
matter their income level. *his issue is called the issue o _________________________.
Answer: basic (lieline) banking
.. _________________________ is a way o pricing deposit services in which the rate or return or
ees charged on the deposit account are based on the cost o oering the service plus a proit
margin.
Answer: ,ost plus pricing
/. #hen inancial institutions tempt customers by paying postage both ways in bank%by%mail
services or by oering ree gits such as teddy bears0 they are practicing ___________.
Answer: nonprice competition
Rose/Hudgins, Bank Management and Financial Services, 8/e 1
Test Bank, Chapter 1 2
1. *he _________________________is the added cost o bringing in new unds.
Answer: marginal cost
12. _________________________ pricing is where the inancial institution sets up a schedule o ees
in which the customer pays a low or no ee i the deposit balance stays above some minimum
level and pays a higher ee i the balance declines below that minimum level.
Answer: ,onditional
11. #hen a customer is charged a i)ed charge per check this is called __________________ pricing.
Answer: lat rate
12. #hen a customer is charged based on the number and kinds o services used0 with the customers
that use a number o services being charged less or having some ees waived0 this is called
__________________ pricing.
Answer: relationship
1$. _________________________ is part o the new technology or processing checks where the
bank takes a picture o the back and the ront o the original check and which can now be
processed as i they were the original.
Answer: ,heck imaging
1(. A(n) _________________________ is a thrit account which carries a i)ed maturity date and
generally carries a i)ed interest rate or that time period.
Answer: time deposit
1+. A(n) _________________________ is a conditional method o pricing deposit services in which
the ees paid by the customer depend mainly on the account balance and volume o activity.
Answer: deposit ee schedule
1&. *he _________________________ was passed in 1111 and speciies the inormation that
institutions must disclose to their customers about deposit accounts.
Answer: *ruth in -avings Act
1.. *he _________________________ must be disclosed to customers based on the ormula o one
plus the interest earned divided by the average account balance ad3usted or an annual $&+ day
year. 4t is the interest rate the customer has actually earned on the account.
Answer: annual percentage yield (A56)
1/. A(n) _________________________ is a retirement plan that institutions can sell which is
designed or sel%employed individuals.
Answer: 7eogh plan
Rose/Hudgins, Bank Management and Financial Services, 8/e $
11. 8eposit institution location is most important to ______%income consumers.
Answer: low
22. _____%income consumers appear to be more inluenced by the si'e o the inancial institution.
Answer: high
21. 9or decades depository institutions oered one type o savings plan. could be opened
with as little as :+ and withdrawal privileges were unlimited.
Answer: 5assbook savings deposits
22. ,8;s allow depositors to switch to a higher interest rate i market rates
rise.
Answer: <ump%up
23. ,8;s permit periodic ad3ustments in promised interest rates.
Answer: -tep%up
24. ,8;s allow the depositor to withdraw some o his or her unds without a
withdrawal penalty.
Answer: =iquid
25. A(n) 0 which was authori'ed by ,ongress in 111.0 allows individuals to
make non%ta)%deductible contributions to a retirement und that can grow ta) ree and also pay no
ta)es on their investment earnings when withdrawn.
Answer: >oth 4>A
26. 8ue to the act that they may be perceived as more risky0 banks generally oer
higher deposit rates than traditional banks.
Answer: virtual
27. are accounts in domestic banking institutions where the ?.-.
*reasury keeps most o their operating unds.
Answer: *reasury *a) and =oan Accounts (**@= accounts)
28. is a process where merchants and utility companies take the
inormation rom a check an individual has 3ust written and electronically debits the individual;s
account instead o sending the check through the regular check clearing process.
Answer: electronic check conversion
Test Bank, Chapter 1 (
29. "n "ctober 2/0 222(0 became the law0 permitting depository institutions to
electronically transer check images instead o the checks themselves.
Answer: ,heck 21
30. *he to the cost plus pricing derives the weighted average cost o all
unds raised and is based on the assumption that it is not the cost o each type o deposit that
matters but rather the weighted average cost o all unds that matters.
Answer: pooled%unds cost approach
True/False Questions
* 9 $1. *he volume o core deposits at ?.-. banks has been growing in recent years relative to
other categories o deposits.
Answer: 9alse
* 9 $2. *he ?.-. *reasury keeps most o its operating unds in **@= deposits0 according to the
te)tbook.
Answer: *rue
* 9 $$. 8eposits owned by commercial banks and held with other banks are called correspondent
deposits.
Answer: *rue
* 9 $(. *he implicit interest rate on checkable deposits equals the dierence between the cost o
supplying deposit services to a customer and the amount o the service charge actually
assessed that customer.
Answer: *rue
* 9 $+. =egally imposed interest%rate ceilings on deposits were irst set in place in the ?nited
-tates ater passage o the <ank Aolding ,ompany Act.
Answer: 9alse
* 9 $&. Bradual phase%out o legal interest%rate ceilings on deposits oered by ?.-. banks was
irst authori'ed by the Blass%-teagall Act.
Answer: 9alse
* 9 $.. *he contention that there are certain banking services (such as small loans or savings and
checking accounts) that every citi'en should have access to is usually called sociali'ed
banking.
Answer: 9alse
Rose/Hudgins, Bank Management and Financial Services, 8/e +
* 9 $/. 8omestic deposits generate legal reserves.
Answer: *rue
* 9 $1. C)cess legal reserves are the source out o which new bank loans are created.
Answer: *rue
* 9 (2. 8emand deposits are among the most volatile and least predictable o a bankDs sources o
unds with the shortest potential maturity.
Answer: *rue
* 9 (1. 4>A and 7eogh deposits have great appeal or bankers principally because they can be
sold bearing relatively low (oten below%market) interest rates.
Answer: 9alse
* 9 (2. 4n general0 the longer the maturity o a deposit0 the lower the yield a inancial institution
must oer to its depositors because o the greater interest%rate risk the bank aces with
longer%term deposits.
Answer: 9alse
* 9 ($. *he availability o a large block o core deposits decreases the duration o a bankDs
liabilities.
Answer: 9alse
* 9 ((. 4nterest%bearing checking accounts0 on average0 tend to generate lower net returns than
regular (noninterest%bearing) checking accounts.
Answer: 9alse
* 9 (+. 5ersonal checking accounts tend to be more proitable than commercial checking
accounts.
Answer: 9alse
* 9 (&. !"# accouts can be held by businesses and individuals and are interest bearing
checking accounts.
Answer: 9alse
* 9 (.. A EE8A is a short term deposit where the bank can oer a competitive interest rate and
which allows up to & preauthori'ed drats per month.
Answer: *rue
Test Bank, Chapter 1 &
* 9 (/. A >oth 4>A allows an individual to accumulate investment earnings ta) ree and also pay
no ta) on their investment earnings when withdrawn provided the ta)payer ollows the
rules on this new account.
Answer: *rue
* 9 (1. ,ompetition tends to raise deposit interest costs.
Answer: *rue
* 9 +2. ,ompetition lowers the e)pected return to a bank rom putting its deposits to work.
Answer: *rue
* 9 +1. A bank has ull control o its deposit prices in the long run.
Answer: 9alse
* 9 +2. !onprice competition or deposits has tended to distort the allocation o scarce resources
in the banking sector.
Answer: *rue
* 9 +$. 8eposits are usually priced separately rom loans and other bank services.
Answer: *rue
* 9 +(. According to recent 9ederal >eserve data no%ee savings accounts are on the decline.
Answer: *rue
* 9 ++. According to recent survey inormation provided by the sta o the 9ederal >eserve
<oard the average level o ees on most types o checking and !"# accounts appear to
have risen.
Answer: *rue
* 9 +&. *he *ruth in -avings Act requires a bank to disclose to its deposit customer the requency
with which interest is compounded on all interest%bearing accounts.
Answer: *rue
* 9 +.. ?nder the *ruth in -avings Act customers must be inormed o the impact o any early
deposit withdrawals on the annual percentage yield they e)pect to receive rom an
interest%bearing deposit.
Answer: *rue
Rose/Hudgins, Bank Management and Financial Services, 8/e .
* 9 +/. *he number one actor households consider in selecting a bank to hold their checking
account is0 according to recent studies cited in this chapter0 low ees and low minimum
balance.
Answer: 9alse
* 9 +1. *he number one actor households consider in choosing a bank to hold their savings
deposits0 according to recent studies cited in this chapter0 is location.
Answer: 9alse
* 9 &2. ,onditionally ree deposits or customers mean that as long as the customers do not go
above a certain level o deposits there are no monthly ees or per transaction charges.
Answer: 9alse
* 9 &1. #hen a bank temporarily oers higher than average interest rates or lower than average
customer ees in order to attract new business they are practicing conditional pricing.
Answer: 9alse
* 9 &2. #eb%centered banks with little or no physical acilities are known as ________ banks
Answer: *rue
* 9 &$. *he total dollar value o checks paid in the ?nited -tates has grown modestly in recent
years.
Answer: 9alse
* 9 &(. *here are still a number o e)isting problems with online bill%paying services which has
limited the growth.
Answer: *rue
* 9 &+. *he depository institutions which tend to have the highest deposit yields are credit
unions.
Answer: 9alse
* 9 &&. ?rban markets are more responsive to deposit interest rates and ees than rural markets.
Answer: 9alse
* 9 &.. >esearch indicates that at least hal o all households and small businesses hold their
primary checking account at a depository institution situated within $ miles o their
location.
Answer: *rue
Test Bank, Chapter 1 /
Multiple Choice Questions
&/. 8eposit accounts whose principal unction is to make payments or purchases o goods and
services are called:
A) 8rats
<) -econd%party payments accounts
,) *hrit deposits
8) *ransaction accounts
C) !one o the above
Answer: 8
&1. 4nterest payments on regular checking accounts were prohibited in the ?nited -tates under terms
o the:
A) Blass%-teagall Act
<) Ec9adden%5epper Act
,) !ational <ank Act
8) Barn%-t. Bermain 8epository 4nstitutions Act
C) !one o the above
Answer: A
.2. Eoney%market deposit accounts (EE8As)0 oering le)ible interest rates0 accessible or
payments purposes0 and designed to compete with share accounts oered by money market
mutual unds0 were authori'ed by the:
A) Blass%-teagall Act
<) 8epository 4nstitutions 8eregulation and Eonetary ,ontrol Act (848E,A)
,) <ank Aolding ,ompany Act
8) Barn%-t.Bermain 8epository 4nstitutions Act
C) !one o the above
Answer: 8
.1. *he stable and predictable base o deposited unds that are not highly sensitive to movements in
market interest rates but tend to remain with the bank are called:
A) *ime deposits
<) ,ore deposits
,) ,onsumer ,8s
8) !ontransaction deposits
C) !one o the above
Answer: <
Rose/Hudgins, Bank Management and Financial Services, 8/e 1
.2. !oegotiable "rders o #ithdrawal (!"#) accounts0 interest%bearing savings accounts that can
be used essentially the same as checking accounts0 were authori'ed by:
A) Blass%-teagall Act
<) 8epository 4nstitutions 8eregulation and Eonetary ,ontrol Act (848E,A)
,) <ank Aolding ,ompany Act
8) Barn%-t. Bermain 8epository 4nstitutions Act
C) !one o the above
Answer: <
.(. A deposit which oers le)ible money market interest rates but is accessible or spending by
writing a limited number o checks or e)ecuting preauthori'ed drats is known as a:
A) 8emand deposit
<) !"# account
,) EE8As
8) *ime deposit
C) !one o the above
Answer: ,
.+. *he types o deposits that will be created by the banking system depend predominantly upon:
A) *he level o interest rates
<) *he state o the economy
,) *he monetary policies o the central bank
8) 5ublic preerence
C) !one o the above.
Answer: 8
.&. *he most proitable deposit or a bank is a:
A) *ime deposit
<) ,ommercial checking account
,) 5ersonal checking account
8) 5assbook savings deposit
C) -pecial checking account
Answer: <
... -ome people eel that individuals are entitled to some minimum level o inancial services no
matter what their income level. *his issue is oten called:
A) =ieline banking
<) 5reerence banking
,) !ondiscriminatory banking
8) =ieboat banking
C) !one o the above
Answer: A
Test Bank, Chapter 1 12
./. *he ormula "perating C)pense per unit o deposit service F Cstimated overhead e)pense F
5lanned proit rom each deposit service unit sold relects what deposit pricing method listed
belowG
A) Earginal cost pricing
<) ,ost plus pricing
,) ,onditional pricing
8) ?pscale target pricing
C) !one o the above.
Answer: <
.1. ?sing deposit ee schedules that vary deposit prices according to the number o transactions0 the
average balance in the deposit account0 and the maturity o the deposit represents what deposit
pricing method listed belowG
A) Earginal cost pricing
<) ,ost plus pricing
,) ,onditional pricing
8) ?pscale target pricing
C) !one o the above.
Answer: ,
/2. *he deposit pricing method that avors large%denomination deposits because services are ree i
the deposit account balance stays above some minimum igure is called:
A) 9ree pricing
<) ,onditionally ree pricing
,) 9lat%rate pricing
8) ?pscale target pricing
C) Earginal cost pricing
Answer: <
/1. *he ederal law that requires ?.-. depository institutions to make greater disclosure o the ees0
interest rates0 and other terms attached to the deposits they sell to the public is called the:
A) ,onsumer ,redit 5rotection Act
<) 9air 5ricing Act
,) ,onsumer 9ull 8isclosure Act
8) *ruth in -avings Act
C) !one o the above.
Answer: 8
Rose/Hudgins, Bank Management and Financial Services, 8/e 11
/2. 8epository institutions selling deposits to the public in the ?nited -tates must quote the
rate o return pledged to the owner o the deposit which relects the customerDs average daily balance kept
in the deposit. *his quoted rate o return is known as the:
A) Annual percentage rate (A5>)
<) Annual percentage yield (A56)
,) 8aily deposit yield (886)
8) 8aily average return (8A>)
C) !one o the above.
Answer: <
/$. According to recent studies cited in this book0 in selecting a bank to hold their checking accounts
household customers rank irst which o the ollowing actorsG
A) -aety
<) Aigh deposit interest rates
,) ,onvenient location
8) Availability o other services
C) =ow ees and low minimum balance.
Answer: ,
/(. According to recent studies cited in this chapter0 in choosing a bank to hold their savings deposits
household customers rank irst which o the ollowing actorsG
A) 9amiliarity
<) 4nterest rate paid
,) *ransactional convenience
8) =ocation
C) 9ees charged.
Answer: A
/+. According to recent studies cited in this chapter0 in choosing a bank to supply their deposits and
other services business irms rank irst which o the ollowing actorsG
A) Huality o inancial advice given
<) 9inancial health o lending institution
,) #hether loans are competitively priced
8) #hether cash management and operations services are provided.
C) Huality o bank oicers.
Answer: <
/&. A inancial institution that charges customers based on the number o services they use and gives
lower deposit ees or waives some ees or a customer that purchases two or more services is
practicing:
A) Earginal cost pricing
<) ,onditional pricing
,) >elationship pricing
8) ?pscale target pricing
C) !one o the above
Answer: ,
Test Bank, Chapter 1 12
Rose/Hudgins, Bank Management and Financial Services, 8/e 1$
/.. A bank determines rom an analysis on its deposits that account processing and other
operating e)penses cost the bank :$.1+ per month. 4t has also determined that its non operating e)penses
on its deposits are :1.$+ per month. *he bank wants to have a proit margin which is 12 percent o
monthly costs. #hat monthly ee should this bank charge on its deposit accountsG
A) :+.$2 per month
<) :$.1+ per month
,) :+./$ per month
8) :+..2 per month
C) !one o the above
Answer: ,
//. A bank determines rom an analysis on its deposits that account processing and other operating
e)penses cost the bank :(.(+ per month. *he bank has also determined that nonoperating
e)penses on deposits are :1.1+ per month. 4t has also decided that it wants a proit o :.(+ on its
deposits. #hat monthly ee should this bank charge on its deposit accountsG
A) :&.2+
<) :+.&2
,) :+.1+
8) :(.(+
C) !one o the above
Answer: A
/1. A customer has a savings deposit or (+ days. 8uring that time they earn :+ in interest and have
an average daily balance o :1222. #hat is the annual percentage yield on this savings accountG
A) 2.+I
<) (.1$I
,) (.2.I
8) (.+I
C) !one o the above
Answer: <
12. A customer has a savings account or one year. 8uring that year they earn :&+.+2 in interest. 9or
1/2 days they have :2222 in the account or the other 1/2 days they have :1222 in the account.
#hat is the annual percentage yield on this savings account.
A) &.++I
<) $.2/I
,) (.$.I
8) /..$I
C) !one o the above
Answer: ,

91.
Test Bank, Chapter 1 1(
4 you deposit :10222 into a certiicate o deposit that quotes you a +.+I A560 how much will you
have at the end o 1 yearG
A) :102+2.22
B) :102++.22
C) :10++2.22
D) :1022+.+2
E) !one o the above.
Answer: <
12. A bank quotes an A56 o /I. A small business that has an account with this bank had :20+22 in
their account or hal the year and :+0222 in their account or the other hal o the year. Aow
much in total interest earnings did this bank make during the yearG
A) :$22
<) :222
,) :(22
8) :1+2
C) !one o the above
Answer: A
1$. ,onditional deposit pricing may involve all o the ollowing actors e)cept:
A) *he level o interest rates
<) *he number o transactions passing through the account
,) *he average balance in the account
8) *he maturity o the account
C) All o the above are used
Answer: A
94. Customers who wish to set aside money in anticipation of future expenditures
or fnancial emergencies put their money in
A) Drafts
B) Second-party payment accounts
C) Thrift Deposits
D) Transaction accounts
E) one of the a!o"e
Answer# C
95. A sa"ings account e"idenced only !y computer entry for which the customer
gets a monthly printout is called#
A) $ass!oo% sa"ings account
B) Statement sa"ings plan
C) egotia!le order of withdrawal
D) &oney mar%et mutual fund
E) one of the a!o"e
Answer# B
Rose/Hudgins, Bank Management and Financial Services, 8/e 1+
96. A traditional sa"ings account where e"idenced !y the entries recorded in a
!oo%let %ept !y the customer is called#
A) $ass!oo% sa"ings account
B) Statement sa"ings plan
C) egotia!le order of withdrawal
D) &oney mar%et mutual fund
E) one of the a!o"e
Answer# A
97. An account at a !an% that carries a fxed maturity date with a fxed interest
rate and which often carries a penalty for early withdrawal of money is called#
A) Demand deposit
B) Transaction deposit
C) Time deposit
D) &oney mar%et mutual deposit
E) one of the a!o"e
Answer# C
98. A time deposit that has a denominations greater than '())*))) and are
generally for wealthy indi"iduals and corporations is %nown as a#
A) egotia!le CD
B) Bump-up CD
C) Step-up CD
D) +i,uid CD
E) one of the a!o"e
Answer# A
99. A time deposit that is non-negotia!le !ut where the promised interest rate
can rise with mar%et interest rates is called a#
A) egotia!le CD
B) Bump-up CD
C) Step-up CD
D) +i,uid CD
E) one of the a!o"e
Answer# B
100.A time deposit that allows for a periodic upward ad-ustment to the promised
rate is called a#
A) egotia!le CD
B) Bump-up CD
C) Step-up CD
D) +i,uid CD
E) one of the a!o"e
Answer# C
Test Bank, Chapter 1 1&
101.A time deposit that allows the depositor to withdraw some of his or her funds
without a withdrawal penalty is called a#
A) egotia!le CD
B) Bump-up CD
C) Step-up CD
D) +i,uid CD
E) one of the a!o"e
Answer# D
102..hat has made /0A and 1eogh accounts more attracti"e to depositors
recently2
A) Allowing the !an% to ha"e 3D/C insurance on these accounts
B) Allowing the fund to grow tax free o"er the life of the fund
C) Allowing the depositor to pay no taxes on in"estment earnings when
withdrawn
D) 0e,uiring !an%s to pay at least 45 on these accounts to depositors
E) /ncreasing 3D/C insurance co"erage to '67)*))) on these accounts
Answer# E
103.The dominant holder of !an% deposits in the 89S9 is#
A) The pri"ate sector
B) State and local go"ernments
C) 3oreign go"ernments
D) Deposits of other !an%s
E) one of the a!o"e
Answer# A
104.The deposit pricing method a!sent of any monthly account maintenance fee
or per-transaction fee is called#
A) 3ree pricing
B) Conditionally free pricing
C) 3lat-rate pricing
D) &arginal cost pricing
E) onprice competition
Answer# A
105.The deposit pricing method that charges a fxed charge per chec% or per
period or !oth is called#
A) 3ree pricing
B) Conditionally free pricing
C) 3lat-rate pricing
D) &arginal cost pricing
E) onprice competition
Answer# C
Rose/Hudgins, Bank Management and Financial Services, 8/e 1.
106.The deposit pricing method that focuses on the added cost of !ringing in new
funds is called#
A) 3ree pricing
B) Conditionally free pricing
C) 3lat-rate pricing
D) &arginal cost pricing
E) onprice competition
Answer# D
107.$rior to Depository /nstitution Deregulation and Control Act :D/D&CA)* !an%s
used 9 This tended to distort the allocation of scarce resources9
A) 3ree pricing
B) Conditionally free pricing
C) 3lat-rate pricing
D) &arginal cost pricing
E) onprice competition
Answer# E
108.A customer has a sa"ings deposit for 4) days9 During that time they earn
'(( and ha"e an a"erage daily !alance of '(7))9 .hat is the annual
percentage yield on this sa"ings account2
A) 9;<5
B) =9<5
C) =975
D) =9;5
E) one of the a!o"e
Answer# C
109.A customer has a sa"ings deposit for (7 days9 During that time they earn
'(7 and ha"e an a"erage daily !alance of '66))9 .hat is the annual
percentage yield on this sa"ings account2
A) 94>5
B) (49<45
C) (497?5
D) (;9?>5
E) one of the a!o"e
Answer# D
110. A !an% determines from an analysis on its deposits that account processing
and other operating expenses cost the !an% '=9(7 per month9 /t has also
determined that its none operating expenses on its deposits are '(947 per
month9 The !an% wants to ha"e a proft margin which is () percent of
monthly costs9 .hat monthly fee should this !an% charge on its deposit
Test Bank, Chapter 1 1/
accounts2
A) '49<> per month
B) '79>) per month
C) '=97; per month
D) '=9(7 per month
E) one of the a!o"e
Answer# A
111. A !an% has '6)) in chec%ing deposits9 /nterest and noninterest costs on
these accounts are =59 This !an% has '=)) in sa"ings and time deposits with
interest and noninterest costs of >59 This !an% has '6)) in e,uity capital
with a cost of 6=59 This !an% as estimated that reser"e re,uirements*
deposit insurance fees and uncollected !alances reduce the amount of money
a"aila!le on chec%ing deposits !y ()5 and on sa"ings and time deposits !y
759 .hat is this !an%@s !efore-tax cost of funds2
A) ((9))5
B) ((9<65
C) ((97)5
D) (69))5
E) one of the a!o"e
Answer# B
112. A !an% has '()) in chec%ing deposits9 /nterest and noninterest costs on
these accounts are >59 This !an% has '4)) in sa"ings and time deposits with
interest and noninterest costs of (659 This !an% has '()) in e,uity capital
with a cost of 6459 This !an% has estimated that reser"e re,uirements*
deposit insurance fees and uncollected !alances reduce the amount of money
a"aila!le on chec%ing deposits !y 6)5 and on sa"ings and time deposits !y
759 .hat is the !an%@s !efore-tax cost of funds2
A) (<9)75
B) (<9675
C) (79<<5
D) (?9(;5
E) one of the a!o"e
Answer# A
113. A !an% has '7)) in chec%ing deposits9 /nterest and noninterest costs on
these accounts are 459 This !an% has '67) in sa"ings and time deposits with
interest and noninterest costs of (=59 This !an% has '67) in e,uity capital
with a cost of 6759 This !an% has estimated that reser"e re,uirements*
deposit insurance fees and uncollected !alances reduce the amount of money
a"aila!le on chec%ing deposits !y (75 and on sa"ings and time deposits !y
=59 .hat is the !an%@s !efore-tax cost of funds2
A) (79))5
B) (69;75
C) (<9=65
Rose/Hudgins, Bank Management and Financial Services, 8/e 11
D) (79;=5
E) one of the a!o"e
Answer# C
114. A !an% expects to raise '<) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '>) million in new money if it pays a deposit rate of >5 and it can
raise '()) million in new money if it pays a deposit rate of >9759 This !an%
expects to earn ?5 on all money that it recei"es in new deposits9 .hat
deposit rate should the !an% oAer on its deposits* if they use the marginal
cost method of determining deposit rates2
A) ;5
B) ;975
C) >5
D) >975
E) one of the a!o"e
Answer# B
115. A !an% expects to raise '<) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '>) million in new money if it pays a deposit rate of >5 and it can
raise '()) million in new money if it pays a deposit rate of >9759 This !an%
expects to earn ?5 on all money that it recei"es in new deposits9 .hat is the
marginal cost of deposits if the !an% raises their deposit rate from ; to ;9752
A) 975
B) ;975
C) >9)5
D) ?975
E) ()975
Answer# C
116. 8nder the Truth in Sa"ings Act* a !an% must inform its customers of the terms
!eing ,uoted on their deposits9 .hich of the following is not one of the terms
listed2
A) +oan rate information
B) Balance computation method
C) Early withdrawal penalty
D) Transaction limitations
E) &inimum !alance re,uirements
Answer# A
117. .hich of these Acts is attempting to address the low sa"ings rate of wor%ers
in the 89S9 !y including an automatic enrollment :Bdefault optionC) in
employees@ retirement accounts2
A) The Economic 0eco"ery Tax Act of (?>(
B) The Tax 0eform Act of (?>4
Test Bank, Chapter 1 22
C) The Tax 0elief Act of (??;
D) The $ension $rotection Act of 6))4
E) one of the a!o"e
Answer# D
118. Business :commercial) transaction accounts are generally more profta!le
than personal chec%ing accounts* according to the text!oo%9 .hich of the
following explain the reasons for this statement#
A) The a"erage siDe of the !usiness transaction is smaller than the personal
transaction
B) +ower interest expenses are associated with commercial deposit
transaction
C) The !an% recei"es more in"esta!le funds in the commercial deposits
transaction
D) A and B
E) B and C
Answer# E
119. A !an% expects to raise '<) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '>) million in new money if it pays a deposit rate of >5 and it can
raise '()) million in new money if it pays a deposit rate of >9759 This !an%
expects to earn ?5 on all money that it recei"es in new deposits9 .hat is the
marginal cost of deposits if this !an% raises their deposit rate from ;975 to
>52
A) 975
B) ;975
C) >9)5
D) ?975
E) ()975
Answer# D
Rose/Hudgins, Bank Management and Financial Services, 8/e 21
120.A !an% expects to raise '<) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '>) million in new money if it pays a deposit rate of >5 and it can
raise '()) million in new money if it pays a deposit rate of >9759 This !an%
expects to earn ?5 on all money that it recei"es in new deposits9 .hat is the
marginal cost of deposits if this !an% raises their deposit rate from >5 to
>9752
A) 975
B) ;975
C) >9)5
D) ?975
E) ()975
Answer# E
121.A !an% expects to raise '6) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '()) million in new money if it pays a deposit rate of >5 and it can
raise '(6) in new money if it pays a deposit rate of >9759 This !an% expects
to earn ?975 on all money that it recei"es in new deposits9 .hat deposit rate
should the !an% oAer on its deposits* if it uses the marginal cost method of
determining deposits rates2
A) ;5
B) ;975
C) >5
D) >975
E) one of the a!o"e
Answer# C
122.A !an% expects to raise '6) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '()) million in new money if it pays a deposit rate of >5 and it can
raise '(6) in new money if it pays a deposit rate of >9759 This !an% expects
to earn ?975 on all money that it recei"es in new deposits9 .hat is the
marginal cost of deposits if this !an% raises their deposit rate from > to >9752
A) ((5
B) >9;75
C) ;9;75
D) ;5
E) 975
Answer# A
123.A !an% expects to raise '6) million in new money if it pays a deposit rate of
;59 /t can raise '4) million in new money if it pays a deposit rate of ;9759 /t
can raise '()) million in new money if it pays a deposit rate of >5 and it can
raise '(6) in new money if it pays a deposit rate of >9759 This !an% expects
to earn ?975 on all money that it recei"es in new deposits9 .hat is the
marginal cost of deposits if this !an% raises their deposit rate from ;975 to
>52
A) ((5
Test Bank, Chapter 1 22
B) >9;75
C) ;9;75
D) ;5
E) 975
Answer# B
Rose/Hudgins, Bank Management and Financial Services, 8/e 2$