Professional Documents
Culture Documents
9.
The spread between current and expected loans and investments and
the current and expected deposit inflows and other sources of funds is known as the
_________________________.
Answer: funds gap
10. A(n) _________________________ is an interest bearing receipt for funds issued
by a bank with a minimum denomination of $100,000.
Answer: negotiable (jumbo) CD
11. Because there is a danger that the bank in need of funds will not be able to
find someone willing to grant the bank a loan at a reasonable rate, they face
_________________________.
Answer: credit availability risk
12. The Federal Reserve will make loans through its _________________________.
Answer: discount window
13. The securities most often used in a repurchase agreement are
_________________________.
Answer: T-Bills
14. Virtually all nondeposit borrowing of a bank are ______-term rather than
_______-term debt.
Answer: short, long
15. Repurchase Agreements (RPs) are very similar to Federal Funds and are often
viewed as ____________ federal funds transactions.
Answer: collateralized
16. A repurchase agreement (RP) whereby the collateral is specifically identified
is known as a conventional or ____________ RP.
Answer: fixed-collateral
17. A ______________ repurchase agreement (RP) is one in which the underlying
collateral is not identified precisely and thus allows some substitution.
Answer: General Collateral Finance
18. The type of discount window loan with generally the highest rates of interest
is known as ___________ credit.
Answer: secondary
19. The type of discount window loan with generally the lowest rate of interest is
known as __________ credit.
Answer: seasonal
20. 20.
20. 21.
20. 22.
20. 23.
20. 24.
20. 25.
True/False Questions
26. The traditional and principal source of bank funds is deposits.
Answer: True
37. Funds raised by the use of liability management techniques are considered to
be flexible.
Answer: True
38. Liability management banking calls for using price (the interest rate offered)
as the control lever to regulate incoming funds.
Answer: True
39. The most common type of federal funds loans are term loans.
Answer: False
40. Longer-term federal funds contracts lasting several days, weeks, or months,
often accompanied by a written contract, are called continuing contracts.
Answer: False
41. According to the FDIC Improvement Act undercapitalized U.S. banks cannot
be granted discount window loans for more than 60 days in each 120-day
period.
Answer: True
42. The largest foreign banks active in the United States sell CDs through their
U.S. branches called Yankee CDs.
Answer: True
43. Under current federal law commercial banks in the United States can issue
commercial paper as direct obligations of the banks.
Answer: False
44. Nondeposit funds do have the advantage of quick availability compared to
most types of deposits, but are not as stable a funding source for banks as
are time and savings deposits.
Answer: True
45. Longer-term federal funds contracts which are automatically renewed each
day unless either the borrower or the lender decides to end the agreement
are called term loans,
Answer: False
46. The main use of federal funds today is still the traditional one. Federal funds
provide a mechanism that allows banks short of legal reserves to tap into
immediately available funds from other institutions possessing temporarily
idle funds.
Answer: True
47. One of the factors to consider when a bank chooses among nondeposit
funding sources is the relative cost. In general, the cheapest source of shortterm funds is the Fed Funds market.
Answer: True
48. There are no restrictions on getting a Federal Reserve loan and because it is
the cheapest source of short-term funds most banks will use this source of
funds exclusively.
Answer: False
49. CDs must be issued with maturities of at least 7 days.
Answer: True
50. Loans from the Fed Funds market must be backed by collateral.
Answer: False
51. In recent years financial institutions have gotten better at managing interest
rate risk.
Answer: True
52. Large banks depend more on nondeposit borrowings than small banks.
Answer: True
53. Although there is an active federal funds spot market, there is currently no
associated futures market for federal funds.
Answer: False
54. Repurchase Agreement (RPs) transactions are perceived to be less risky than
equivalent federal funds transactions.
Answer: True
55. Interest rates in the Repurchase Agreement (RP) market are quoted on a 360day basis.
Answer: True
56. Seasonal credit discount window loans generally have the highest interest
rates.
Answer: False
57. 57.
57. 58.
When the general credit conditions are tight, there is a possibility that
not every borrower will be accommodated by a lender. This chance of credit
rationing is referred to as credit availability risk.
Answer: True
57. 59.
57. 60.
Only federal regulators can limit the terms (amount, frequency, and
use) of borrower funds by the U.S. depository institutions.
Answer: False
57. 61.
The doctrine that the first priority of a bank is to make loans to all
those customers from whom the bank expects to receive positive net
earnings is called the:
A) Funds management doctrine
B) Customer relationship doctrine
C) Loan priority doctrine
D) Revenue flows doctrine
E) None of the above.
Answer: B
57. 62.
The doctrine that banks should be able to buy the reserves they need
to cover good-quality loan requests is known as:
A) Funds Management
B) Asset Management
C) Liability Management
D) Asset-Liability Coordinated Management
E) None of the above.
Answer: C
57.
57.
64. The most popular domestic source of borrowed reserves for U.S. banks
is:
A) Federal funds market
B) Money market negotiable CDs
C) Eurodollar market
D) Borrowings from the Federal Reserve Banks
E) Commercial paper market
Answer: A
57.
57. 66.
A. A)
B. B)
C. C)
D. D)
E. E)
57. 67.
57. 68.
First National Bank has new loan requests of $225 million, needs to
purchase $100 million in U.S. Treasury securities to meet pledging
requirements, and anticipates draws against credit lines of $135 million.
Deposits received today total $215 million and the bank expects to bring in
an additional $100 million next week. What is First National's estimated
funds gap for the coming week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.
Answer: B
57. 69.
First National Bank has new loan requests of $175 million, needs to
purchase $50 million in U.S. Treasury securities to meet pledging
requirements, and anticipates draws against credit lines of $45 million.
Deposits received today total $140 million and the bank expects to bring in
an additional $230 million next week. What is First National's estimated
funds gap for the coming week?
A) $225 million.
B) $145 million.
C) $135 million.
D) $100 million.
E) None of the above.
Answer: D
57. 70.
57. 71.
57.
72. CDs that are sold by the largest foreign banks through their U.S.
branches are called:
A) Thrift CDs.
B) Domestic CDs.
C) EuroCDs.
D) Yankee CDs.
E) None of the above.
Answer: D
57.
57. 74.
57. 75.
A) Term loans.
B) Continuing contracts
C) Rollover loans.
D) Federal funds mutuality agreements
E) None of the above
Answer: A
57. 76.
57.
77. The bank funding source that is really a "hybrid" account is the:
A) Federal funds loan.
B) Repurchase agreement.
C) Negotiable CD.
D) Eurodollar deposit.
E) None of the above.
Answer: C
57. 78.
57. 79.
57. 80.
57. 81.
57. 82.
57.
57.
A) Federal funds
B) Repurchase agreements
C) Capital notes and debentures
D) Negotiable CDs
E) None of the above
Answer: C
57. 85.
57.
86. Dollar denominated CDs issued by banks outside the United States are
known as:
A) Domestic CDs
B) Euro CDs
C) Yankee CDs
D) Commercial paper
E) None of the above
Answer: B
57.
57. 88.
57.
89. The following types of loans are all available at the discount window
except:
A) Adjustment credit
B) Primary credit
C) Secondary credit
D) Seasonal credit
E) None of the above
Answer: A
57. 90.
57. 91.
The Bridges State Bank has new loan requests of $315 and wants to
purchase $125 million in U.S. Treasury securities and anticipates draws on
lines of credit in the amount of $65 million. Deposits received today totaling
$205 million and the bank expects to bring in an additional $185 million in
deposits next week. What is the estimated funds gap for the Bridges State
Bank?
A) $505 million
B) $390 million
C) $115 million
D) $315 million
E) None of the above
Answer: C
57. 92.
The Williams National Bank has new loan requests of $585 million and
wants to purchase $160 in U.S. Treasury securities. They also anticipate
draws on lines of credit in the amount of $120 million. This bank received
deposits totaling $300 million and they expect to bring in an additional $340
million in deposits next week. What is the estimated funds gap of the
Williams National Bank?
A) $225 million
B) $585 million
C) $640 million
D) $865 million
E) None of the above
Answer: A
57. 93.
The Willis Savings Bank is comparing the prevailing interest rate in the
Fed Funds market with that in the negotiable CD market. They are making
sure to include the noninterest costs and the deposit insurance costs as well
as the amount of money that will actually be available for new loans. Which
factor that affects a banks use of non-deposit sources of funds is the bank
examining?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
Answer: A
57. 94.
57. 95.
The First State Bank of Summerville knows that, if they issue a large
amount of the negotiable CD, money is tight. As a result, they choose to
ration the credit and lend only to their most loyal clients. What risk factor
that affects a banks use of nondeposit sources of funds is the concern here?
A) Interest rate changes
B) The length of time the funds will be required
C) The relative cost of raising the funds
D) Credit availability
E) Regulations
Answer: D
57. 96.
The manager of the First National Bank of Edmond needs $100 million
this afternoon to satisfy an unexpected loan demand from an excellent
customer of the bank. What factor that affects a banks use of nondeposit
sources of funds is the manager concerned about?
A) The relative cost of raising the funds
B) The length of time the funds will be required
C) The risk associated with each source of funds
D) The size of the bank
E) Regulations
Answer: B
57. 97.
57. 98.
57.
99.
The Bank of Boulder is planning on issuing $45 million in negotiable
CDs. Currently other similar CDs have an interest rate of 4.75%. The Bank of
Boulder has estimated that its noninterest costs of issuing these CDs are .
15%. The Bank of Boulder must pay a deposit insurance premium of .0023
per dollar of insured funds. Due to other immediate cash needs, only $40
million of the funds raised will be fully invested. What is the effective cost
rate for the Bank of Boulder to borrow in the CD market? (Round your answer
to the nearest .01%)
A) 4.75%
B) 4.90%
C) 5.10%
D) 5.79%
E) None of the above
Answer: D
57.
A) 6.71%
B) 6.42%
C) 5.58%
D) 5.15%
E) None of the above
Answer: A
57.
101.
CDs issued by savings institutions are called:
A) Thrift CDs
B) Domestic CDs
C) Euro CDs
D) Yankee CDs
E) Variable rate CDs
Answer: A
57.
102. When a foreign branch lends a Eurodeposit to its home office in the
U.S., how is this listed on the balance sheet of the home office?
A) Loan from Subsidiary
B) Liabilities to Foreign Branches
C) Securities Sold under Agreement to Repurchase
D) Bankers Acceptance
E) None of the above
Answer: B
57.
103. A Fed Funds loan that is an unwritten agreement negotiated via wire or
telephone with the borrowed funds returned the next day is known as:
A) An overnight loan
B) A continuing contract
C) A term loan
D) A daytime loan
E) None of the above
Answer: A
57.
57.
57.
57.
57.
108. The HTR Bank is planning on raising $750 million in a new offering of
commercial paper through its holding company. They plan on using $725
million of it to fund new loans. The current interest rate for similar
commercial paper is 7.15% and they expect .15% in issuing costs. What is
the effective rate of interest on this issue of commercial paper?
A) 7.30%
B) 7.15%
C) 7.40%
D) 7.55%
E) None of the above
Answer: D
57. 109. The Carter State Bank is planning on raising $600 million in a new
offering of commercial paper through its holding company. They plan on
using $500 million of it to fund new loans. The current interest rate for
similar commercial paper is 4.85% and they expect .3% in issuing costs.
What is the effective rate of interest on this issue of commercial paper?
A) 5.15%
B) 6.18%
C) 5.82%
D) 4.85%
E) None of the above
Answer: B
57. 110. Setting the Federal Reserve primary-credit discount rate above the Fed
Funds rate mirrors what credit facilities used by several European central
banks?
A) The Vince credit facilities
B) The Adam Smith credit facilities
C) The Lombard credit facilities
D) The Lower Back credit facilities
E) None of the above
Answer: C