Name  

Date  

ECO393-Lecture 5: Banking and

The Management of Financial Score  

Institutions

1. Which of the following statements are t ue?

A A bankʹs assets are its sources of funds

B A bankʹs liabilities are its uses of funds

C A bankʹs balance sheet shows that total assets equal total liabilities plus equity capital

D A bankʹs balance sheet indicates whether or not the bank is profitable

2. Which of the following statements is false?

A A bankʹs assets are its uses of funds.

B A bank issues liabilities to acquire funds.

C The bankʹs assets provide the bank with income

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

3. Which of the following are repo ted as liabilities on a bankʹs balance sheet?
A Rese ves

B Checkable deposits

C Loans

D Deposits with other banks

4. Which of the following statements is false?

A Checkable deposits are usually the lowest cost source of bank funds

B Checkable deposits are the p ima y source of bank funds

C Checkable deposits are payable on demand

D Checkable deposits include NOW accounts

 5. Which of the following are transaction deposits?
A Savings accounts

B Small-denomination time deposits

C Negotiable order of withdraw accounts

D Ce tificates of deposit

6. Bank loans from the Federal Rese ve are called ________ and represent a ________ of funds.
A discount loans; use

B discount loans; source

C fed funds; use

D fed funds; source

7. Bank rese ves include

A deposits at the Fed and sho t-te m treasu y secu ities.

B vault cash and sho t-te m Treasu y secu ities

C vault cash and deposits at the Fed.

D deposits at other banks and deposits at the Fed.

8. The fraction of checkable deposits that banks are required by regulation to hold are
A  excess rese ves

B required rese ves

C vault cash

D total rese ves

9. Which of the following bank assets is the most liquid?

A Consumer loans

B Rese ves

C Cash items in process of collection

D U.S. gove nment secu ities

10. Seconda y rese ves include

A deposits at Federal Rese ve Banks

B deposits at other large banks

C sho t-te m Treasu y secu ities

D state and local gove nment secu ities

11. Banks ea n profits by selling ________ with attractive combinations of liquidity, isk, and retu n,
and using the proceeds to buy ________ with a different set of characte istics.
A loans; deposits

B secu ities; deposits

C liabilities; assets

D assets; liabilities

12. In general, banks make profits by selling ________ liabilities and buying ________ assets.
A long-te m; sho ter-te m

B sho t-te m; longer-te m

C illiquid; liquid

D isky; isk-free

13. When a new depositor opens a checking account at the First National Bank, the bankʹs assets
________ and its liabilities ________.
A increase; increase

B increase; decrease

C decrease; increase

D decrease; decrease

14. When Jane Brown w ites a $100 check to her nephew (who lives in another state), Ms.
Brownʹs bank ________ assets of $100 and ________ liabilities of $100.
A gains; gains

B gains; loses

C loses; gains

D loses; loses

15. When you deposit $50 in cu rency at Old National Bank,

A its assets increase by less than $50 because of rese ve requirements

B its rese ves increase by less than $50 because of rese ve requirements

C its liabilities increase by $50

D its liabilities decrease by $50

16. When a $10 check w itten on the First National Bank of Chicago is deposited in an account at
Citibank, then
A the liabilities of the First National Bank increase by $10

B the rese ves of the First National Bank increase by $ 10

C the liabilities of Citibank increase by $10

D the assets of Citibank fall by $10

17.  When $1 million is deposited at a bank, the required rese ve ratio is 20 percent, and the bank
chooses not to hold any excess rese ves but makes loans instead, then, in the bankʹs final
balance
sheet,
A the assets at the bank increase by $800,000.

B the liabilities of the bank increase by $1,000,000.

C the liabilities of the bank increase by $800,000.

D rese ves increase by $160,000.

18. With a 10% rese ve requirement ratio, a $100 deposit into New Bank means that the maximum
amount New Bank could lend is
A $90.

B $100.

C $10.

D $110.

19. Which of the following are p ima y conce ns of the bank manager?
A Maintaining sufficient rese ves to minimize the cost to the bank of deposit outflows

B Extending loans to bo rowers who will pay low interest rates, but who are poor credit
isks

C Acqui ing funds at a relatively high cost, so that profitable lending oppo tunities can be
realized

D Maintaining high levels of capital and thus maximizing the retu ns to the owners
20. If a bank has $100,000 of checkable deposits, a required rese ve ratio of 20 percent, and it
holds $40,000 in rese ves, then the maximum deposit outflow it can sustain without alte ing
its
balance sheet is
A $30,000

B $25,000

C $20,000

D $10,000