Questions 1-19 1. Which of the following is NOT a bank liability? A) checkable d
ID: 1117660 • Letter: Q
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Questions 1-19
1. Which of the following is NOT a bank liability?
A) checkable deposits B) CDs C) mortgage loans D) borrowings from the Federal Reserve
2. Federal funds are
A) the tax revenues of the Federal government. B) loans by the Federal Reserve to banks. C) loans by banks to the Federal Reserve. D) short-term loans between banks.
3. Which of the following is a checkable deposit?
A) a NOW account B) a money market deposit account C) a certicate of deposit D) a savings account
4. The difference between a savings deposit and a time deposit is
A) time deposits pay no interest. B) savings deposits pay no interest. C) time deposits have specied maturities. D) savings deposits have specied maturities.
5. On a bank’s balance sheet, “borrowings” are
A) loans to households. B) loans to businesses. C) non-deposit liabilities. D) U.S. Treasury securities.
6. Banks use repurchase agreements to
A) ensure that payments on consumer loans are made on time. B) borrow funds from business rms or other banks. C) guard against price uctuations on long-term bonds. D) ensure that they always have enough funds on hand to meet their federal tax liabilities.
7. If the value of bank’s loans declines, what is the corresponding reduction in a liability entry that the bank makes?
A) Deposits are reduced by the amount of the decline in the value of the loan. B) Borrowings are reduced by the amount of the decline in the value of the loan. C) Net worth is reduced by the amount of the decline in the value of the loan. D) Cash items in the process of collection are reduced by the amount of the decline in the value of the loan.
8. If you deposit $300 in your bank and the required reserve ratio is 10%, your bank will have
A) an increase in required reserves of $300. B) an increase in required reserves of $270. C) an increase in required reserves of $3000. D) an increase in required reserves of $30 and an increase in excess reserves of $270.
9. If a bank has a leverage ratio of 0.1 and a return on asset of 2%, what is its return on equity?
A) 0.2% B) 2.1% C) 5% D) 20%
10. Which of the following statements about checking deposits is true?
A) It is a liability for both households and banks. B) It is an asset for both households and banks. C) It is an asset for households but a liability for a bank. D) It is a liability for households but an asset for a bank.
11. Given that most banks have positive gap and negative durations, banks prefer
A) lower market interest rates. B) higher market interest rates. C) higher market xed rates but lower market oating rates. D) either higher or lower market interest rates since interest rates have little effect on bank prots.
12. The original intention of the Fed’s role as lender of last resort was to make loans to banks that were
A) not illiquid nor insolvent. B) illiquid, but not insolvent. C) insolvent, but not illiquid. D) both illiquid and insolvent.
13. When the Fed extends loans to depository institutions
A) it increases the level of reserves. B) it decreases the level of reserves. C) it reduces the total value of the assets on its balance sheet. D) it reduces the total value of the liabilities on its balance sheet.
14. If the Fed buys securities worth $10 million, then
A) bank reserves will increase by $10 million. B) bank reserves will decrease by $10 million. C) currency in circulation will increase by $10 million. D) bank holdings of securities increase by $10 million.
15. If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million
A) if the public holds the proceeds as currency. B) if the public deposits the proceeds as checkable deposits. C) if the public deposits the proceeds with the Treasury in a monetary base account. D) whether the public holds the proceeds as currency or deposits them as checkable deposits.
16. The aggregate M1 consists of
A) currency plus all deposits in nancial institutions. B) currency plus savings deposits in nancial institutions. C) currency plus checkable deposits in nancial institutions. D) currency.
17. If the Fed purchases $1 million worth of securities and the required reserve ratio is 8%, by how much will deposits increase (assuming no change in excess reserves or the public’s currency holdings)?
A) rise by $1 million B) decline by $1 million C) rise by $8 million D) rise by $12.5 million
18. Suppose the required reserve ratio is 8% and the Fed purchases $100 million worth of Treasury bills from Wells Fargo. Suppose Wells Fargo didn’t have excess reserves, then by how much is Wells Fargo able to increase its loans?
A) $8 million B) $92 million C) $100 million D) $1.25 billion
19. If banks hold no excess reserves, checkable deposits total $1.5 billion, currency totals $400 million, and the required reserve ratio is 10%, then the monetary base equals
A) $550 million. B) $1.54 billion. C) $1.9 billion D) $15 billion.
Explanation / Answer
1. The right answer is option C. Mortgage Loans
Explanation: For a bank, the liabilities are those for which it needs to pay interest, for example, checkable deposits, CDs and borrowings from the Federal Reserve. A bank receives interest on the loans advanced by it. So, loans are the assets of the bank. A mortgage loan is an asset rather than a liability for a bank.
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