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Money, Banking, and Financial Markets Practice Test: Banking and the Management of Financial Institutions
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Banking is the management of financial systems, while finance is the management of money. Banks are financial institutions that accept deposits, pay interest, clear checks, make loans, and act as intermediaries in financial transactions. They are a major source of financing for private capital investment in a country.  Risk management is an important part of banking, as it involves assessing potential risks involved in any given transaction or investment. Banks face risks from every angle, including changing customer behaviors, fraud, uncertain markets, and regulatory compliance.  Some... Show more
Money, Banking, and Financial Markets Practice Test: Banking and the Management of Financial Institutions
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25 Questions

1. Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.
2. A bank is insolvent when
3. Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bankʹs assets to increase their rate sensitivity or, alternatively, ________ the duration of the bankʹs liabilities.
4. Conditions that likely contributed to a credit crunch in 2008 include:
5. In order to reduce the ________ problem in loan markets, bankers collect information from prospective borrowers to screen out the bad credit risks from the good ones.
6. In the absence of regulation, banks would probably hold
7. Secondary reserves include
8. The goals of bank asset management include
9. Banks that actively manage liabilities will most likely meet a reserve shortfall by
10. Which of the following are not reported as assets on a bankʹs balance sheet?
11. Banks acquire the funds that they use to purchase income-earning assets from such sources as
12. The most important category of assets on a bankʹs balance sheet is
13. Bankersʹ concerns regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of
14. Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.
15. A bank with insufficient reserves can increase its reserves by
16. In recent years the interest paid on checkable and time deposits has accounted for around________ of total bank operating expenses, while the costs involved in servicing accounts have been approximately ________ of operating expenses.
17. Banks hold excess and secondary reserves to
18. Which of the following is not a source of borrowings for a bank?
19. Through correspondent banking, large banks provide services to small banks, including
20. When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank, then
21. When banks involved in trading activities attempt to outguess markets, they are
22. The fraction of checkable deposits that banks are required by regulation to hold are
23. If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will
24. Which of the following statements is false?
25. Which of the following statements are true?

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