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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. Which of the following is not an example of a backup line of credit?
2. Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the
3. Which of the following is not a nontransaction deposit?
4. If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest rates will reduce bank profits, while a ________ in interest rates will raise bank profits.
5. Credit risk management tools include
6. A bank failure occurs whenever
7. Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called
8. Because of an expected rise in interest rates in the future, a banker will likely
9. Which of the following are transaction deposits?
10. In general, banks make profits by selling ________ liabilities and buying ________ assets.
11. A bank with insufficient reserves can increase its reserves by
12. Of the following methods that banks might use to reduce moral hazard problems, the one not legally permitted in the United States is the
13. Which of the following are not reported as assets on a bankʹs balance sheet?
14. Risk that is related to the uncertainty about interest rate movements is called
15. Which of the following statements are true?
16. Of the following, which would be the first choice for a bank facing a reserve deficiency?
17. Unanticipated moral hazard contingencies can be reduced by
18. Banks hold excess and secondary reserves to
19. If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of
20. A reason why rogue traders have bankrupt their banks is due to
21. Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.
22. Which of the following is not a source of borrowings for a bank?
23. 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.
24. If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can
25. If a banker expects interest rates to fall in the future, her best strategy for the present is

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