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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. In general, banks make profits by selling ________ liabilities and buying ________ assets.
2. The goals of bank asset management include
3. ________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.
4. Which of the following are primary concerns of the bank manager?
5. When banks offer borrowers smaller loans than they have requested, banks are said to
6. Which of the following bank assets is the most liquid?
7. Modern liability management has resulted in
8. Which of the following statements are true?
9. Traders working for banks are subject to the
10. Which of the following is not a nontransaction deposit?
11. Off-balance sheet activities involving guarantees of securities and back-up credit lines
12. When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brownʹs bank ________ assets of $100 and ________ liabilities of $100.
13. Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the
14. Which of the following are not reported as assets on a bankʹs balance sheet?
15. Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.
16. 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
17. Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?
18. The largest percentage of banksʹ holdings of securities consist of
19. If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in
20. Through correspondent banking, large banks provide services to small banks, including
21. Which of the following are bank assets?
22. Secondary reserves include
23. Banks that suffered significant losses in the 1980s made the mistake of
24. Risk that is related to the uncertainty about interest rate movements is called
25. Which of the following has not resulted from more active liability management on the part of banks?

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