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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. 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.
2. Which of the following are not reported as assets on a bankʹs balance sheet?
3. If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will
4. A bank will want to hold more excess reserves (everything else equal) when
5. The goals of bank asset management include
6. 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.
7. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bankʹs final balance sheet,
8. Which of the following statements is false?
9. Banks that actively manage liabilities will most likely meet a reserve shortfall by
10. 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.
11. A bank that wants to monitor the check payment practices of its commercial borrowers, so that moral hazard can be prevented, will require borrowers to
12. Which of the following is not a nontransaction deposit?
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. Net profit after taxes per dollar of assets is a basic measure of bank profitability called
15. The amount of assets per dollar of equity capital is called the
16. Examples of off-balance-sheet activities include
17. In general, banks would prefer to acquire funds quickly by ________ rather than ________.
18. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bankʹs final balance sheet,
19. With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is
20. A bankʹs commitment to provide a firm with loans up to pre-specified limit at an interest rate that is tied to a market interest rate is called
21. Which of the following would not be a way to increase the return on equity?
22. In one sense ________ appears surprising since it means that the bank is not ________ its portfolio of loans and thus is exposing itself to more risk.
23. Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.
24. When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in
25. Long-term customer relationships ________ the cost of information collection and make it easier to ________ credit risks.

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