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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. The share of checkable deposits in total bank liabilities has
2. From the standpoint of ________, specialization in lending is surprising but makes perfect sense when one considers the ________ problem.
3. Banks that suffered significant losses in the 1980s made the mistake of
4. Which of the following statements is false?
5. 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,
6. To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also
7. Banks that actively manage liabilities will most likely meet a reserve shortfall by
8. If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in
9. In general, banks would prefer to acquire funds quickly by ________ rather than ________.
10. Assuming that the average duration of its assets is five 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 decline by ________ of the total original asset value.
11. Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called
12. ________ may antagonize customers and thus can be a very costly way of acquiring funds to meet an unexpected deposit outflow.
13. Which of the following are reported as liabilities on a bankʹs balance sheet?
14. The goals of bank asset management include
15. Net profit after taxes per dollar of assets is a basic measure of bank profitability called
16. Modern liability management has resulted in
17. 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.
18. Which of the following statements is false?
19. Because of their ________ liquidity, ________ U.S. government securities are called secondary reserves.
20. For a given return on assets, the lower is bank capital,
21. Banks develop statistical models to calculate their maximum loss over a given time period. This approach is known as the
22. 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.
23. Which of the following are not reported as assets on a bankʹs balance sheet?
24. When you deposit $50 in currency at Old National Bank,
25. Bank capital is listed on the ________ side of the bankʹs balance sheet because it represents a________ of funds.

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