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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. Duration analysis involves comparing the average duration of the bankʹs ________ to the average duration of its ________.
2. 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.
3. Because checking accounts are ________ liquid for the depositor than passbook savings, they earn ________ interest rates.
4. Banksʹ asset portfolios include state and local government securities because
5. In the absence of regulation, banks would probably hold
6. Which of the following is not an example of a backup line of credit?
7. Which of the following statements are true?
8. Asset transformation can be described as
9. The most important category of assets on a bankʹs balance sheet is
10. Bank capital is listed on the ________ side of the bankʹs balance sheet because it represents a________ of funds.
11. If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of
12. Banks that actively manage liabilities will most likely meet a reserve shortfall by
13. Which of the following bank assets is the most liquid?
14. A bank failure occurs whenever
15. A $5 million deposit outflow from a bank has the immediate effect of
16. Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap times the change in the interest rate is called
17. Large-denomination CDs are ________, so that like a bond they can be resold in a ________ market before they mature.
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. From the standpoint of ________, specialization in lending is surprising but makes perfect sense when one considers the ________ problem.
20. If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will
21. Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called
22. Which of the following are reported as liabilities on a bankʹs balance sheet?
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. When banks offer borrowers smaller loans than they have requested, banks are said to
25. 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

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