Exam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1 All of the following are examples of off balance sheet activities that generate fee income for banks except 1 A selling negotiable CDs B foreign exchange trades C back up lines of credit D guaranteeing debt securities 2 If a bank has 200 000 of checkable deposits a required reserve ratio of 20 percent and it holds 80 000 in reserves then the maximum deposit outflow it can sustain without altering its balance sheet is 2 A 50 000 B 40 000 C 30 000 D 25 000 3 A bank with insufficient reserves can increase its reserves by 3 A calling in loans B lending federal funds C buying short term Treasury securities D buying municipal bonds 4 As the costs associated with deposit outflows the banks willingness to hold excess reserves will 4 A decrease increase B increase increase C increase decrease D decrease not be affected 5 For a given return on assets the lower is bank capital 5 A the higher is the return for the owners of the bank B the lower is the credit risk for the owners of the bank C the lower the possibility of bank failure D the lower is the return for the owners of the bank 6 Bank loans from the Federal Reserve are called and represent a of funds 6 A fed funds use B fed funds source C discount loans source D discount loans use 7 Because of asymmetric information the failure of one bank can lead to runs on other banks This is the 7 A too big to fail effect B contagion effect C moral hazard problem D adverse selection problem 8 Federal deposit insurance covers deposits up to 250 000 but as part of a doctrine called too big to fail the FDIC sometimes ends up covering all deposits to avoid disrupting the financial system When the FDIC does this it uses the 8 A purchase and assumption method B payoff method C Basel method D inequity method 9 A problem with the too big to fail policy is that it the incentives for by big banks 9 A increases adverse selection B decreases moral hazard C increases moral hazard D decreases adverse selection 10 Depositors lack of information about the quality of bank assets can lead to 10 A sequencing B bank booms C bank panics D asset transformation 1 A 2 A 3 A 4 B 5 A 6 C 7 B 8 A 9 C 10 C
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