412 Chapter 17 Commercial Bank Operations Chapter 17 Commercial Bank Operations 1 Which of the following statements is incorrect A Banks have expanded their business across services over time B Acquisitions have been a convenient method for banks to grow quickly and capitalize on economies of scale C The banking industry has become less concentrated in recent years D All of these statements are correct ANSWER C 2 are offered to bank customers who desire to write checks against their account A Time deposit accounts B CDs C Demand deposit accounts D Money market deposit accounts ANSWER C 3 Which type of savings account transfers funds to a checking account when checks are written A ATS B passbook savings C CDs D MMDAs ANSWER A 4 A account provides checking services as well as interest A demand deposit B negotiable order of withdrawal NOW C passbook savings D time deposit ANSWER B 5 Bull market CDs reward depositors A when interest rates rise B if the stock market performs well C when interest rates decline D when the stock market performs poorly ANSWER B 413 Chapter 17 Commercial Bank Operations 6 A CD is a time deposit offered by some large banks to corporations with a specific maturity date minimum deposit of 100 000 or more and a secondary market A retail B negotiable C bull market D bear market ANSWER B 7 The level of large time deposits is that of small time deposits A much less volatile than B much more volatile than C just as volatile as D none of these ANSWER B 8 Money market deposit accounts differ from conventional time deposits in that they A specify a maturity B offer limited check writing privileges C are less liquid D none of these ANSWER B 9 The intent of federal funds transactions is to A correct short term fund imbalances experienced by banks B correct long term fund imbalances experienced by banks C serve as a permanent source of bank capital D serve as the primary depository source of funds ANSWER A 10 The federal funds rate is generally the Treasury bill rate A equal to B between 50 percent and 1 00 percent below C between 25 percent and 1 00 percent above D between 3 00 percent and 4 50 percent above ANSWER C 11 Obtaining funds through is not a common way for banks to satisfy a temporary deficiency of funds A issuing bonds B the federal funds market C repurchase agreements D borrowing from the Federal Reserve ANSWER A Chapter 17 Commercial Bank Operations 414 12 Which of the following is true A The primary credit lending rate is set by the President of the United States B The federal funds rate is set by the President of the United States C The primary credit lending rate is set by commercial banks D The primary credit lending rate is now set at a level above the federal funds rate ANSWER D 13 The Federal Reserve provides loans to banks in order to A resolve permanent shortages of funds experienced by banks B resolve temporary shortages of funds experienced by banks C finance the shortages of funds of finance companies D do none of these ANSWER B 14 When a bank in need of funds for a few days sells some of its government securities to a corporation with a temporary excess of funds then buys them back shortly thereafter this is a A federal funds loan B discount window loan C repurchase agreement D commercial paper transaction ANSWER C 15 When banks need funding for just a few days they would most likely A issue bonds and then call them B issue stock and then repurchase it C borrow in the federal funds market D issue NCDs ANSWER C 16 Subordinated notes and debentures are examples of A primary capital B secondary capital C depository sources of funds D repurchase agreements ANSWER B 17 All other things equal when banks issue new stock they A increase reported earnings per share B decrease their ability to absorb operating losses C dilute the ownership of the bank D do none of these ANSWER C 415 Chapter 17 Commercial Bank Operations 18 As a source of funds small banks rely more heavily on and larger banks rely more heavily on A time deposits and foreign deposits savings deposits and short term borrowings B savings deposits and short term borrowings foreign deposits and time deposits C savings and time deposits foreign deposits and short term borrowings D foreign deposits and short term borrowings savings and time deposits ANSWER C 19 Cash held represents the major portion of a bank s required reserves A at other commercial banks B in a bank s vault C on deposit at the federal funds window D on deposit with the Board of Governors ANSWER B 20 The main use of bank funds is for A loans B investment securities C fixed assets D repurchase agreements ANSWER A 21 Bank loans designed to support a firm s ongoing business operations are called loans A term B working capital C direct lease D revolving credit ANSWER B 22 loans are primarily used to finance the purchase of fixed assets A Term B Working capital C Informal line of credit D Revolving credit ANSWER A 23 Which of the following is most appropriate for a business that may experience a sudden need for funds but does not know precisely when A working capital loan B direct lease loan C term loan D informal line of credit ANSWER D Chapter 17 Commercial Bank Operations 416 24 A loan may be especially appropriate when the bank wishes to avoid adding more debt to its balance sheet A term B bullet C direct lease D revolving credit ANSWER C 25 The interest rate banks charge their most creditworthy customers is known as the rate A federal funds B primary credit lending C prime D call money ANSWER C 26 Transaction deposits do not include A demand deposits B NCDs C NOW accounts D All of these are transaction deposits ANSWER B 27 When comparing Treasury securities and government agency securities A neither have default risk B the yield on Treasury securities is higher C interest income on government agency securities is exempt from state and local income taxes D government agency securities are subject to default risk ANSWER D 28 Money market deposit accounts MMDAs A require a maturity of 6 months or longer B allow a limited number of checks to be written against the account C pay a higher interest rate than CDs D none of these ANSWER B 29 Which of the following accounts does not allow checks at least a limited amount to be written A NOW accounts B money market deposit accounts MMDAs C retail CDs D All of these allow checks to be written ANSWER C 417 Chapter 17 Commercial Bank Operations 30 Banks sometimes need funds and