Question 1

Demand deposits exceed time and savings deposits for most banks.

Accepted Answer

Demand deposits typically do not exceed time and savings deposits for most banks, as savings accounts and time deposits often hold larger balances due to their interest-earning nature and longer-term holding by customers.

Question 2

Core deposits are a more stable source of funds than purchased deposits.

Accepted Answer

Core deposits, typically consisting of checking and savings accounts from local customers, are considered more stable because they are less sensitive to interest rate changes and less likely to be withdrawn quickly compared to purchased deposits, which are often sought for higher interest rates and can be more volatile.

Question 3

The Garn-St Germain Act of 1982 authorized NOW accounts.

Accepted Answer

The Garn-St Germain Depository Institutions Act of 1982 did not authorize NOW (Negotiable Order of Withdrawal) accounts; these accounts were authorized before this act, in 1980, by the Depository Institutions Deregulation and Monetary Control Act.

Question 4

Implicit service returns are an important part of the rate of return on purchased deposits.

Accepted Answer

Implicit service returns refer to the benefits or services a customer receives as part of a banking relationship, such as free checking, rather than a direct financial return on deposits. The rate of return on purchased deposits typically refers to the interest or dividends earned, not the value of service returns.

Question 5

An advantage of Super-NOW accounts over money market mutual fund (MMMF) accounts is federal deposit insurance.

Accepted Answer

Super-NOW accounts are typically offered by banks that are insured by the Federal Deposit Insurance Corporation (FDIC), providing a level of safety for deposits up to a certain limit. Money market mutual funds, on the other hand, are investment products that are not FDIC insured, thus lacking this particular form of protection.

Question 6

Money market deposit accounts (MMDAs) were designed to allow banks to compete fo funds with money market mutual funds (MMMFs).

Accepted Answer

Money Market Deposit Accounts (MMDAs) were introduced by banks as a way to offer customers interest-earning savings accounts with liquidity and a higher interest rate compared to traditional savings accounts, allowing banks to better compete with Money Market Mutual Funds (MMMFs) for depositors' funds.

Question 7

Negotiable CDs are not marketable in the secondary market.

Accepted Answer

Negotiable CDs are marketable in the secondary market, allowing investors to buy and sell them before their maturity date.

Question 8

Large CDs are entirely covered by FDIC deposit insurance.

Accepted Answer

FDIC deposit insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category, so CDs larger than this amount are not entirely covered.

Question 9

A Eurodollar deposit is the deposit of European euro in a European bank.

Accepted Answer

A Eurodollar deposit refers to US dollars deposited in banks outside the United States, not necessarily European euros or European banks.

Question 10

The FDIC Improvement Act of 1991 prohibits depository institutions that are not well capitalized from accepting brokered deposits.

Accepted Answer

The FDIC Improvement Act of 1991 includes provisions that restrict less well-capitalized banks from accepting brokered deposits, aiming to limit risky behavior and ensure financial stability.

Question 11

Brokered deposits are transfers of large deposits in excess of $100,000 from one bank to another bank.

Accepted Answer

Brokered deposits are deposits made through a third party, or a broker, rather than directly by the depositor. They are not specifically defined by the amount transferred or by being transfers between banks.

Question 12

Keogh plans are corporate pension plans that corporations can use to defer federal income taxes on contributions and subsequent investment earnings.

Accepted Answer

Keogh plans are retirement plans for self-employed individuals and unincorporated businesses, not for corporations.

Question 13

Nondeposit funds are often referred to as managed liabilities.

Accepted Answer

Nondeposit funds, such as borrowings or funds obtained through various financial instruments outside of traditional deposits, are often managed actively by financial institutions to meet their liquidity needs, hence the term "managed liabilities."

Question 14

Federal funds are transfers from the federal government to banks.

Accepted Answer

Federal funds are overnight loans between banks to maintain their reserve requirements at the Federal Reserve, not transfers from the federal government to banks.

Question 15

Nondeposit funds are typically exempt from reserve requirements.

Accepted Answer

Nondeposit funds, such as money market mutual funds and other types of funds that do not constitute traditional bank deposits, are generally not subject to reserve requirements set by central banks or regulatory authorities, which typically apply to deposit liabilities of banks.

Question 16

In a repurchase agreement the purchaser does NOT acquire title to the securities fo the term of the agreement.

Accepted Answer

In a repurchase agreement, the purchaser temporarily acquires title to the securities, with the agreement that the seller will buy them back at a later date.

Question 17

Discount window advances allow banks to arbitrage profits by investing advances in financial assets with rates of return that exceed the cost of such advances.

Accepted Answer

The answer of Discount window advances allow banks to arbitrage...

Question 18

The yield on bankers' acceptances tends to be slightly below that of comparable maturity Treasury yields.

Accepted Answer

The yield on bankers' acceptances is typically slightly higher than that of comparable maturity Treasury yields due to the higher risk associated with bankers' acceptances compared to the virtually risk-free Treasuries.

Question 19

Commercial paper is unsecured credit and, therefore, is normally issued by firms with strong credit ratings.

Accepted Answer

Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is issued by companies with high credit ratings because it is not backed by collateral, thus requiring a strong creditworthiness to attract investors.

Question 20

In the event of bank failure, capital notes and debentures are subordinate to bank deposits.

Accepted Answer

In the event of a bank failure, capital notes and debentures are considered subordinate to bank deposits, meaning they are paid out after all depositors have been reimbursed. This is because deposits are typically given a higher priority in the creditor hierarchy.

Quiz 13: Managing Liabilities