Question 1

Which of the following are primary concerns of the bank manager?

Accepted Answer

Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows is a primary concern for a bank manager as it ensures that the bank has enough funds to meet the demands of its depositors.

Answer: C 
 Acquiring funds at a relatively high cost, so that profitable lending opportunities can be realized is a primary concern for a bank manager as the bank needs to earn more on its loans than the cost of acquiring funds.

Answer: D 
 Maintaining high levels of capital and thus maximizing the returns to the owners is a primary concern for a bank manager as it ensures the financial stability of the bank and helps attract investors. However, extending loans to poor credit risks who pay lower interest rates is not a primary concern as it poses a risk to the bank's financial stability.

Question 2

When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank,then

Accepted Answer

When you deposit $50 in your account at First National Bank, the bank's reserves increase by $50. However, when the $100 check is cashed at Chemical Bank, the bank will send a request to First National Bank to transfer the funds. To pay the check, First National Bank will reduce your account balance by $100, which will reduce the bank's reserves by the same amount. Therefore, the reserves at First National Bank fall by $50.

Question 3

A deposit outflow results in equal reductions in

Accepted Answer

When a deposit outflow occurs, it means that customers are withdrawing funds from their accounts. This results in a reduction in liabilities for the bank (since it owes less money to its customers) which would lead to a reduction in assets, such as loans, to balance out the balance sheet equation. Therefore, the correct answer is B, as there is an equal reduction in assets (loans) and liabilities (deposits).

Question 4

With a 10% reserve requirement ratio,a $100 deposit into New Bank means that the maximum amount New Bank could lend is

Accepted Answer

With a 10% reserve requirement ratio, New Bank is required to keep 10% of the $100 deposit ($10) as reserves and can lend out the remaining 90% ($90). Therefore, the maximum amount New Bank could lend is $90, and the correct answer is choice A.

Question 5

A bank with insufficient reserves can increase its reserves by

Accepted Answer

Calling in loans increases a bank's reserves because it converts loans (assets that are not liquid) into cash, which directly boosts the bank's reserves. Other options either do not directly affect reserves or, in the case of lending federal funds, would actually decrease reserves.

Question 6

Holding all else constant,when a bank receives the funds for a deposited check

Accepted Answer

The answer of Holding all else constant,when a bank receives...

Question 7

If a bank has excess reserves greater than the amount of a deposit outflow,the outflow will result in equal reductions in

Accepted Answer

Excess reserves are the reserves held by a bank in excess of the required reserve ratio. When there is a deposit outflow, the bank can use its excess reserves to cover the outflow. Thus, there will be equal reductions in both deposits and reserves.

Question 8

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1,000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

Accepted Answer

The answer of Using T-accounts show what happens to reserves...

Question 9

If a bank has $100,000 of checkable deposits,a required reserve ratio of 20 percent,and it holds $40,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

Accepted Answer

The bank is required to hold $20,000 in reserves (20% of $100,000). With $40,000 in reserves, it can afford a $20,000 outflow and still meet the reserve requirement, leaving $20,000 in reserves. Thus, the maximum outflow is $40,000 - $20,000 = $20,000.

Question 10

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

Accepted Answer

When the check is deposited, the First National Bank of Chicago must transfer $10 from its reserves to Citibank, effectively reducing its liabilities because a check is a demand on the bank's liabilities.

Question 11

If,after a deposit outflow,a bank needs an additional $3 million to meet its reserve requirements,the bank can

Accepted Answer

Selling securities is the quickest and most direct way for a bank to raise additional funds to meet its reserve requirements. Reducing deposits or increasing loans can be challenging as it requires finding willing borrowers or depositors. Repaying discount loans from the Fed might help with reserve requirements but would not necessarily add to the bank's overall liquidity.

Question 12

When you deposit $50 in currency at Old National Bank

Accepted Answer

When you deposit $50 in currency at a bank, the bank's liabilities increase by $50 because the bank owes you, the depositor, the amount you deposited. Reserve requirements affect how much of the deposit the bank must keep in reserve, not the increase in liabilities.

Question 13

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 bank's final balance sheet

Accepted Answer

The liabilities of the bank increase by $1,000,000 because the deposit itself is a liability for the bank. The bank owes this amount to the depositor.

Question 14

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

Accepted Answer

When a check is deposited into an account at a different bank, the bank on which the check is written becomes liable to pay the amount to the other bank. In this case, Citibank becomes liable to pay $10 to the First National Bank of Chicago, thus increasing its liabilities by $10. The reserves and assets of the First National Bank of Chicago and Citibank are not affected by the deposit of the check.

Question 15

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 bank's final balance sheet

Accepted Answer

When $1 million is deposited, the bank's assets increase by $1 million as the deposit is added to the bank's reserves. The bank holds the entire amount as reserves, including both required and excess reserves.

Question 16

If a bank has $10 million of checkable deposits,a required reserve ratio of 10 percent,and it holds $2 million in reserves,then it will not have enough reserves to support a deposit outflow of

Accepted Answer

The bank needs to maintain $1 million in reserves (10% of $10 million). With $2 million in reserves, it has $1 million in excess reserves. A $1.2 million outflow would leave it with only $800,000 in reserves, which is below the required $1 million.

Question 17

A $5 million deposit outflow from a bank has the immediate effect of

Accepted Answer

A deposit outflow means that customers are withdrawing their money from the bank. This reduces the bank's deposits by $5 million. As a result, the bank's reserves, which are a fraction of its deposits, also decrease by $5 million.

Question 18

A $100 deposit into my checking account at My Bank increases my checkable deposits by $100,and the bank's ________ by $100.

Accepted Answer

The bank's reserves increase by $100 because they now have an additional $100 in deposits, which they are required to hold a fraction of as reserves according to reserve requirements set by the Federal Reserve. The deposit does not directly affect the bank's loans, capital, or securities.

Question 19

Bankers' concerns regarding the optimal mix of excess reserves,secondary reserves,borrowings from the Fed,and borrowings from other banks to deal with deposit outflows is an example of

Accepted Answer

Bankers' concerns regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of liquidity management. Liquidity management involves managing a bank's ability to meet its short-term obligations, such as deposit withdrawals, by maintaining an adequate level of liquid assets. Therefore, the optimal mix of reserves and borrowings is critical to ensure that the bank has sufficient liquidity to meet its obligations.

Question 20

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

Accepted Answer

The maximum deposit outflow that the bank can sustain without altering its balance sheet is $50,000. This is because the bank is required to hold 20% of its checkable deposits in reserves, and it currently holds $80,000 in reserves. If deposits outflow by $50,000, the bank will still have $30,000 in reserves, which is 20% of its remaining checkable deposits of $150,000.

Quiz 9: Banking and the Management of Financial Institutions

Which of the following are primary concerns of the bank manager?

When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank,then

A deposit outflow results in equal reductions in

With a 10% reserve requirement ratio,a $100 deposit into New Bank means that the maximum amount New Bank could lend is

A bank with insufficient reserves can increase its reserves by

Holding all else constant,when a bank receives the funds for a deposited check

If a bank has excess reserves greater than the amount of a deposit outflow,the outflow will result in equal reductions in

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1,000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

If a bank has $100,000 of checkable deposits,a required reserve ratio of 20 percent,and it holds $40,000 in reserves,then the maximum deposit outflow it can sustain without altering its balance sheet is

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

If,after a deposit outflow,a bank needs an additional $3 million to meet its reserve requirements,the bank can

When you deposit $50 in currency at Old National Bank

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 bank's final balance sheet

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank,then

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 bank's final balance sheet

If a bank has $10 million of checkable deposits,a required reserve ratio of 10 percent,and it holds $2 million in reserves,then it will not have enough reserves to support a deposit outflow of

A $5 million deposit outflow from a bank has the immediate effect of

A $100 deposit into my checking account at My Bank increases my checkable deposits by $100,and the bank's ________ by $100.

Bankers' concerns regarding the optimal mix of excess reserves,secondary reserves,borrowings from the Fed,and borrowings from other banks to deal with deposit outflows is an example of

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