Question 1

A deposit outflow results in equal reductions in

Accepted Answer

A deposit outflow reduces both a bank's assets (the deposit itself) and liabilities (the corresponding decrease in the customer's account).

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 First National Bank, its assets increase by $50 while its reserves also increase by $50. However, when the $100 check is cashed at Chemical Bank, the reserves at First National Bank decrease by $100 while the liabilities at Chemical Bank increase by $100. Therefore, the correct answer is C, i.e., the reserves at First National Bank fall by $50.

Question 3

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

Accepted Answer

When a deposit is made into a checking account, it increases the bank's reserves by the same amount as the deposit. Reserves are the funds that a bank is required by law to hold in order to meet customer withdrawals and other obligations. Therefore, option A is the correct choice.

Question 4

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 5

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 answer of If a bank has $100,000 of checkable...

Question 6

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

The answer of When $1 million is deposited at a...

Question 7

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 8

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

Accepted Answer

If a bank has excess reserves, it means that it has more reserves than the required reserve ratio mandated by the central bank. Therefore, if there is a deposit outflow, the bank can use its excess reserves to cover the outflow without having to sell other assets or borrow from the interbank market. This means that both the reserves and the deposits will decrease by the same amount, resulting in equal reductions.

Question 9

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 10

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 11

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 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 12

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 answer of If a bank has $10 million of...

Question 13

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, which involves managing a bank's ability to meet short-term obligations as they come due. This is because deposit outflows represent a reduction in a bank's available liquidity, and determining the most effective mix of reserves and borrowings is crucial to ensure that the bank can still meet its obligations. Liability management involves managing a bank's mix of funding sources, managing interest rate risk involves managing the risk of changes in interest rates on a bank's assets and liabilities, and managing credit risk involves managing the potential for borrowers to default on their loans. While these are all important considerations for a bank, they are not the primary concern in this scenario.

Question 14

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 deposit ($10) as reserves and can only lend out the remaining 90%. Thus, the maximum amount New Bank could lend out is $90. Therefore, the correct choice is A.

Question 15

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 16

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

Accepted Answer

Selling $3 million of securities is the best choice as it will provide the bank with the necessary funds to meet its reserve requirements. Reducing deposits would require the cooperation of depositors and increasing loans may not be feasible or prudent. Repaying discount loans from the Fed would not necessarily address the reserve deficit.

Question 17

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 18

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, it is not considered a transfer of funds until the funds have been transferred between the two banks. The liability of the First National Bank does not increase until the check has been cleared, which means the funds have been transferred to Citibank. Therefore, when the check is deposited, the liability of Citibank increases by $10 as they are now responsible for providing the funds to the account holder. The assets of Citibank do not decrease because they now hold $10 in reserves from the check deposit.

Question 19

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 answer of If a bank has $200,000 of checkable...

Question 20

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

Accepted Answer

When a $5 million deposit outflow occurs, it directly reduces the bank's deposits by $5 million. Additionally, the bank must also reduce its reserves by $5 million to maintain its required reserve ratio. Therefore, both deposits and reserves are reduced by $5 million.

Quiz 9: Banking and the Management of Financial Institutions

A deposit outflow results in equal reductions in

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

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

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 $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

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

A bank with insufficient reserves can increase its reserves by

When you deposit $50 in currency at Old National Bank

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.

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

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

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

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

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

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

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

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