Question 1

Bank assets fall into each of the following categories except: A) loans. B) investment securities. C) demand deposits. D) noninterest cash and due from banks. E) other assets.

Accepted Answer

Demand deposits are not an asset of the bank, but a liability as they represent the amount that the bank owes to its customers who have deposited their money.

Question 2

Banks generate their largest portion of income from:
A) loans.
B) short-term investment.
C) demand deposits.
D) long-term investments.
E) certificates of deposit.

Accepted Answer

Banks generate their largest portion of income from the interest and fees charged on loans.

Question 3

An example of a contra-asset account is:
A) the loan and lease loss allowance.
B) unearned income.
C) buildings and equipment.
D) revenue bonds.
E) the provision for loan loss.

Accepted Answer

A loan and lease loss allowance is a contra-asset account that is used to record estimated losses on loans and leases. It represents a reduction in the value of the bank's assets and is therefore recorded as a negative amount on the balance sheet. The other choices are not contra-asset accounts; unearned income and revenue bonds are liabilities, while buildings and equipment are fixed assets. The provision for loan loss is similar to the loan and lease loss allowance, but it is not an actual account. It is an expense that is recorded on the income statement to reflect the estimated losses on loans and leases.

Question 4

A negotiable instrument often used in trading goods that guarantees payment to the owner the instrument is known as (a):
A) bankers acceptance.
B) payment guarantee.
C) commercial paper.
D) bankers payment.
E) repurchase agreement.

Accepted Answer

A bankers acceptance is a type of negotiable instrument that is often used by businesses in international trade to guarantee payment to the owner of the acceptance. It is essentially a promise made by a bank to pay a certain amount of money on a specific date, and is commonly used to facilitate the sale of goods between businesses in different countries. Commercial paper is also a type of negotiable instrument, but it is typically used to raise short-term funding rather than to guarantee payment for goods. Payment guarantee and bankers payment are not commonly used terms in the context of negotiable instruments, and a repurchase agreement is a different type of financial agreement altogether.

Question 5

Which of the following bank assets is the most liquid?
A) Long-term investments
B) Short-term investments
C) Loans
D) Demand deposits
E) Unearned income

Accepted Answer

Short-term investments are the most liquid assets among the options given because they can be quickly converted into cash with minimal impact on the price received. Long-term investments, loans, and unearned income are less liquid, and demand deposits are a liability, not an asset, for a bank.

Question 6

Typically, "call loans" are:
A) residential mortgages.
B) farm loans.
C) demand deposits.
D) payable on demand.
E) automobile loans.

Accepted Answer

Call loans are payable on demand, meaning the borrower must repay the loan upon demand from the lender. This type of loan is often used in the financial industry for short-term lending purposes, such as margin lending or bridge financing. It is not typically associated with residential mortgages, farm loans, demand deposits, or automobile loans.

Question 7

Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called:
A) held-to-maturity securities.
B) trading account securities.
C) available-for-sale securities.
D) revenue securities.
E) repurchase agreements

Accepted Answer

Available-for-sale securities require unrealized gains or losses to be recorded as a change in stockholder's equity. Held-to-maturity securities are valued at amortized cost, while trading account securities are valued at fair market value with unrealized gains or losses recorded in net income. Revenue securities are not a recognized category of securities. Repurchase agreements can refer to various types of securities transactions and are not necessarily related to unrealized gains or losses.

Question 8

Which of the following would not be considered a commercial loan? A) An interim construction loan B) A working capital loan C) A loans to another financial institution D) A loan to purchase a piece of industrial equipment E) A loan to expand a factory

Accepted Answer

The answer of Which of the following would not be...

Question 9

Which of the following would a bank generally classify as a long-term investment?
A) Treasury bill
B) Vault cash
C) Cash items in process of collection
D) Municipal bond
E) Repurchase agreements

Accepted Answer

Municipal bonds are a form of debt security with maturities greater than one year, making them a long-term investment for a bank. Treasury bills, cash items in process of collection, vault cash, and repurchase agreements have shorter maturities and are not considered long-term investments.

Question 10

Which of the following would a bank generally classify as a short-term investment?
A) Demand deposits
B) Deposits at the Federal Reserve
C) Repurchase agreements
D) Fed Funds purchased
E) Vault cash

Accepted Answer

Repurchase agreements, also known as repos, are generally classified as short-term investments because they are contracts where one party sells securities to another party with the agreement to buy them back at a later date, usually within one day to several weeks. This means that the investment is expected to be held for a short period of time, making it a short-term investment. The other options listed are not typically classified as short-term investments. Demand deposits and vault cash are assets that banks hold to meet daily operating needs, while deposits at the Federal Reserve and Fed Funds purchased are typically used for overnight borrowing and lending between banks.

Question 11

Loans typically fall into each of the following categories except:: A) real estate. B) individual. C) commercial. D) agricultural. E) municipal.

Accepted Answer

The given options cover all major categories of loans, including real estate, individual, commercial, agricultural, and municipal. Therefore, the correct answer is E, since it is not a loan category.

Question 12

Checking accounts with unlimited check-writing and pay interest are known as:
A) demand deposit accounts.
B) money market deposit accounts.
C) NOW accounts.
D) certificates of deposit.
E) time deposits.

Accepted Answer

NOW accounts (Negotiable Order of Withdrawal) are checking accounts that pay interest and have no limit on check-writing. They are similar to traditional checking accounts, but offer a higher interest rate.

Question 13

Which of the following is not a characteristic of a typical commercial bank? A) Most banks own few fixed assets. B) Most banks have a high degree of operating leverage. C) Most banks have few fixed costs. D) Many bank liabilities are payable on demand. E) Banks generally operate with less equity capital than non-financial firms.

Accepted Answer

A high degree of operating leverage means that a large portion of a bank's expenses are fixed costs, which is not typically true for commercial banks. Most banks have few fixed costs and own few fixed assets, but they do operate with significant amounts of equity capital and have liabilities that are payable on demand.

Question 14

Securities that require unrealized gains or losses to be recorded on the income statement are called:
A) held-to-maturity securities.
B) trading account securities.
C) available-for-sale securities.
D) revenue securities.
E) repurchase agreements

Accepted Answer

Trading account securities are those that a company buys and holds primarily for the purpose of selling them in the near term to profit from short-term price fluctuations. Unrealized gains or losses on these securities are recorded on the income statement.

Question 15

The volume of net deferred credit is commonly referred to as:
A) the burden.
B) NOW balances.
C) reserve requirements.
D) equity.
E) float.

Accepted Answer

The volume of net deferred credit is commonly referred to as "float". Float refers to the amount of money temporarily held by a bank after a deposit is made, but before the depositor's account is actually credited. This represents a liability for the bank, and a potential source of revenue, as float can be invested or earn interest for the bank while it is in transit.

Question 16

Jumbo CDs that a bank obtains from a third-party broker are called:
A) money market demand accounts.
B) time deposit accounts.
C) mortgage loans.
D) brokered deposits.
E) core deposits.

Accepted Answer

Jumbo CDs that a bank obtains from a third-party broker are called brokered deposits.

Question 17

Which of the following is are only available to non-commercial customers?
A) Money Market Demand Accounts
B) Demand deposit accounts
C) Mortgage loans
D) Negotiable Orders of Withdrawal (NOW) accounts
E) Auto leases

Accepted Answer

Negotiable Orders of Withdrawal (NOW) accounts are typically available only to non-commercial customers, such as individuals and non-profit organizations, allowing them to earn interest on their checking accounts.

Question 18

The largest component of "non- interest cash and due from banks" is:
A) cash items in process of collection.
B) deposits held at other financial institutions.
C) federal funds sold.
D) vault cash.
E) loans from the Federal Reserve.

Accepted Answer

Cash items in process of collection typically represent the largest component of "non-interest cash and due from banks" because they are checks or other items in transit that have been received and are being processed for deposit but have not yet been credited to the bank's reserve account.

Question 19

_________ own(s) the bulk of demand deposit accounts.
A) Consumers
B) Businesses
C) State governments
D) The federal government
E) Non-profits

Accepted Answer

The answer of _________ own(s) the bulk of demand deposit...

Question 20

A loan to an individual to purchase a home would be considered a:
A) consumer loan.
B) commercial loan.
C) agricultural loan.
D) construction loan.
E) real estate loan.

Accepted Answer

A loan to purchase a home is considered a real estate loan, as it is specifically used for buying property.

Quiz 3: Analyzing Bank Performance

Bank assets fall into each of the following categories except:

Banks generate their largest portion of income from:

An example of a contra-asset account is:

A negotiable instrument often used in trading goods that guarantees payment to the owner the instrument is known as (a) :

Which of the following bank assets is the most liquid?

Typically, "call loans" are:

Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called:

Which of the following would not be considered a commercial loan?

Which of the following would a bank generally classify as a long-term investment?

Which of the following would a bank generally classify as a short-term investment?

Loans typically fall into each of the following categories except::

Checking accounts with unlimited check-writing and pay interest are known as:

Which of the following is not a characteristic of a typical commercial bank?

Securities that require unrealized gains or losses to be recorded on the income statement are called:

The volume of net deferred credit is commonly referred to as:

Jumbo CDs that a bank obtains from a third-party broker are called:

Which of the following is are only available to non-commercial customers?

The largest component of "non- interest cash and due from banks" is:

_________ own(s) the bulk of demand deposit accounts.

A loan to an individual to purchase a home would be considered a: