Deck 13: Managing Liabilities

Question 1

Demand deposits exceed time and savings deposits for most banks.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Negotiable CDs are not marketable in the secondary market.

Question 8

Large CDs are entirely covered by FDIC deposit insurance.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

Nondeposit funds are often referred to as managed liabilities.

Question 14

Federal funds are transfers from the federal government to banks.

Question 15

Nondeposit funds are typically exempt from reserve requirements.

Question 16

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

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

Implicit pricing of deposits concerns the interest rate to offer to depositors.

Question 22

Profits are maximized on deposit accounts when the marginal total costs equal the marginal total revenues.

Question 23

Cross-selling is one way to provide relationship banking.

Question 24

Check truncation means that cleared checks are returned to depositors after a waiting period has elapsed.

Question 25

The average costs of bank funds is a superior concept compared to a marginal cost approach.

Question 26

Theoretically, the average costs of individual sources of funds are equal to one another after adjusting for risk.

Question 27

When interest rate levels are low, banks have difficulty retaining deposit funds.

Question 28

The Financial Services Modernization Act of 1999 will decrease the ability of banks to maintain strong relationships with their deposit customers.

Question 29

The bank's deposit source of funds that is acquired on an impersonal basis from the financial market by offering competitive interest rates is categorized as:

A) demand deposits
B) core deposits
C) purchased deposits
D) time deposits

Question 30

The bank's deposit source of funds that typically represents the deposits of regular bank customers, such as business firms, government units and households, is categorized as:

A) demand deposits
B) core deposits
C) purchased deposits
D) time deposits

Question 31

What type of deposits provide the most stable, long-term source of funds for banks?

A) core deposits
B) purchased deposits
C) both a and b provide the same degree of stability
D) Fed funds purchased

Question 32

What type of bank deposit source of funds is most sensitive to both changes in bank risk and interest rates?

A) core deposits
B) purchased deposits
C) there is no difference between a and b
D) demand deposits

Question 33

Which of the following deposit accounts can serve as both core and purchased deposit sources of funds for banks?

A) demand deposits
B) small time deposits
C) large time deposits
D) both b and c

Question 34

Which of the following deposit accounts requires relatively higher reserve requirements?

A) demand deposits
B) small time deposits
C) large time deposits
D) savings deposits

Question 35

What is a NOW account?

A) an interest-bearing consumer demand deposit
B) an interest-bearing corporate demand deposit
C) a noninterest-bearing demand deposits
D) both a and b

Question 36

Which of the following statements is true regarding NOW accounts?

A) are mostly a wholesale source of funds
B) are subject to reserve requirements
C) cannot offer interest rates higher than CD rate levels
D) offer limited check writing privileges

Question 37

Which of the following statements is true regarding NOW and MMMF accounts?

A) both are subject to reserve requirements
B) both are eligible for federal deposit insurance
C) only NOWs are eligible for federal deposit insurance
D) only MMMFs are eligible for federal deposit insurance

Question 38

What is a money market deposit account (MMDA)?

A) a variable rate MMMF
B) a savings account with limited check-writing privileges
C) a 32-day-to-one year small time deposit
D) none of the above

Question 39

How do large time deposits differ from small time deposits?

A) they are bigger in denomination
B) they are non-negotiable
C) they are negotiable
D) both a and b
E) both a and c

Question 40

What is NOT true about Eurodollar CDs?

A) they are insured by the FDIC
B) they usually have higher yields than domestic CDs
C) they have a smaller secondary market than domestic CDs
D) they are not subject to reserve requirements

Question 41

Where do banks obtain brokered deposits?

A) middlemen splitting large deposits into smaller deposits
B) middlemen pooling small deposits into larger deposits
C) security brokers depositing their proceeds of transactions
D) a and b

Question 42

What percent of earned, nonsalaried income not greater than $30,000 do Keogh plans allow to be deposited in a tax-deferred account?

A) up to 15%
B) up to 20%
C) up to 25%
D) up to 30%
E) none of the above

Question 43

Both IRA and Keogh plans are subject to a 10% tax penalty if they are withdrawn before what age?

A) 59
B) 59 1/4
C) 59 ½
D) 60
E) none of the above

Question 44

Typically, nondeposit sources of funds do NOT have:

A) reserve requirements
B) interest rate ceilings
C) FDIC insurance
D) all of the above; they do not have any of these

Question 45

Which of the following are short-term, unsecured transfers of immediately available funds between depository institutions for use in one business day.

A) repurchase agreements
B) federal funds
C) discount window advances
D) none of the above

Question 46

Repurchase agreements are different from federal funds in that:

A) they are secured loans
B) they are federally insured
C) they are not subject to reserve requirements
D) they are not subject to interest rate ceilings

Question 47

Banks can borrow funds from the twelve regional Federal Reserve banks through:

A) federal funds
B) discount window advances
C) repurchase agreement
D) none of above

Question 48

___________is a time draft drawn on a bank by either an exporter or an importer to finance international business transactions.

A) A commercial paper
B) A bankers' acceptance
C) A capital note
D) none of the above

Question 49

Which of the following is NOT one of the key factors bankers consider in pricing consumer deposit products?

A) wholesale cost of funds
B) pricing strategy of competitors
C) the bank's securities investments
D) maturity structure of deposits

Question 50

Which of the following is(are) explicit prices paid by banks to acquire deposits?

A) interest payments
B) fees
C) gifts
D) a and b
E) a, b, and c

Question 51

Which of the following is NOT an implicit price of acquiring deposits?

A) added branch bank coverage in the community
B) minimum balance requirements
C) limited check-writing privileges
D) service charges

Question 52

Deregulation of deposit accounts resulted in banks moving toward ___________ to more closely reflect the true cost of producing specific products and services.

A) the greater use of explicit pricing
B) the decreased use of explicit pricing
C) the greater use of implicit pricing
D) b and c

Question 53

In maximizing bank profitability, all of the following are required EXCEPT:

A) global minimization of total costs
B) global maximization of total revenues
C) marginal total costs equal marginal total revenues
D) average total costs equal average total revenues

Question 54

If the bank obtains cost-reducing benefits from the fact that the unit costs of two or more services are lower when produced jointly, as opposed to separately, the bank has benefited from:

A) economies of scale
B) economies of operation
C) economies of scope
D) economies of production
E) none of the above

Question 55

Which of the following pricing policies is used to introduce new products and support or rejuvenate demand for existing products?

A) promotional pricing
B) customer relationship pricing
C) deposit pricing matrix
D) b and c

Question 56

The method of calculating costs of bank funds by summing the average cost of each source of funds times the proportion of total funds raised from each respective source of funds is called:

A) weighted average costs
B) average costs
C) marginal costs
D) total costs

Question 57

Theoretically, the minimum yield on bank investments that must be earned to avoid a loss in equity share values should equal the:

A) average cost of funds
B) total cost of funds
C) the marginal weighted average cost of funds
D) none of the above

Question 58

For the profit-maximizing banks seeking to minimize their cost of funds, the weighted-average cost of funds should be:

A) greater than the marginal costs of funds
B) less than the marginal costs of funds
C) equal to the average costs of funds
D) equal to the marginal costs of funds