Question 1

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

Accepted Answer

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Question 2

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 of the bank manager as it helps to ensure the bank's stability and liquidity.

Answer: D 
 Maintaining high levels of capital and thus maximizing the returns to the owners is also a primary concern of the bank manager as it helps to increase the bank's profitability and financial strength.

B and C are not primary concerns of the bank manager as they are both conflicting with the financial stability and profitability of the bank. Lending to poor credit risks may result in bad debt and decreasing profits, while acquiring funds at a relatively high cost will reduce the bank's profitability.

Question 3

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

Accepted Answer

A deposit outflow means that a customer is withdrawing funds from their account, which will decrease the bank's deposits. In order to maintain its required reserve ratio, the bank will also have to reduce its reserves by the same amount, in this case, $5 million. Therefore, the correct answer is A.

Question 4

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 5

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 would provide the bank with the necessary funds to meet its reserve requirements. This option is preferable to reducing deposits or increasing loans, which could potentially harm the bank's financial stability. Repaying discount loans to the Fed is another option but it is not mentioned in the question that the bank has any such loan.

Question 6

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 7

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 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

Excess reserves are the reserves held by banks above the required reserves set by the central bank. If a bank has excess reserves greater than the amount of a deposit outflow, then the outflow can be easily accommodated without affecting the required reserves. Therefore, the reduction in deposits resulting from the outflow will be balanced by an equal reduction in excess reserves. This means that both deposits and reserves will be reduced by the same amount.

Question 9

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 in a different bank, it is sent for clearing through the Federal Reserve System. The First National Bank of Chicago will debit the account of the check writer by $10 and credit the account of the Citibank by $10. This means that Citibank's liabilities will increase by $10 because they now owe their customer an additional $10. The assets of Citibank will also increase by $10 because they now have $10 more in their reserve account at the Federal Reserve System. However, there is no change to the liabilities or reserves of the First National Bank of Chicago.

Question 10

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 11

A deposit outflow results in equal reductions in

Accepted Answer

When a deposit outflow occurs, the bank must reduce its liabilities (i.e. deposits) and will typically do so by reducing its assets (i.e. loans or investments) to maintain a balance sheet that balances. Therefore, both assets and liabilities will be reduced by an equal amount.

Question 12

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 13

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 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 $100 deposit as reserves. This means that they can only lend out 90% of the deposit, which is $90. Therefore, the maximum amount they could lend is $90.

Question 15

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 16

Of the following,which would be the first choice for a bank facing a reserve deficiency?

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Question 17

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

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

Question 18

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

Liquidity management refers to managing the availability of funds to meet the short-term obligations of a financial institution, such as deposit outflows. The concern with the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks is a central issue in liquidity management. Therefore, option B is the best choice. The other options, such as liability management (managing sources of financing), managing interest rate risk (managing exposure to fluctuations in interest rates), and managing credit risk (managing the risk of default by borrowers), are all important aspects of financial management, but they do not directly relate to the issue at hand.

Question 19

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, their liability to you increases by $50. However, when the $100 check is cashed at Chemical Bank, First National's reserves decrease by $100 (to cover the payment) which means their assets also decrease by $100. Therefore, the reserves at First National fall by $50 (which is the difference between the deposit and the check payment). None of the other choices correctly reflect what happens in this scenario.

Question 20

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...

Quiz 10: Banking and the Management of Financial Institutions

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

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

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

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

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.

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,

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

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,

A deposit outflow results in equal reductions in

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

When you deposit $50 in currency at Old National Bank,

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

Of the following,which would be the first choice for a bank facing a reserve deficiency?

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

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

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