Question 1

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 over the required reserves, which can be used to meet unexpected withdrawal demands. If there is an outflow of deposits, the bank can use its excess reserves to maintain the required reserve ratio. Hence, there will be equal reductions in deposits and reserves.

Question 2

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 in an account at Citibank, Citibank receives a $10 asset in the form of the deposited check. However, since the check is drawn on the First National Bank of Chicago, Citibank must submit the check to the Federal Reserve Bank, which then contacts the First National Bank and debits its account by $10. Therefore, the liability of the First National Bank decreases by $10, and the liability of Citibank increases by $10.

Question 3

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 4

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

Accepted Answer

The answer of Which of the following are primary concerns...

Question 5

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 6

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

Accepted Answer

The answer of Of the following, which would be the...

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...

Question 8

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 9

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 10

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 hold 10% of the deposit ($10) in reserves and can only lend out the remaining 90% ($90). Therefore, the maximum amount New Bank could lend is $90.

Question 11

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, the reserves at First National Bank rise by $50. However, when the $100 check is cashed at Chemical Bank, it will be debited from your account at First National Bank, causing the reserves at First National Bank to fall by $100. The assets and liabilities of Chemical Bank are not affected by this transaction.

Question 12

A deposit outflow results in equal reductions in

Accepted Answer

When a deposit outflow occurs, the bank’s liabilities decrease as the funds are leaving the bank, but the bank’s assets also decrease by an equal amount, as the bank loses the funds that were deposited. This reduction in both assets and liabilities results in a decrease in the bank’s balance sheet. Therefore, B is the correct answer.

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 is the process of ensuring that a bank has enough liquid assets on hand to meet its obligations to depositors and other creditors.

Question 14

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 immediate funds to meet its reserve requirements. Reducing deposits by $3 million or repaying discount loans from the Fed would not necessarily provide additional funds, and increasing loans by $3 million could potentially increase the bank's overall risk.

Question 15

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 16

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 17

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 18

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 19

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 results in a reduction in both deposits and reserves since the bank needs to have a certain amount of reserves on hand to cover customer withdrawals. It does not necessarily lead to a reduction in loans, securities, or capital.

Question 20

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.

Quiz 10: Banking and the Management of Financial Institutions

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

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

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

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.

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

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

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

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,

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

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

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

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

A bank with insufficient reserves can increase its reserves by

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

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

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