Questions:
Question 1 In order to reduce the likelihood of excessive leverage in the banking system, governments have traditionally
imposed capital requirements on commercial banks.
imposed capital requirement on investment banks.
imposed capital requirements on both commercial and investment banks.
imposed asset requirements on all banks.
Question 2. A balance sheet
is a statement showing an individual's or a firm's financial position at a particular point in time.
is a statement showing an individual's or a firm's income over a period of time.
is a statement listing the tax liabilities incurred by an individual or a firm.
can be constructed for any nonfinancial firm, but cannot be constructed for a financial firm.
Question 3. In banking, the spread refers to the difference between the
interest rate on long-term bonds and the interest rate on short-term bonds.
interest rate on car loans and the interest rate on home mortgages.
average interest rate earned on assets and the average interest rate paid on liabilities.
bid and asked prices on a bond.
Question 4. The risk that increased market interest rates will cause a decline in the value of an investment bank's holdings of long-term securities is known as
credit risk.
interest-rate risk.
currency risk.
security risk.
Question 5. In managing its liabilities to deal with liquidity problems, banks trade off
credit risk against interest rate risk.
adverse selection against moral hazard.
the need for available funds to meet deposit outflows against the desire for greater profit.
present tax liabilities against future tax liabilities.
Question 6. The development of new financial securities or investment strategies using sophisticated models is known as
underwriting.
factoring.
financial engineering.
hedging.
Question 7. Required reserves are
the portion of demand deposits and NOW accounts banks must hold.
zero on demand deposits.
zero on NOW accounts.
imposed on all deposits at commercial banks.
Question 8. Securitization refers to
changing the mix in a financial portfolio away from stocks and toward bonds.
selling directly to investors loans or securities that were formerly held by financial intermediaries.
banks insisting that collateral be supplied on previously unsecured loans.
reducing the exposure of a bank's portfolio to interest rate risk.
Question 9. Credit risk is the risk that
an insufficient number of borrowers will apply for loans or credit.
interest rates will rise after a loan has been granted.
interest rates will fall after a loan has been granted.
borrowers might default on their loans.
Question 10. If you deposit a $50 check in the bank, the immediate impact on your bank's balance sheet will be a
$50 increase in reserves and a $50 increase in checkable deposits.
$50 decrease in reserves and a $50 increase in checkable deposits.
$50 increase in reserves and a $50 decrease in checkable deposits.
$50 decrease in liabilities and a $50 increase in checkable deposits.