QN1. Collectively, reserves, cash items in process of collection, and deposits at other banks, are referred to as______in a bank balance sheet.
a) secondary reserves
b) cash items
c) liquid items
d) compensating balances
Answer: b) cash itemsAnswer
QN2. The U.S. banking system has been labeled a dual system because
a) banks offer both checking and savings accounts.
b) it actually includes both banks and thrift institutions.
c) it is regulated by both federal and state governments.
d) it was established during the Civil War, thus making it necessary to create separate regulatory bodies for the North and South.
Answer: c) it is regulated by both federal and state governments.Answer
QN3. When a bank is well-capitalized, the bank has_____to lose if it fails and is thus_____likely to pursue risky activities.
a) more: more
b) more; less
c) less; more
d) less; less
Answer: a) more: moreAnswer
QN4. Loans made by the Federal Reserve to depository institutions are in the form of:
a) reserves
b) Cash
c) Float
d) capital accounts
Answer: a) reservesAnswer
QN5. The predominant source of the net income of the Federal Reserve derives from:
a) priced services it makes available to depository institutions
b) loans to depository institutions
c) its portfolio of U.S. government securities
d) profits earned in the foreign exchange market
Answer: c) its portfolio of U.S. government securitiesAnswer
QN6. Members of the Board of Governors of the Federal Reserve System obtain their positions through:
a) appointment by the directors of the Federal Reserve banks
b) appointment by the Chairman of the Board of Governors
c) appointment by the U.S. President and approval by the Senate
d) appointment by the U.S. Senate and approval by the President
Answer: c) appointment by the U.S. President and approval by the SenateAnswer
QN7. The Federal Reserve pays to the U.S. Treasury approximately what portion of its gross income?
a) 10 percent
b) 50 percent
c) 75 percent
d) 90 percent
Answer: d) 90 percentAnswer
QN8. The Federal Reserve System was created:
a) to conduct monetary policy for purposes of stabilizing the economy
b) primarily to hold large quantities of the ever expanding government debt
c) to provide liquidity to the banking system in time of crisis
d) to supervise all national banks
Answer: c) to provide liquidity to the banking system in time of crisisAnswer
QN9. The regional Federal Reserve banks
a) Establish the discount rate.
b) Ration discount loans to banks.
c) Clear checks.
d) do all of the above.
Answer: d) do all of the above.Answer
QN10. Power within the Federal Reserve is essentially located in
a) New York.
b) Washington, D.C.
c) Boston.
d) San Francisco.
Answer: b) Washington, D.C.Answer
QN11. Banks create money when they:
a) reduce loans and sell securities
b) expand loans and sell securities
c) reduce loans and buy securities
d) expand loans and buy securities
Answer: d) expand loans and buy securitiesAnswer
QN12. Which of the following directly increases the money supply?
a) the public withdraws cash from banks
b) the public deposits cash into banks
c) banks sell securities to dealers
d) none of the above
Answer: d) none of the aboveAnswer
QN13. The demand for the monetary base is composed of demand by:
a) banks and the U.S. Treasury
b) banks and the Federal Reserve
c) banks and the public
d) the Treasury and the Federal Reserve
Answer: c) banks and the publicAnswer
QN14. The monetary base is comprised of
a) currency in circulation and Federal Reserve notes.
b) currency in circulation and government securities.
c) currency in circulation and reserves.
d) reserves and government securities.
Answer: c) currency in circulation and reserves.Answer
QN15. The sum of vault cash and bank deposits with the Fed minus required reserves is called
a) the monetary base.
b) the money supply.
c) excess reserves.
d) total reserves.
Answer: c) excess reserves.Answer
QN16. When the Fed wants to reduce reserves in the banking system, it will
a) purchase government bonds.
b) extend discount loans to banks.
c) print more currency.
d) sell government bonds.
Answer: d) sell government bonds.Answer
QN17. Which of the following are found on the asset side of the Federal Reserve’s balance sheet?
a) Treasury securities
b) Treasury deposits
c) Discount loans
d) Only (a) and (c) of the above.
Answer: d) Only (a) and (c) of the above.Answer
QN18. Which of the following are found on the liability side of the Federal Reserve’s balance sheet?
a) Cash items in the process of collection.
b) Deferred availability cash items.
c) Gold.
d) All of the above.
Answer: b) Deferred availability cash items.Answer
QN19. An important routine function of a Federal Reserve Bank is to
a) supervise the liquidation of the assets of bankrupt commercial banks
b) help large banks develop financial relationships with smaller banks
c) advise banks as to the most profitable ways of buying securities
d) provide facilities by which banks may clear and collect checks
Answer: d) provide facilities by which banks may clear and collect checksAnswer
QN20. Open market operations are of two types:
a) defensive and offensive.
b) dynamic and reactionary.
c) actionary and passive.
d) dynamic and defensive.
Answer: d) dynamic and defensive.Answer
QN21. If the Federal Reserve wants to inject reserves into the banking system, it will usually
a) purchase government securities.
b) Raise the discount rate.
c) Sell government securities.
d) Lower reserve requirements.
e) Do either (a) or (b) of the above.
Answer: a) purchase government securities.Answer
QN22. When the Fed engages in a matched sale-purchase with a bank, it first______ securities which the bank agrees to______ back to the Fed within a few days.
a) buys; buy
b) buys; sell
c) sells; buy
d) sells; sell
Answer: d) sells; sellAnswer
QN23. When the Fed wants to decrease bank reserves on a temporary basis, it engages in a_______.
a) outright purchase of securities from banks
b) outright sale of securities from banks
c) reverse repurchase agreement with banks
d) repurchase agreement with banks
Answer: c) reverse repurchase agreement with banksAnswer
QN24. Which of the following is true about the Federal Reserve System?
a) There are 12 regional Federal Reserve Banks
b) The head of the U.S. Treasury also chairs the Federal Reserve Board
c) There are 14 members of the Federal Reserve Board
d) The Federal Reserve receives its operating funds from the federal government
Answer: a) There are 12 regional Federal Reserve BanksAnswer
QN25. Which of the following is not considered to be a goal of monetary policy?
a) Fair wages
b) High employment
c) Price stability
d) Economic growth
Answer: a) Fair wagesAnswer
QN26. The U.S. Treasury Secretary who attempted to establish a nationwide banking system in 1791 was
a) Benjamin Franklin
b) Thomas Jefferson
c) Alexander Hamilton
d) Abraham Lincoln
Answer: c) Alexander HamiltonAnswer
QN27. One large company that holds many different banks as subsidiaries is called a (an)
a) investment bank
b) euro bank
c) bank holding company
d) deposit bank
Answer: c) bank holding companyAnswer
QN28. Which of the following is a fundamental commercial bank accounting identity?
a) assets plus capital equals liabilities
b) assets plus liabilities equals capital
c) assets minus liabilities equals capital
d) none of the above
Answer: c) assets minus liabilities equals capitalAnswer
QN29. Which of the following is a source of commercial bank funds?
a) deposits
b) capital
c) non-deposit borrowing
d) all of the above
Answer: d) all of the aboveAnswer
QN30. On the commercial bank balance sheet, which of the following is an asset?
a) capital accounts
b) deposits with Federal Reserve
c) transactions deposits
d) all of the above
Answer: b) deposits with Federal ReserveAnswer
QN31. The securities purchased by a bank for investment purposes are known as
a) primary reserves
b) secondary reserves
c) equity capital
d) discounts
Answer: b) secondary reservesAnswer
QN32. Which of the following bank assets is the most liquid?
a) Consumer loans.
b) State and local government securities.
c) Physical capital.
d) U.S. government securities.
Answer: d) U.S. government securities.Answer
QN33. Tools of bank liability management include:
a) buying federal funds
b) issuing negotiable CDS
c) issuing repurchase agreements
d) all of the above
Answer: d) all of the aboveAnswer
QN34. Commercial banks obtain funds by:
a) issuing demand deposits
b) borrowing from other banks
c) issuing ownership claims (equity)
d) all of the above
Answer: d) all of the aboveAnswer
QN35. A bank’s primary reserves include:
a) vault cash
b) deposits at the Federal Reserve
c) Treasury bills, notes, and bonds
d) a and b
Answer: d) a and bAnswer
QN36. Financial intermediaries promote efficiency and thereby increase people’s wealth
a) by reducing the transaction cost of linking together lender and borrowers.
b) to the extent that they help solve problems created by adverse selection and moral hazard.
c) by providing additional jobs.
d) because of only (a) and (b) of the above.
Answer: d) because of only (a) and (b) of the above.Answer
QN37. Which of the following is the true about bank statement?
a) Total Bank Assets = Total Bank Liabilities + Bank Capital
b) Total Bank Liabilities = Bank Capital
c) Total Bank Assets +Total Bank Liabilities = Bank Capital
d) Total Bank Assets = Total Bank Liabilities – Bank Capital
Answer: a) Total Bank Assets = Total Bank Liabilities + Bank CapitalAnswer
QN38. The Federal Reserve System was created:
a) to conduct monetary policy for purposes of stabilizing the economy
b) primarily to hold large quantities of the ever expanding government debt
c) to provide liquidity to the banking system in time of crisis
d) to supervise all national banks
Answer: c) to provide liquidity to the banking system in time of crisisAnswer
QN39. The monetary authorities in the country (that is the central bank of the country) tend to influence interest rates by increasing or reducing the ______ in the system.
a) Liquidity
b) Regulations
c) Control
d) None of the above
Answer: a) LiquidityAnswer
QN40. The main function of a commercial bank can be segregated into:
a. payment system
b. Financial intermediation
c. Financial Services
(a) (i), (ii), (iii)
(b) (i), (iii)
(c) (i), (ii)
(d) (ii), (iii)
Answer: (a) (i), (ii), (iii)Answer
