QUESTION 1 As a bank\'s capital is eroded from losses on the asset side of the b

Question

QUESTION 1

As a bank's capital is eroded from losses on the asset side of the balance sheet the cost of funds raised by equity and debt will increase.

True

False

1.96078 points   

QUESTION 2

Bank XYZ can withstand a 5% drop in loan value and still be “well capitalized”. Well capitalized means an Equity/Asset ratio of 8%.

True

False

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QUESTION 3

Being adequately capitalized means that a there are sufficient liquid assets on the bank’s balance sheet to meet all expected and unexpected withdrawals of deposits within a time frame of one week.

True

False

1.96078 points   

QUESTION 4

Subprime assets lost value rapidly between 2007 and 2009. This lowered the value of banks that had exposure to these assets and financial institutions that had exposure to banks that were exposed to subprime risk. Since the assets were hard to value they were not acceptable as collateral. This made banks illiquid and this scared away the suppliers of bank capital. A liquidity crisis turned into a credit crisis for many financial institutions such as WAMU, Wachovia, Lehman and others.

True

False

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QUESTION 5

The Dime Bank is required by federal banking regulators to maintain an adequate level of liquid assets. Liquid assets can be sold on short notice without affecting the market price of the assets.

True

False

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QUESTION 6

If the bank increases its deposit base by $1 million the assets of the bank will increase by $1 million as a result.

True

False

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QUESTION 7

Bank XYZ can withstand a 10% drop in loan value and still be “well capitalized”. Well capitalized means an Equity/Asset ratio of 8%.

True

False

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QUESTION 8

Bank XYZ can withstand a 2% drop in asset value and still be “well capitalized”. Well capitalized means an Equity/Asset ratio of 8%.

True

False

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QUESTION 9

A bank is insolvent when

its assets exceed its liabilities.

its capital exceeds its liabilities.

its liabilities exceed its assets.

its assets increase in value.

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QUESTION 10

Bank capital is equal to ________ minus ________.

total assets; total liabilities

total liabilities; total borrowings

total assets; total reserves

total liabilities; total assets

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QUESTION 11

Bank capital is listed on the ________ side of the bank's balance sheet because it represents a ________ of funds.

asset; source

liability; use

asset; use

liability; source

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QUESTION 12

Banks acquire the funds that they use to purchase income-earning assets from such sources as

cash items in the process of collection.

deposits at other banks.

reserves.

savings accounts.

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QUESTION 13

Banks earn profits by selling ________ with attractive combinations of liquidity, risk, and return, and using the proceeds to buy ________ with a different set of characteristics.

securities; deposits

liabilities; assets

loans; deposits

assets; liabilities

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QUESTION 14

In general, banks make profits by selling ________ liabilities and buying ________ assets.

risky; risk-free

short-term; longer-term

illiquid; liquid

long-term; shorter-term

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QUESTION 15

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

the liabilities of Citibank decrease by $10.

the liabilities of the First National Bank decrease by $10.

the assets of Citibank decrease by $10.

the reserves of the First National Bank increase by $10.

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QUESTION 16

When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.

loses; gains

loses; loses

gains; gains

gains; loses

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QUESTION 17

When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________.

decrease; increase

increase; increase

decrease; decrease

increase; decrease

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QUESTION 18

Which of the following are not reported as assets on a bank's balance sheet?

Deposits with other banks

Checkable deposits

U.S. Treasury securities

Cash items in the process of collection

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QUESTION 19

Which of the following are reported as assets on a bank's balance sheet?

Bank capital

Savings deposits

Reserves

Borrowings

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QUESTION 20

Which of the following bank assets is the most liquid?

U.S. government securities

Reserves

Cash items in process of collection

Consumer loans

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QUESTION 21

Which of the following statements are true?

A bank's liabilities are its uses of funds.

A bank's assets are its sources of funds.

A bank's balance sheet shows that total assets equal total liabilities plus equity capital.

A bank's balance sheet indicates whether or not the bank is profitable.

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QUESTION 22

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost.

True

False

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QUESTION 23

Base your answers to the following question on the latest 10-K filed by Dime Community Bancshares (ticker symbol DCOM)

Dime Community Bancshares is required by the Federal Reserve institutions to maintain cash reserves against their transaction accounts. These reserves do not satisfy the liquidity requirements imposed by the Federal Reserve.

True

False

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QUESTION 24

Base your answers to the following question on the latest 10-K filed by Dime Community Bancshares (ticker symbol DCOM)

The FDIC does not regulate bank liquidity on credit risk.

True

False

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QUESTION 25

Even economists have no single, precise definition of money because

economists find disagreement interesting and refuse to agree for ideological reasons.

money supply statistics are a state secret.

the Federal Reserve does not employ or report different measures of the money supply.

the "moneyness" or liquidity of an asset is a matter of degree.

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QUESTION 26

If an individual moves money from a small-denomination time deposit to a demand deposit account,

M1 stays the same and M2 increases.

M1 increases and M2 stays the same.

M1 stays the same and M2 stays the same.

M1 increases and M2 decreases.

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QUESTION 27

The difference between money and income is that

money is a flow and income is a stock.

money is a stock and income is a flow.

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QUESTION 28

The components of the U.S. M1 money supply are demand and checkable deposits plus

currency plus savings deposits.

currency plus travelers checks.

currency.

currency plus travelers checks plus money market deposits.

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QUESTION 29

Which of the following is included in both M1 and M2?

Small-denomination time deposits

Savings deposits

Currency

Money market deposit accounts

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QUESTION 30

One of the responsibilities of the Federal Reserve System of the United States is to balance federal tax receipts and Federal expenditures.

True

False

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QUESTION 31

One of the responsibilities of the central bank of the United States is to maintain the stability of the financial system and containing systemic risk that may arise in financial markets.

True

False

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QUESTION 32

It is the legal obligation of the Federal Reserve to conduct monetary policy to achieve its macroeconomic objectives of maximum employment and stable prices.

True

False

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QUESTION 33

Generally, the FOMC conducts policy by adjusting the level of short-term interest rates in response to changes in the economic outlook.

True

False

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QUESTION 34

Reserve Banks of the Federal Reserve System of the United States provide accounts to depository institutions--banks, thrifts, and credit unions--in which those institutions hold reserve balances, make loans to depository institutions, move currency and coin into and out of circulation, collect and process millions of checks and other payments each day, provide checking accounts and other services for the Treasury, issue and redeem government securities, and act in other ways as fiscal agent for the U.S. government.

True

False

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QUESTION 35

The Federal Reserve has the ability to set all interest rates in the economy including mortgage rates and credit card rates.

True

False

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QUESTION 36

The monetary base is defined as the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve).

True

False

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QUESTION 37

Milton Friedman argued that the money supply provides important information about the near-term course for the economy and determines the level of prices and inflation in the long run.

True

False

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QUESTION 38

The FOMC is intentionally vague about its course for monetary policy. This is done to limit speculation in the stock and bond markets.

True

False

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QUESTION 39

Following its meeting in January 2012, the FOMC issued a statement regarding its longer-run goals and monetary policy strategy. The FOMC noted in its statement that the Committee judges that inflation at the rate of 0% percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's statutory mandate.

True

False

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QUESTION 40

The FOMC communicates its inflation rate goals to help keep longer-term inflation expectations firmly anchored. This fosters price stability and moderate long-term interest rates and enhances the FOMC's ability to promote maximum employment.

True

False

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QUESTION 41

Unless the unemployment rate is zero percent the FOMC is failing in its statutory mandate.

True

False

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QUESTION 42

During normal economic times, the Federal Reserve has primarily influenced overall financial conditions by adjusting the federal funds rate. The Fed Funds rate is the rate the U.S. Government charges banks for short term credit.

True

False

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QUESTION 43

When short- and long-term interest rates go down, it becomes cheaper to borrow, so households are generally more willing to buy goods and services and firms are likely to be in a better position to purchase items to expand their businesses, such as property and equipment. This will lead to more hiring.

True

False

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QUESTION 44

In 2008, with short-term interest rates essentially at zero and thus unable to fall much further, the Federal Reserve undertook nontraditional monetary policy measures to provide additional support to the economy. Between late 2008 and October 2014, the Federal Reserve purchased longer-term mortgage-backed securities and notes issued by certain government-sponsored enterprises, as well as longer-term Treasury bonds and notes. The primary purpose of these purchases was to help to lower the level of longer-term interest rates, thereby improving financial conditions. Thus, this nontraditional monetary policy measure operated through the same broad channels as traditional policy, despite the differences in implementation of the policy.

True

False

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QUESTION 45

The Federal Reserve purchases new Treasury securities directly from the U.S. Treasury. This assures the government that they can always finance deficits at reasonable interest rates.

True

False

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QUESTION 46

In financing the federal deficit, the central bank of the United States borrows from the public by issuing Treasury securities which are sold at auction according to a schedule that is published quarterly. The central bank determines the types and amounts of Treasury securities sold at auction with the goal of achieving the lowest financing costs for the federal government over time.

True

False

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QUESTION 47

The overall effect of the Fed's large-scale asset purchases between 2008-2014 was to put downward pressure on yields of a wide range of longer-term securities, support mortgage markets, and promote a stronger economic recovery.

True

False

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QUESTION 48

Dime Community Bancshares has a single source of funds to support its lending and investment activities. This source is deposits of households.

True

False

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QUESTION 49

The investment policy of Dime Community Bancshares limits a combined investment in securities issued by any one entity, with the exception of obligations of the U.S. Government, federal agencies and GSEs.

True

False

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QUESTION 50

Since the financial crisis of 2008-2009 management of Dime Community Bancshares has refused to invest in mortgage-backed securities. The argument is that MBS are illiquid and too risky.

True

False

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QUESTION 51

Dime Community Bancshares originates both adjustable-rate mortgages (“ARMs”) and fixed-rate loans.

True

False

its assets exceed its liabilities.

its capital exceeds its liabilities.

its liabilities exceed its assets.

its assets increase in value.

Explanation / Answer

1a) TRUE

2b) FALSE

3a) TRUE

4a) TRUE

5a) TRUE

6a) TRUE

7a) TRUE

8b) FALSE

9c) Liabilities exceeds asset

10a) Total assets- total liabilties

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