FMT Tut8
FMT Tut8
FMT Tut8
5. For bank A, a deposit of $100 (in cash or currency) in a checking account will:
A. increase the money supply by $100.
B. reduce the money supply by $100.
C. increase both reserves and checkable deposits by $100.
D. reduce both reserves and checkable deposits by $100.
6. If a bank gains $100 of reserves and $100 of checkable deposits, and the reserve
requirement ratio is 15%, then the bank will:
A. gain $85 of excess reserves.
B. gain $15 of excess reserves.
C. gain $85 of required reserves.
D. gain $100 of excess reserves.
7. If a bank is short of required reserves, it may:
A. borrow from the Fed at the Fed Funds rate.
B. increase loans.
C. increase security holdings.
D. borrow from the Fed at the current discount rate.
12. Acquiring funds at low cost is the main concern of ________ management
A. liquidity
B. capital
C. liability
D. asset
What would happen to bank profits if the interest rates in the economy go down by 1%?
What actions could you take to reduce the bank’s interest-rate risk?
Q7. If a bank finds that its ROE is too low because it has too much bank capital, what can
it do to raise its ROE?
Q10. If a bank doubles the amount of its capital and ROA stays constant, what will
happen to ROE?
Q16. If you are a banker and expect interest rates to rise in the future, would you prefer to
make short-term loans or long-term loans?
P19. Using the T-accounts of the First National Bank and the Second National Bank
given in this chapter, describe what happens when Jane Brown writes a check for $90
on her account at the First National Bank to pay her friend Joe Green, who in turn
deposits the check in his account at the Second National Bank.
P25. Suppose you are the manager of a bank that has $15 million of fixed-rate assets, $30
million of ratesensitive assets, $25 million of fixed-rate liabilities, and $20 million of
rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what will happen
to bank profits if interest rates rise by 5 percentage points. What actions could you take to
reduce the bank’s interest-rate risk?
2. Additional problem:
A commercial bank has mixed up the assets and liablities items as follows: (in $’m)
Checkable deposits 80
Deposit with central bank 20
Cash on hand 20
Savings 120
Long-term loan to customer 150
Security (fixed rate) 80
Capital 120
Other assets 35
Borrowing from other bank 80
Time deposits 150
Short-term loan to customer 120
Deposit with other bank 65
Security (floating rate) 60