FIN 480 EXAM 2 REVIEW QUESTIONS AND ANSWERS
Money eliminates the need for: - Answers - **A. a search for a double coincidence of
wants.
B. government regulation.
C. specialization of labor.
D. financial Intermediaries.
In the last 30 years, the number of banks with branches has ____, while the number of
unit banks has _____. - Answers - A. Increased;increased
B. Decreased;decreased
**C. Increased;decreased
D. Decreased;increased
The majority of banks have a ______ - Answers - **A. State charter
B. Federal charter
C. Both a state and a federal charter
The U.S. has many banks because: - Answers - A. small banks are more profitable than
large banks.
**B. many states outlawed bank branching.
C. The Great Depression caused failure the large banks, leaving many small banks.
D. the Glass‐Steagall Act forced splitting of large banks.
An investment with a large spread between possible payoffs will generally have: -
Answers - A. low expected return.
**B. a high standard deviation.
C. a low value at risk.
D. both a low expected return and a low value at risk.
Considering a bank's balance sheet, which of the following statements is false? -
Answers - **A. Assets + Liabilities = Capital
B. Assets = Liabilities + Capital
C. Liabilities = Assets ‐ Capital
D. Capital = Assets ‐ Liabilities
A mortgage loan appears as a ____ on a bank's balance sheet and as a ____ on a
person's balance sheet. - Answers - A. Asset;equity
**B. Asset;liability
C. Liability;equity
D. Liability;asset
E. Equity;asset
F. Equity;liability
, One measure of a bank's profitability is "net interest income". This is based on the idea
that - Answers - A. A bank pays higher interest rates to deposits than it receives from
loans
B. A bank receives higher interest rates on its assets relative to what it pays for its
liabilities
C. A Bank's Liabilities Earn Interest Income
Which of the following statements is not true? - Answers - A. The largest source of
funds for banks to lend comes from the owner's capital.
B. Transaction deposits make up less than 10 percent of banks sources of funds.
C. The largest sources of funds for banks are non‐transactions accounts.
D. Borrowings are a larger source of funds for banks than transaction deposits
By gathering lots of small deposits and making loans, a bank ... - Answers - A.
Increases the risk of savers.
B. Increased diversification of savers
C. Decrease liquidity
D. Increase information asymmetries.
**E. Both B and C are correct
A rumor starts that says a bank has suffered significant losses and may not be able to
honor its promises to depositors. This causes most of the depositors to line up in front of
the bank the next morning wanting to withdraw their deposits. This is an example of: -
Answers - **A. liquidity risk.
B. operational risk.
C. interest rate risk.
D. credit risk
Credit risk is a bigger problem for - Answers - A. larger banks because they have more
loans
B. larger banks because they tend to be geographically concentrated
**C. smaller banks because they tend to have less diversified markets
D. smaller banks because they have lower amounts of capital
Interest rate risk arises because - Answers - A. A bank's assets tend to be more interest
rate sensitive than its liabilities
**B. A bank's liabilities tend to be more interest rate sensitive than its assets
C. A Bank's Capital Tends To Increase When Interest Rates Rise
Insurance companies perform all of the following functions performed by financial
intermediaries except: - Answers - A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
**D. supplying liquidity.
Money eliminates the need for: - Answers - **A. a search for a double coincidence of
wants.
B. government regulation.
C. specialization of labor.
D. financial Intermediaries.
In the last 30 years, the number of banks with branches has ____, while the number of
unit banks has _____. - Answers - A. Increased;increased
B. Decreased;decreased
**C. Increased;decreased
D. Decreased;increased
The majority of banks have a ______ - Answers - **A. State charter
B. Federal charter
C. Both a state and a federal charter
The U.S. has many banks because: - Answers - A. small banks are more profitable than
large banks.
**B. many states outlawed bank branching.
C. The Great Depression caused failure the large banks, leaving many small banks.
D. the Glass‐Steagall Act forced splitting of large banks.
An investment with a large spread between possible payoffs will generally have: -
Answers - A. low expected return.
**B. a high standard deviation.
C. a low value at risk.
D. both a low expected return and a low value at risk.
Considering a bank's balance sheet, which of the following statements is false? -
Answers - **A. Assets + Liabilities = Capital
B. Assets = Liabilities + Capital
C. Liabilities = Assets ‐ Capital
D. Capital = Assets ‐ Liabilities
A mortgage loan appears as a ____ on a bank's balance sheet and as a ____ on a
person's balance sheet. - Answers - A. Asset;equity
**B. Asset;liability
C. Liability;equity
D. Liability;asset
E. Equity;asset
F. Equity;liability
, One measure of a bank's profitability is "net interest income". This is based on the idea
that - Answers - A. A bank pays higher interest rates to deposits than it receives from
loans
B. A bank receives higher interest rates on its assets relative to what it pays for its
liabilities
C. A Bank's Liabilities Earn Interest Income
Which of the following statements is not true? - Answers - A. The largest source of
funds for banks to lend comes from the owner's capital.
B. Transaction deposits make up less than 10 percent of banks sources of funds.
C. The largest sources of funds for banks are non‐transactions accounts.
D. Borrowings are a larger source of funds for banks than transaction deposits
By gathering lots of small deposits and making loans, a bank ... - Answers - A.
Increases the risk of savers.
B. Increased diversification of savers
C. Decrease liquidity
D. Increase information asymmetries.
**E. Both B and C are correct
A rumor starts that says a bank has suffered significant losses and may not be able to
honor its promises to depositors. This causes most of the depositors to line up in front of
the bank the next morning wanting to withdraw their deposits. This is an example of: -
Answers - **A. liquidity risk.
B. operational risk.
C. interest rate risk.
D. credit risk
Credit risk is a bigger problem for - Answers - A. larger banks because they have more
loans
B. larger banks because they tend to be geographically concentrated
**C. smaller banks because they tend to have less diversified markets
D. smaller banks because they have lower amounts of capital
Interest rate risk arises because - Answers - A. A bank's assets tend to be more interest
rate sensitive than its liabilities
**B. A bank's liabilities tend to be more interest rate sensitive than its assets
C. A Bank's Capital Tends To Increase When Interest Rates Rise
Insurance companies perform all of the following functions performed by financial
intermediaries except: - Answers - A. transferring risk.
B. pooling the resources of small savers.
C. making large investments.
**D. supplying liquidity.
