Bruce the Bank Manager can reduce interest rate risk by_____ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _____ the duration of the bank's liabilities. Question 6 options: A) shortening; shortening B) lengthening; lengthening C) shortening; lengthening D) lengthening; shortening

Bruce the Bank Manager can reduce interest rate risk by_ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _ the duration of the bank's liabilities. Question 6 options: A) shortening; shortening B) lengthening; lengthening C) shortening; lengthening D) lengthening; shortening

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter12: Money, Banking And The Financial System

Section: Chapter Questions

Problem 3WNG

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

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Bruce the Bank Manager can reduce interest rate risk by_____ the duration of the bank's assets to increase their rate sensitivity or, alternatively, _____ the duration of the bank's liabilities.

Question 6 options:

A)	shortening; shortening

B)	lengthening; lengthening

C)	shortening; lengthening

D)	lengthening; shortening

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11. Macroland has a very simple banking system, in which there is only one chartered bank (The First Bank). The government of Macroland imposes a minimum required reserve ratio of 3%. Individuals in Macroland hold a fixed amount of $1200 in the form cash to facilitate their daily transactions and will deposit any excess amount of money into their bank accounts. The initial balance sheet of the First Bank is as follows: Assets Liabilities & Equity Reserves $255 Chequable deposits $7500 Loans $7400 Shareholder equity $155 Note: Unless otherwise stated, the First Bank will hold the excess reserves fixed at the current level as shown in the initial balance sheet and will lend out any surplus of reserves beyond this. a. Find the required reserves and the excess reserves held by the First Bank. b. Suppose there is a change in money demand such that people increase their cash holdings by $45 by withdrawing cash from their bank accounts. By how much will the money supply change? c. Return to…
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11. Currently, deposits are insured by the FDIC up to ___________ per depositor per bank. Question 11 options: a) $1,000,000. b) $250,000. c) $10,000. d) $100,000.
31) The FDIC must take steps to close down banks whose equity capital is less than ________ of assets. A) 4% B) 3% C) 2% D) 1% 32) Off-balance-sheet activities A) generate fee income with no increase in risk. B) increase bank risk but do not increase income. C) generate fee income but increase a bank's risk. D) generate fee income and reduce risk. 33) The Basel Accord, an international agreement, requires banks to hold capital based on A) risk-weighted assets. B) the total value of assets. C) liabilities. D) deposits. 34) The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets. A) 10% B) 8% C) 5% D) 3% 35) Under the Basel Accord, assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________. A) 2; adverse selection B) 2; credit risk C) 4; adverse selection D)…
Assume that a bank has demand deposits of $25,000. If the legal reserve requirement is 15% then the bank’s required reserves are? Question 29 options: a) $21,250 b) $15,000 c) $3750 d) $25,000
16) Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent, the net worth as a percentage of assets would B) decrease; 1.8% C) increase; 1.4% D) decrease; 1.4% by approximately. A) increase; 1.8%
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B3-4 ALL QUESTIONS GO WITH GRAPH 1. What would be the level of excess reserves if the required reserve ratio were 20%? a) There would be a shortfall in required reserves of $100,000 b) 0 c) $300,000 d) $900,000 e) $1,000,000 2. If the reserve required ratio is 10%, how much can this bank lend? a) $900,000 b) $1,000,000 c) $1,300,000 d) $500,000 e) $400,000 3. Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of new money the banking system can create? a) $900,000 b) $500,000 c) $400,000 d) $4,000,000 e) $5,000,000
39. Consider a fractional-reserve banking system in which an initial deposit of $1,000 can generate up to $4,000 in money. What is the reserve ratio? (A) 4 percent. (B) 5 percent. (C) 25 percent. (D) 75 percent.
29. For a given return on assets, holding other factors constant, Question 29 options: a) a lower capital-to-asset ratio has no effect on the return on equity of the bank. b) the lower is bank capital relative to assets, the higher is the return on equity of the bank. c) the lower is bank capital relative to assets, the lower is the credit risk for the owners of the bank. d) the lower is bank capital relative to assets, the lower is the return on equity of the bank.
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