Chapter 17
Commercial Bank Operations
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1. Which of the following is not a source of funds for commercial banks?
a. transaction deposits
b. bonds issued by the bank
c. investment in securities
d. eurodollar borrowings
2. ______ deposits are deposits that cannot be withdrawn until a specified maturity date.
a. Transaction
b. Savings
c. Money market
d. Time
3. _________ is not a time deposit.
a. Negotiable order of withdrawal (NOW) account
b. Certificate of deposit (CD)
c. Bull-market CD
d. Callable CD
4. The ________ the demand by banks to borrow federal funds relative to a small supply of excess funds available at other banks, the _______ the federal funds rate.
a. higher; higher
b. lower; higher
c. higher; lower
d. none of the above
5. ___________ represent the sale of securities by one party to another with an agreement to repurchase the securities at a specified date and price.
a. Federal funds borrowed
b. Eurodollar borrowing
c. Repurchase agreements
d. none of the above
6. A bank's reported earnings per share are _________ when additional shares of stock are issued, unless earnings increase by a _________ proportion than the increase in outstanding shares.
a. reduced; smaller
b. reduced; greater
c. increased; smaller
d. increased; greater
7. A _________ loan is a self-liquidating loan designed to support ongoing business operations.
a. term
b. bullet
c. working capital
d. direct lease
8. The interest rate charged by banks on loans to their most creditworthy customers is known as the ______ rate.
a. federal funds
b. prime
c. discount
d. none of the above
9. Which of the following types of securities do banks not invest in?
a. treasury securities
b. federal agency securities
c. investment-grade securities
d. Banks invest in all of the above.
10. All types of loans make up between ________ of bank assets.
a. 20 and 30 percent
b. 30 and 40 percent
c. 40 and 50 percent
d. 50 and 70 percent
11. ________ are an obligation by a bank to provide a specified loan amount to a particular firm upon the firm's request.
a. Consumer loans
b. Standby letters of credit
c. Loan commitments
d. Forward contracts
12. Banks commonly borrow in the federal funds market rather than through the discount window, even though the federal funds rate is typically higher than the discount rate.
a. True.
b. False.
13. Highly leveraged transactions (HLTs) are typically used to support initial public offerings (IPOs).
a. True.
b. False.
14. In an interest rate swap, two parties agree to periodically exchange interest payments on a specified notional amount of principal.
a. True.
b. False.
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