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Money and Banking Final
Terms in this set (15)
A mortgage given by a bank is ______ to the bank and ______ to the borrower.
an asset; a liability
The largest source of funds for banks these days are...
Non-transactional deposits (savings accounts and time deposits)
- Interest rates on these deposits are higher than those on checkable deposits
The cost of borrowing overnight from another US bank is...
The federal funds rate
The cost of a bank borrowing from the fed is...
The discount rate
A bank has borrowed $250 and has received $500 worth of deposits. The bank has given out loans for $650 and has reserves of 150, and the bank holds no securities or any other assets. The bank capital is:
($250 + $500) = $750
($650 + 150) = $800
Assets ($800) - Liabilities ($750) =
The lower the Capital/Asset ratio...
The higher the return on equity
A T-Account is...
a simplified balance sheet with lines in the form of a T that lists only the changes that occur in balance sheet items starting from some initial balance sheet position
Vault cash (if somebody opens an account with a bank and deposits cash into the bank) is also considered...
Bank reserves (an asset)
If a bank lacks sufficient reserves to fulfill its requirements, it can increase reserves by...
Borrow from other banks, issue new equity, sell securities, reduce the amount of new loans given
Banks are reluctant to hold a lot of bank capital because...
A higher Capital/Asset ratio leads to lower return on equity
In order to increase the capital/asset ratio, a bank can...
- Reduce the number of loans and use the funds to pay back loans.
- Issue new equity.
- Retain earnings instead of paying out dividends.
A mortgage given by a bank typically will have _______ expected return, ______ risk, and ______ liquidity than other assets on the bank's balance sheet.
higher, higher, lower
Off-balance-sheet activities where for instance a bank offers guarantees or a line of credit against a fee, can be...
problematic because a bank is taking on risk without anything appearing on the bank balance sheet.
The fed buys bonds to ______ money supply and they sells bonds to ______ money supply
Why is the federal funds rate important?
It influences all other interest rates from mortgages to savings deposits
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