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fin 303 lesson 8 quiz
Terms in this set (10)
If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then
a decrease in interest rates will reduce bank profits.
When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank, then
the reserves at First National fall by $50.
When banks calculate the losses the institution would incur if an unusual combination of bad events happened, the bank is using the ________ approach.
Because borrowers, once they have a loan, are more likely to invest in high-risk investment projects, banks face the
moral hazard problem.
If a bank has ________ rate-sensitive assets than liabilities, then ________ in interest rates will increase bank profits.
more; an increase
If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can
sell $3 million of securities that the bank currently owns.
One way for banks to reduce the principal-agent problems associated with trading activities is to
set limits on the total amount of a traders' transactions.
If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will
AssetsLiabilitiesRate-sensitive$40 million$50 millionFixed-rate$60 million$50 million
Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.
If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest rates will reduce bank profits, while a ________ in interest rates will raise bank profits.
more; decline; rise
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