Bank Management Exam Materials
Course Introduction
Bank Management provides students with a comprehensive understanding of the principles, strategies, and practices involved in running and overseeing banking institutions. The course covers topics such as the structure and functions of banks, risk management, asset and liability management, regulatory frameworks, banking technology, and financial performance analysis. Students will also explore credit assessment, loan management, and the impact of global financial trends on the banking sector. Through case studies and real-world examples, learners gain practical insights into decision-making processes and effective management within modern banking environments.
Recommended Textbook
Economics of Money Banking and Financial Markets 12th Edition by Frederic S. Mishkin
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27 Chapters
2796 Verified Questions
2796 Flashcards
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Page 2
Chapter 1: Why Study Money, banking, and Financial Markets
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003,the growth rate for real GDP is
A)5%.
B)10%.
C)50%.
D)0.5%.
Answer: A
Q2) If the prices would have been much higher ten years ago for the items the average consumer purchased last month,then one can likely conclude that
A)the aggregate price level has declined during this ten-year period.
B)the average inflation rate for this ten-year period has been positive.
C)the average rate of money growth for this ten-year period has been positive.
D)the aggregate price level has risen during this ten-year period.
Answer: A
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Chapter 2: An Overview of the Financial System
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which of the following instruments are traded in a money market?
A)bank commercial loans
B)commercial paper
C)state and local government bonds
D)residential mortgages
Answer: B
Q2) If the maturity of a debt instrument is less than one year,the debt is called
A)short-term.
B)intermediate-term.
C)long-term.
D)prima-term.
Answer: A
Q3) Distinguish between a foreign bond and a Eurobond.
Answer: A foreign bond is sold in a foreign country and priced in that country's currency. A Eurobond is sold in a foreign country and priced in a currency that is not that country's currency.
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Chapter 3: What Is Money
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99 Flashcards
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Sample Questions
Q1) ________ is a flow of earnings per unit of time.
A)Income
B)Money
C)Wealth
D)Currency
Answer: A
Q2) Because inflation in Germany after World War I sometimes exceeded 1,000% per month,one can conclude that the German economy suffered from
A)deflation.
B)disinflation.
C)hyperinflation.
D)superdeflation.
Answer: C
Q3) Why are most of the U.S. dollars held outside of the United States?
Answer: Concern about high inflation eroding the value of their own currency causes many people in foreign countries to hold U.S. dollars as a hedge against inflation risk.
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Chapter 4: The Meaning of Interest Rates
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) If a $5,000 coupon bond has a coupon rate of 13 percent,then the coupon payment every year is
A)$650.
B)$1,300.
C)$130.
D)$13.
Q2) The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.
A)present value
B)future value
C)interest
D)deflation
Q3) The price of a consol equals the coupon payment
A)times the interest rate.
B)plus the interest rate.
C)minus the interest rate.
D)divided by the interest rate.
Q4) Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.
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Chapter 5: The Behavior of Interest Rates
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165 Flashcards
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Sample Questions
Q1) In the figure above,the factor responsible for the decline in the interest rate is
A)a decline the price level.
B)a decline in income.
C)an increase in the money supply.
D)a decline in the expected inflation rate.
Q2) If there is an excess demand for money,individuals ________ bonds,causing interest rates to ________.
A)sell;rise
B)sell;fall
C)buy;rise
D)buy;fall
Q3) When the government has a surplus,as occurred in the late 1990s,the ________ curve of bonds shifts to the ________,everything else held constant.
A)supply;right
B)supply;left
C)demand;right
D)demand;left
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Chapter 6: The Risk and Term Structure of Interest Rates
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116 Flashcards
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Sample Questions
Q1) A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.
A)right;right
B)right;left
C)left;left
D)left;right
Q2) As their relative riskiness ________,the expected return on corporate bonds ________ relative to the expected return on default-free bonds,everything else held constant.
A)increases;increases
B)increases;decreases
C)decreases;decreases
D)decreases;does not change
Q3) Which of the following bonds would have the highest default risk?
A)municipal bonds
B)investment-grade bonds
C)U)S. Treasury bonds
D)junk bonds
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Chapter 7: The Stock Market, the Theory of Rational
Expectations, and the Efficient
Market Hypothesis
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) If a market participant believes that a stock price is irrationally high,they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price. This practice is called
A)short selling.
B)double dealing.
C)undermining.
D)long marketing.
Q2) When using rational expectations,forecast errors will,on average,be ________ and ________ be predicted ahead of time.
A)positive;can
B)positive;cannot
C)negative;can
D)zero;cannot
Q3) Financial markets quickly eliminate unexploited profit opportunities through changes in A)dividend payments.
B)tax laws.
C)asset prices.
D)monetary policy.
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Chapter 8: An Economic Analysis of Financial Structure
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96 Flashcards
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Sample Questions
Q1) Which of the following is NOT a benefit to an individual purchasing a mutual fund?
A)reduced risk
B)lower transactions costs
C)free-riding
D)diversification
Q2) Solutions to the moral hazard problem include
A)low net worth.
B)monitoring and enforcement of restrictive covenants.
C)greater reliance on equity contracts and less on debt contracts.
D)greater reliance on debt contracts than financial intermediaries.
Q3) The ________ problem helps to explain why the private production and sale of information cannot eliminate ________.
A)free-rider;adverse selection
B)free-rider;moral hazard
C)principal-agent;adverse selection
D)principal-agent;moral hazard
Q4) How does collateral help to reduce the adverse selection problem in credit market?
Q5) Explain the principal-agent problem as it pertains to equity contracts.
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Chapter 9: Banking and the Management of Financial Institutions
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1,000 in cash into her checking account and another individual withdraws $750 in cash from her checking account.
Q2) Examples of off-balance-sheet activities include
A)trading activities.
B)extending loans to depositors.
C)borrowing from other banks.
D)selling negotiable CDs.
Q3) Banks hold capital because
A)they are required to by regulatory authorities.
B)higher capital increases the returns to the owners.
C)it increases the likelihood of bankruptcy.
D)higher capital increases the return on equity.
Q4) If a bank has ________ rate-sensitive assets than liabilities,then ________ in interest rates will increase bank profits.
A)more;a decline
B)more;an increase
C)fewer;an increase
D)fewer;a surge
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Chapter 10: Economic Analysis of Financial Regulation
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Sample Questions
Q1) As in the United States,an important factor in the banking crises in Norway,Sweden,and Finland was the
A)financial liberalization that occurred in the 1980s.
B)decline in real interest rates that occurred in the 1980s.
C)high inflation that occurred in the 1980s.
D)sluggish economic growth that occurred in the 1980s.
Q2) 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%
Q3) If the FDIC decides that a bank is too big to fail,it will use the ________ method,effectively ensuring that ________ depositors will suffer losses.
A)payoff;large
B)payoff;no
C)purchase and assumption;large
D)purchase and assumption;no
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12
Chapter 11: Banking Industry: Structure and Competition
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) The most important developments that reduced banks cost advantages include
A)the growth of the junk bond market.
B)the competition from money market mutual funds.
C)the growth of securitization.
D)the growth in the commercial paper market.
Q2) In a ________ banking system,commercial banks provide a full range of banking,securities,and insurance services,all within a single legal entity.
A)universal
B)severable
C)barrier-free
D)dividerless
Q3) As a result of the global financial crisis several of the large,free-standing investment banking firms chose to become bank holding companies. This means that they will now be regulated by
A)the Federal Reserve.
B)the FDIC.
C)the state banking authorities.
D)the Treasury.
Q4) Why did the interest rate volatility of the 1970s spur financial innovation?
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Chapter 12: Financial Crises
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48 Flashcards
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Sample Questions
Q1) A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system
A)causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently.
B)allows for a more efficient use of funds.
C)increases economic activity.
D)reduces uncertainty in the economy and increases market efficiency.
Q2) One suggested method of dealing with the too-big-to-fail problem is to reimpose the restrictions that were in place under A)Glass-Steagall.
B)McFadden.
C)the Edge Act.
D)the Federal Reserve Act.
Q3) The growth of the subprime mortgage market led to
A)increased demand for houses and helped fuel the boom in housing prices.
B)a decline in the housing industry because of higher default risk.
C)a decrease in home ownership as investors chose other assets over housing.
D)decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages.
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Page 14
Chapter 13: Central Banks and the Federal Reserve System
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) The First Bank of the United States
A)was disbanded in 1811 when its charter was not renewed.
B)had its charter renewal vetoed in 1832.
C)was fundamental in helping the Federal Government finance the War of 1812.
D)None of the above.
Q2) Members of Congress are able to influence monetary policy,albeit indirectly,through their ability to
A)withhold appropriations from the Board of Governors.
B)withhold appropriations from the Federal Open Market Committee.
C)propose legislation that would force the Fed to submit budget requests to Congress,as must other government agencies.
D)instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.
Q3) All ________ are required to be members of the Fed.
A)state chartered banks
B)national banks chartered by the Office of the Comptroller of the Currency
C)banks with assets less than $100 million
D)banks with assets less than $500 million
Q4) Make the case for and against an independent Federal Reserve.
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Chapter 14: The Money Supply Process
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) If the Fed injects reserves into the banking system and they are held as excess reserves,then the monetary base ________ and the money supply ________.
A)remains unchanged;remains unchanged
B)remains unchanged;increases
C)increases;increases
D)increases;remains unchanged
Q2) If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of
A)$14,000.
B)$19,000.
C)$24,000.
D)$29,000.
Q3) Everything else held constant,an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.
A)an increase;an increase
B)an increase;a decrease
C)a decrease;an increase
D)a decrease;a decrease
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Page 16
Chapter 15: Tools of Monetary Policy
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) After 2003,The Federal Reserve usually keeps the discount rate
A)above the target federal funds rate.
B)equal to the target federal funds rate.
C)below the target federal funds rate.
D)equal to zero.
Q2) State whether the following statement is true or false AND explain why: "An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate."
A)True
B)False
Q3) The Fed prefers that ________ so that ________.
A)banks borrow reserves from each other;banks can monitor each other for credit risk
B)banks borrow reserves from each other;the Fed can monitor banks for credit risk
C)banks borrow reserves from the Fed;banks can monitor each other for credit risk
D)banks borrow reserves from the Fed;the Fed can monitor banks for credit risk
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Chapter 16: The Conduct of Monetary Policy: Strategy and Tactics
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate.
A)primary
B)dual
C)secondary
D)hierarchical
Q2) When it comes to choosing an policy instrument,both the ________ rate and ________ aggregates are measured accurately and are available daily with almost no delay.
A)three-month T-bill;monetary
B)three-month T-bill;reserve
C)federal funds;monetary
D)federal funds;reserve
Q3) Due to the lack of timely data for the price level and economic growth,the Fed's strategy
A)targets the exchange rate,since the Fed can control this variable.
B)targets the price of gold,since it is closely related to economic activity.
C)uses an intermediate target,such as an interest rate.
D)stabilizes the consumer price index,since the Fed can control the CPI.
Page 18
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Chapter 17: The Foreign Exchange Market
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133 Flashcards
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Sample Questions
Q1) Suppose that the latest Consumer Price Index (CPI)release shows a higher inflation rate in the U.S. than was expected. Everything else held constant,the release of the CPI report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar would ________.
A)increase;appreciate B)increase;depreciate C)decrease;appreciate
D)decrease;depreciate
Q2) A decrease in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.
A)right;appreciate
B)right;depreciate
C)left;appreciate
D)left;depreciate
Q3) Explain and show graphically the effect of an increase in the expected future exchange rate on the equilibrium exchange rate,everything else held constant.
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Chapter 18: The International Financial System
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Sample Questions
Q1) Which of the following does NOT appear in the current account part of the balance of payments?
A)a loan of $1 million from Bank of America to Brazil
B)foreign aid to El Salvador
C)an Air France ticket bought by an American
D)income earned by General Motors from its plants abroad
Q2) This agency acts like an international lender of last resort to cope with financial instability.
A)World Bank
B)European Central Bank
C)IMF
D)International Bank for Reconstruction and Development
Q3) A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal decline in its international reserves and the monetary base,everything else held constant.
A)sale;purchase
B)sale;sale
C)purchase;sale
D)purchase;purchase
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Page 20
Chapter 19: Quantity Theory, inflation and the Demand for Money
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that
A)the speculative demand for money is interest insensitive.
B)the transactions demand for money is interest insensitive.
C)people will hold a diversified portfolio.
D)people will hold money or bonds but not both.
Q2) Keynes's theory of the demand for money is consistent with ________ movements in ________.
A)countercyclical;velocity
B)procyclical;velocity
C)countercyclical;expectations
D)procyclical;expectations
Q3) The evidence on the interest sensitivity of the demand for money suggests that the demand for money is ________ to interest rates,and there is ________ evidence that a liquidity trap exists.
A)sensitive;substantial
B)sensitive;little
C)insensitive;substantial
D)insensitive;little
21
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Chapter 20: The Is Curve
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Sample Questions
Q1) Using the information in Situation 20-1,if aggregate output is equal to $10,000,then unplanned inventory investment equals
A)-$1,000.
B)-$100.
C)$0.
D)$100.
Q2) If the consumption function is expressed as C = a + mpc × YD,then "mpc" represents A)autonomous consumer expenditure.
B)the marginal propensity to consume.
C)the expenditure multiplier.
D)disposable income.
Q3) If young business professionals in America suddenly decide that driving German-made cars is an important status symbol,net exports will tend to ________ causing aggregate demand to ________,everything else held constant.
A)fall;fall
B)fall;rise
C)rise;fall
D)rise;rise
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22
Chapter 21: The Monetary Policy and Aggregate Demand
Curves
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Sample Questions
Q1) Everything else held constant,an autonomous tightening of monetary policy will cause
A)the quantity of aggregate demand to increase.
B)the quantity of aggregate demand to decrease.
C)aggregate demand to increase.
D)aggregate demand to decrease.
Q2) The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
A)less;rise
B)more;fall
C)less;fall
D)more;rise
Q3) Everything else held constant,an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A)right;increase
B)right;decrease
C)left;increase
D)left;decrease
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Chapter 22: Aggregate Demand and Supply Analysis
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108 Flashcards
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Sample Questions
Q1) By looking at aggregate demand via its component parts,we can conclude that the aggregate demand curve is downward sloping because
A)a lower inflation rate causes the real interest rate to fall,and stimulates planned investment spending.
B)a lower inflation rate causes the real interest rate to rise,and stimulates planned investment spending.
C)a higher inflation rate causes the real interest rate to fall,and stimulates planned investment spending.
D)a higher inflation rate causes the real interest rate to rise,and stimulates planned investment spending.
Q2) According to aggregate demand and supply analysis,America's involvement in the Vietnam War had the effect of
A)increasing aggregate output,lowering unemployment,and raising the inflation.
B)decreasing aggregate output,lowering unemployment,and lowering the inflation.
C)increasing aggregate output,raising unemployment,and raising the inflation.
D)decreasing aggregate output,raising unemployment,and lowering the inflation.
Q3) Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run.
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Chapter 23: Monetary Policy Theory
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Sample Questions
Q1) When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then in the long run
A)inflation will be lower.
B)output will be at its potential.
C)output will be lower.
D)inflation will be unchanged.
E)both B and D.
Q2) When output is below potential and the policy rate has hit the floor of zero,the resulting fall in inflation leads to ________ real interest rates,which ________ output further,which causes inflation to fall further.
A)lower;increase
B)higher;depress
C)higher;increase
D)lower;depress
Q3) Demand-pull inflation can result when
A)policymakers set an unemployment target that is too high.
B)a persistent budget deficit is financed by selling bonds to the public.
C)a persistent budget deficit is financed by selling bonds to the central bank.
D)workers get numerous wage increases.
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Chapter 24: The Role of Expectations in Monetary Policy
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Sample Questions
Q1) Potential weaknesses of nominal GDP targeting include
A)it is more complicated to explain to the public than inflation targeting and thus the public might be confused about the objectives of the central bank.
B)it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling.
C)real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
D)it focuses not only on controlling inflation but also explicitly on stabilizing real GDP.
Q2) The interest rate thought to have the most important impact on aggregate demand is the
A)short-term interest rate.
B)T-bill rate.
C)rate on 90-day CDs.
D)long-term interest rate.
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26
Chapter 25: Transmission Mechanisms of Monetary Policy
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Sample Questions
Q1) On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of
A)direct-model evidence.
B)informed voter-model evidence.
C)structural-model evidence.
D)reduced-form evidence.
Q2) In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the ________ decreased before ________ decreased.
A)money supply;interest rates
B)money supply;output
C)budget deficit;interest rates
D)budget deficit;output
Q3) A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.
A)lowering real;decreasing
B)lowering real;increasing
C)raising nominal;increasing
D)raising real;increasing
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Chapter 26: Financial Crises in Emerging Market Economies
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Sample Questions
Q1) Financial crises generally develop along two basic paths
A)mismanagement of financial liberalization/globalization and severe fiscal imbalances.
B)stock market declines and severe fiscal imbalances.
C)mismanagement of financial liberalization/globalization and stock market declines.
D)stock market declines and unanticipated declines in the value of the domestic currency.
Q2) A feature of debt markets in emerging-market countries is that debt contracts are typically
A)very short term.
B)long term.
C)intermediate term.
D)perpetual.
Q3) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include
A)failure of the Mexican oil monopoly.
B)the ratification of the North American Free Trade Agreement.
C)increased uncertainty from political shocks.
D)decline in interest rates.
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Chapter 27: The ISLM Model
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Sample Questions
Q1) The more interest-sensitive is money demand,the
A)more effective is fiscal policy relative to monetary policy.
B)more effective is monetary policy relative to fiscal policy.
C)steeper is the IS curve.
D)steeper is the LM curve.
Q2) An increase in the money ________ shifts the LM curve to the ________,causing the interest rate to fall and output to rise,everything else held constant.
A)demand;right
B)demand;left
C)supply;right
D)supply;left
Q3) If the price level increases,everything else held constant,the ________ curve shifts to the ________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right
Q4) Using the long-run ISLM model,explain and demonstrate graphically the neutrality of money,for the case of an increase in the money supply.
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