21) Modern liability management has resulted in ________.
A) increased sales of certificates of deposits to raise funds
B) increase importance of deposits as a source of funds
C) reduced borrowing by banks in the overnight loan market
D) failure by banks to coordinate management of assets and liabilities
22) A bank failure occurs whenever ________.
A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves to meet its reserve requirements
B) a bank suffers a large deposit outflow
C) a bank has to call in a large volume of loans
D) a bank is not allowed to borrow from the Bank of Canada
23) A bank is insolvent when ________.
A) its liabilities exceed its assets
B) its assets exceed its liabilities
C) its capital exceeds its liabilities
D) its assets increase in value
24) Holding large amounts of bank capital helps prevent bank failures because ________.
A) it means that the bank has a higher income
B) it makes loans easier to sell
C) it can be used to absorb the losses resulting from bad loans
D) it makes it easier to call in loans
25) Net profit after taxes per dollar of assets is a basic measure of bank profitability called ________.
A) return on assets
B) return on capital
C) return on equity
D) return on investment
26) Net profit after taxes per dollar of equity capital is a basic measure of bank profitability called ________.
A) return on assets
B) return on capital
C) return on equity
D) return on investment
27) The amount of assets per dollar of equity capital is called the ________.
A) asset ratio
B) equity ratio
C) equity multiplier
D) asset multiplier
28) For a given return on assets, the lower is bank capital, ________.
A) the lower is the return for the owners of the bank
B) the higher is the return for the owners of the bank
C) the lower is the credit risk for the owners of the bank
D) the lower the possibility of bank failure
29) Bank capital has both benefits and costs for the bank owners. Higher bank capital ________ the likelihood of bankruptcy, but higher bank capital ________ the return on equity for a given return on assets.
A) reduces; reduces
B) increases; increases
C) reduces; increases
D) increases; reduces
30) In the absence of regulation, banks would probably hold ________.
A) too much capital, reducing the efficiency of the payments system
B) too much capital, reducing the profitability of banks
C) too little capital
D) too much capital, making it more difficult to obtain loans
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