1. Which of the following bank assets are the most liquid?

a. consumer loans

b. state and local government securities

c. physical capital

d. U.S. government securities

2. When a bank faces a reserve deficiency because of a deposit outflow, it will try to do which of the following first?

a. call in loans

b. borrow from the Fed

c. sell securities

d. borrow from other banks

3. A bank failure is more likely to occur when a bank

a. holds more U.S. government securities

b. suffer large deposit outflows

c. holds more excess reserves

d. a bank's balance sheet has the property that total assets equal the sum of total liabilities and equity capital

4. Which of the following are reported as assets on a bank's balance sheet?

a. cash items in the process of collection

b. loans

c. borrowing

d. a & b

5. Which of the following is not a source of revenue from off-balance-sheet activities?

a. loan sales

b. charging interest on transaction balance

c. not issuance facility

d. servicing of mortgage- backed securities

6. Banks' holdings of marketable securities consist of

a. government securities

b. corporate stock

c. tax exempt municipal bonds

d. corporate bonds

7. Commercial banks are not allowed to pay interest on

a. demand deposits

b. NOW accounts

c. money market deposit accounts

d. savings accounts

8. Commercial bank innovation to avoid restrictions associated with reserve requirements resulted in the use of _______ as a source of funds.

a. NOW accounts

b. Eurodollar

c. overnight repos

d. sweep accounts

9. Required reserves are expensive for a bank to hold because of

a. the fees charged on them by the Fed

b. the interest the bank pays on these liabilities

c. the opportunity costs

d. none of the above; required reserves have no costs