Answer Key

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Question 1 of 15| 1.0 Points|
If borrowers with the most risky investment projects are more likely to seek bank loans than borrowers with the safest investment projects, banks face the problem of ________. |

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| A. adverse credit risk| |
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| B. adverse selection| |
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| C. moral hazard| |
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| D. conflict of interest| |

Answer Key: B
Question 2 of 15| 1.0 Points|
Banks' attempts to solve adverse selection and moral hazard problems help explain loan management principles such as |

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| A. screening and monitoring of loan applicants.| |
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| B. collateral and compensating balances.| |
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| C. credit rationing.| |
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| D. only A and B of the above.| |

Answer Key: D
Question 3 of 15| 1.0 Points|
Banks attempt to screen good credit risks from bad to reduce the incidence of loan defaults. To do this, banks |

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| A. specialize in lending to certain industries or regions.| | | |
| B. write restrictive covenants into loan contracts.| |
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| C. expend resources to acquire accurate credit histories of their potential loan customers.| | | |
| D. do all of the above.| |

Answer Key: D
Question 4 of 15| 1.0 Points|
Which of the following are not generally rate-sensitive assets? |

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| A. securities with a maturity of less than one year| |
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| B. variable-rate mortgages| |
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| C. fixed-rate mortgages| |
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| D. all of the above are rate-sensitive assets| |
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| E. none of the above are rate-sensitive assets| |

Answer Key: C
Question 5 of 15| 1.0 Points|
Liabilities that are partially, but not fully, rate-sensitive include ________. |

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| A. checkable deposits| |
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| B. federal funds| |
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| C. non-negotiable CDs| |
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| D. fixed-rate mortgages| |
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| E. money market deposit accounts| |

Answer Key: A
Question 6 of 15| 1.0 Points|
If a bank has more rate-sensitive liabilities than rate-sensitive assets, then a(n) ________ in interest rates will ________ bank profits. |

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| A. increase; increase| |
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| B. increase; reduce| |
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| C. decline; reduce| |
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| D. decline; not affect| |

Answer Key: B
Question 7 of 15| 1.0 Points|
If a bank has ________ rate-sensitive assets than rate-sensitive liabilities, then a(n) ________ in interest rates will increase bank profits. |

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| A. more; decline| |
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| B. more; increase| |
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| C. less; increase| |
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| D. both A and C| |

Answer Key: B
Question 8 of 15| 1.0 Points|
The difference between rate-sensitive liabilities and rate-sensitive assets is known as the ________. |

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| A. duration| |
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| B. interest-sensitivity index| |
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| C. interest-rate risk index| |
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| D. gap| |

Answer Key: D
Question 9 of 15| 1.0 Points|
Table 23.1
First National Bank

Assets:
Rate Sensitive: $20 million
Fixed Rate:$80 million

Liability:
Rate Sensitive: $50 million
Fixed Rate:$40 million

Referring to Table 23.1, First National Bank has a gap of ________. |

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| A. -30| |
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| B. +30| |
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| C. 60| |
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| D. 0| |

Answer Key: A
Question 10 of 15| 1.0 Points|
Table 23.1
First National Bank

Assets:
Rate Sensitive: $20 million
Fixed Rate:$80 million

Liability:
Rate Sensitive: $50 million
Fixed Rate:$40 million

Referring to Table 23.1, if interest rates rise by 5 percentage points, then bank profits (measured using gap analysis) will |

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| A. decline by $0.5 million.| |
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| B. decline by $1.5 million.| |
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| C. decline by $2.5 million.| |
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| D. increase by $1.5 million.| |

Answer Key: B
Question 11 of 15| 1.0 Points|
Table 23.1
First...
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