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If a bank has $10 million of demand deposits, a desired reserve ratio of 10 percent, and it
holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of
____.
A) $1.2 million
B) $1.1 million
C) $1 million
D) $900,00 0
Answer: A
Diff: 1 Type: MC Page Ref: 300 - 303
Skill: Applied
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will
result in equal reductions in ____.
A) deposits and reserves
B) deposits and loans
C) capital and reserves
D) capital and loans
Answer: A
Diff: 1 Type: MC Page Ref: 300 - 303
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
A $5 million deposit outflow from a bank has the immediate effect of ____.
A) reducing deposits and reserves by $5 million
B) reducing deposits and loans by $5 million
C) reducing deposits and securities by $5 million
D) reducing deposits and capital by $5 million
Answer: A
Diff: 1 Type: MC Page Ref: 300 - 303
Skill: Applied
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
Bankers' concerns regarding the optimal mix of excess reserves, secondary reserves,
borrowings from the Bank of Canada, and borrowings from other banks to deal with deposit
outflows is an example of ____.
A) liability management
B) liquidity management
C) managing interest rate risk
D) managing credit risk
Answer: B
Diff: 1 Type: MC Page Ref: 300
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans