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All of the following are operating expenses for a bank except ____.
A) service charges on deposit accounts
B) salaries and employee benefits
C) rent on buildings
D) servicing costs of equipment such as computers
Answer: A
Diff: 1 Type: MC Page Ref: 13.1A- 2
Topic: Questions for Web Appendix on Measuring Bank Performance
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
When a bank suspects that a $1 million loan might prove to be bad debt that will have to be
written off in the future the bank ____.
A) can set aside $1 million of its earnings in its loan loss reserves account
B) reduces its reported earnings by $1, even though it has not yet actually lost the $1 million
C) reduces its assets immediately by $1 million, even though it has not yet lost the $1 million
D) reduces its reserves by $1 million, so that they can use those funds later
Answer: A
Diff: 1 Type: MC Page Ref: 13.1A- 2
Topic: Questions for Web Appendix on Measuring Bank Performance
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
For banks, ____.
A) return on assets exceeds return on equity
B) return on assets equals return on equity
C) return on equity exceeds return on assets
D) return on equity is another name for net interest margin
Answer: C
Diff: 1 Type: MC Page Ref: 13.1A- 3
Topic: Questions for Web Appendix on Measuring Bank Performance
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans
The quantity defined as interest income minus interest expenses divided by assets is a measure
of bank performance known as ____.
A) operating income
B) net interest margin
C) return on assets
D) return on equity
Answer: B
Diff: 1 Type: MC Page Ref: 13.1A- 3
Topic: Questions for Web Appendix on Measuring Bank Performance
Skill: Recall
Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans