Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The demand for an asset rises if ________ falls. 1) A) risk relative to other assets B) wealth C) expected return relative to other assets D) liquidity relative to other assets 2) Banks' attempts to solve adverse selection and moral hazard problems help explain loan 2) management principles such as A) credit rationing. B) collateral and compensating balances. C) screening and monitoring of loan applicants. D) all of the above. E) only A and B of the above. 3) When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate 3) or even a higher rate, it is said to engage in ________. A) credit rationing B) constrained lending C) strategic refusal D) collusive behavior 4) If a bank has more rate - sensitive liabilities than rate - sensitive assets, then a(n) ________ in interest 4) rates will ________ bank profits. A) increase; increase B) increase; reduce C) decline; not affect D) decline; reduce First National Bank Assets Liabilities Rate - sensitive Fixed - rate $20 million $50 million $80 million $40 million Table 23.1 5) Referring to Table 23.1, if interest rates rise by 5 percentage points, then bank profits (measured 5) using gap analysis) will A) increase by $1.5 million. B) decline by $0.5 million. C) decline by $2.5 million. D) decline by $1.5 million. First National Bank Assets Liabilities Rate - sensitive Fixed - rate $40 million $50 million $60 million $40 million Table 23.2 6) Refer to Table 23.2. Assuming that the average duration of the bank's assets is four years, while the average duration of its liabilities is three years, a rise in interest rates from 5 percent to 10 percent will cause the net worth of First National to ________ by ________ of the total original asset value. A) decline; 6.2% B) increase; 5% C) decline; 5% D) decline; 1.3% 6) 7) Measuring the sensitivity of bank profits to changes in interest rates by multiplying the gap for 7) several maturity subintervals by the change in the interest rate is called A) basic gap analysis. B) the maturity bucket approach to gap analysis. C) the segmented maturity approach to interest - exposure analysis. D) the segmented maturity approach to gap analysis. E) none of the above. 8) If a decline in interest rates causes the market value of a bank's net worth to rise, then the bank 8) must have a ________. A) positive duration gap B) positive gap C) negative duration gap ...