Banking Exam Commercial Bank 2

Question 1

Which regulatory ratio requires U.S. commercial banks to hold a minimum percentage of deposits as reserves at the Federal Reserve?

Accepted Answer

Reserve requirement ratio

Answer

The reserve requirement ratio mandates that banks keep a specified percentage of deposits either in their vaults or on deposit at the Federal Reserve.

Question 2

What is a 'certificate of deposit' (CD) issued by a commercial bank?

Accepted Answer

A time deposit that pays a fixed interest rate until a specified maturity date

Answer

A CD is a time deposit product where customers deposit funds for a fixed term at a specified interest rate, typically penalizing early withdrawal.

Question 3

In commercial banking, what does 'net interest margin' (NIM) measure?

Accepted Answer

The difference between interest earned on loans and interest paid on deposits, divided by earning assets

Answer

NIM measures a bank's profitability by comparing the net interest income (interest earned minus interest paid) to its average earning assets.

Question 4

What is the primary function of a commercial bank's trust department?

Accepted Answer

Managing assets on behalf of individuals, estates, and institutions

Answer

A trust department manages financial assets, estates, and trusts on behalf of clients, acting as a fiduciary.

Question 5

Which type of commercial bank account allows unlimited check writing and is designed for everyday business transactions?

Accepted Answer

Demand deposit account (DDA)

Answer

A demand deposit account (DDA) allows account holders to withdraw funds or write checks at any time without advance notice.

Banking Exam Practice Test

Banking Exam Practice Test

Banking Exam Commercial Bank 2