front 1 The modern commercial banking system began in America when the
| back 1 Answer: B |
front 2 A major controversy involving the banking industry in its early years was
| back 2 Answer: B |
front 3 The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the
| back 3 Answer: A |
front 4 Because of the abuses by state banks and the clear need for a central bank to help the federal government raise funds during the War of 1812, Congress created the
| back 4 Answer: C |
front 5 The Second Bank of the United States was denied a new charter by
| back 5 Answer: A |
front 6 Currency circulated by banks that could be redeemed for gold was called
| back 6 Answer: B |
front 7 To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________.
| back 7 Answer: A |
front 8 The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of
| back 8 Answer: C |
front 9 Before 1863
| back 9 Answer: C |
front 10 Prior to 1863, all commercial banks in the United States
| back 10 Answer: B |
front 11 Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, state banks were able to stay in business by
| back 11 Answer: C |
front 12 The National Bank Act of 1863, and subsequent amendments to it
| back 12 Answer: B |
front 13 Which regulatory body charters national banks?
| back 13 Answer: C |
front 14 The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a
| back 14 Answer: D |
front 15 Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side.
| back 15 Answer: C |
front 16 The U.S. banking system is considered to be a dual system because
| back 16 Answer: C |
front 17 The Federal Reserve Act of 1913 required that
| back 17 Answer: C |
front 18 The Federal Reserve Act of 1913 required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system.
| back 18 Answer: C |
front 19 Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been
| back 19 Answer: A |
front 20 With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while non-member commercial banks ________ to buy deposit insurance.
| back 20 Answer: C |
front 21 With the creation of the Federal Deposit Insurance Corporation
| back 21 Answer: B |
front 22 The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from
| back 22 Answer: B |
front 23 The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the
| back 23 Answer: C |
front 24 Which of the following statements concerning bank regulation in the United States is TRUE?
| back 24 Answer: B |
front 25 Which bank regulatory agency has the sole regulatory authority over bank holding companies?
| back 25 Answer: D |
front 26 State banks that are not members of the Federal Reserve System are most likely to be examined by the
| back 26 Answer: B |
front 27 State banking authorities have sole jurisdiction over state banks
| back 27 Answer: A |
front 28 Financial innovations occur because of financial institutions search for
| back 28 Answer: A |
front 29 ________ is the process of researching and developing profitable new products and services by financial institutions.
| back 29 Answer: A |
front 30 The most significant change in the economic environment that changed the demand for financial products in recent years has been
| back 30 Answer: B |
front 31 In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________ percent.
| back 31 Answer: A |
front 32 Uncertainty about interest-rate movements and returns is called
| back 32 Answer: C |
front 33 Rising interest-rate risk
| back 33 Answer: B |
front 34 Adjustable rate mortgages
| back 34 Answer: C |
front 35 Adjustable rate mortgages
| back 35 Answer: A |
front 36 The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is
| back 36 Answer: C |
front 37 An instrument developed to help investors and institutions hedge interest-rate risk is
| back 37 Answer: C |
front 38 Financial instruments whose payoffs are linked to previously issued securities are called
| back 38 Answer: B |
front 39 Both ________ and ________ were financial innovations that occurred because of interest rate volatility.
| back 39 Answer: B |
front 40 The most important source of the changes in supply conditions that stimulate financial innovation has been the
| back 40 Answer: C |
front 41 New computer technology has
| back 41 Answer: C |
front 42 Credit cards date back to
| back 42 Answer: A |
front 43 A firm issuing credit cards earns income from
| back 43 Answer: A |
front 44 The entry of AT&T and GM into the credit card business is an indication of
| back 44 Answer: B |
front 45 A debit card differs from a credit card in that
| back 45 Answer: C |
front 46 Automated teller machines
| back 46 Answer: C |
front 47 The declining cost of computer technology has made ________ a reality.
| back 47 Answer: C |
front 48 Bank customers perceive Internet-only banks as being
| back 48 Answer: D |
front 49 A disadvantage of virtual banks (clicks) is that
| back 49 Answer: D |
front 50 So-called fallen angels differ from junk bonds in that
| back 50 Answer: A |
front 51 Newly-issued high-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as
| back 51 Answer: D |
front 52 In 1977, he pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status.
| back 52 Answer: A |
front 53 One factor contributing to the rapid growth of the commercial paper market since 1970 is
| back 53 Answer: B |
front 54 The development of money market mutual funds contributed to the growth of ________ since the money market mutual funds need to hold liquid, high-quality, short-terms assets.
| back 54 Answer: A |
front 55 The process of transforming otherwise illiquid financial assets into marketable capital market instruments is known as
| back 55 Answer: A |
front 56 ________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans.
| back 56 Answer: D |
front 57 The driving force behind the securitization of mortgages and automobile loans has been
| back 57 Answer: C |
front 58 Securitization is a process of asset transformation that involves a number of different financial institutions working together. These financial institutions are known collectively as the
| back 58 Answer: D |
front 59 Which of the following is NOT part of the shadow banking system?
| back 59 Answer: A |
front 60 Because of securitization, a new class of residential mortgages offered to borrowers with less-than-stellar credit records developed. These mortgages are known as
| back 60 Answer: B |
front 61 According to Edward Kane, because the banking industry is one of the most ________ industries in America, it is an industry in which ________ is especially likely to occur.
| back 61 Answer: C |
front 62 Loophole mining refers to financial innovation designed to
| back 62 Answer: C |
front 63 Prior to 2008, bank managers looked on reserve requirements
| back 63 Answer: A |
front 64 Prior to 2008, the bank's cost of holding reserves equaled
| back 64 Answer: D |
front 65 Prior to 1980, the Fed set an interest rate ________, a maximum limit, on the interest rate that could be paid on time deposits.
| back 65 Answer: B |
front 66 The process in which people seeking higher yielding securities take their funds out of the banking system thus restricting the amount of funds banks can lend is called
| back 66 Answer: C |
front 67 Money market mutual funds
| back 67 Answer: A |
front 68 In September 2008, the Reserve Primary Fund, a money market mutual fund, found itself in the situation know as "breaking the buck." This means that
| back 68 Answer: A |
front 69 In this type of arrangement, any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as a
| back 69 Answer: A |
front 70 Sweep accounts which were created to avoid reserve requirements became possible because of a change in
| back 70 Answer: B |
front 71 Sweep accounts
| back 71 Answer: A |
front 72 Since 1974, commercial banks importance as a source of funds for nonfinancial borrowers
| back 72 Answer: A |
front 73 Thrift institutions importance as a source of funds for borrowers
| back 73 Answer: B |
front 74 Since 1980
| back 74 Answer: B |
front 75 Financial innovation has caused
| back 75 Answer: B |
front 76 Disintermediation resulted from
| back 76 Answer: A |
front 77 The experience of disintermediation in the banking industry illustrates that
| back 77 Answer: D |
front 78 Banks responded to disintermediation by
| back 78 Answer: A |
front 79 One factor contributing to the decline in cost advantages that banks once had is the
| back 79 Answer: A |
front 80 The most important developments that reduced banks cost advantages include
| back 80 Answer: B |
front 81 The most important developments that reduced banks' income advantages include
| back 81 Answer: B |
front 82 Banks have attempted to maintain adequate profit levels by
| back 82 Answer: B |
front 83 The decline in traditional banking internationally can be attributed to
| back 83 Answer: B |
front 84 Why did the interest rate volatility of the 1970s spur financial innovation? | back 84 Answer: Banks were very vulnerable to interest-rate risk in the mortgage loans. To protect themselves, banks began to issue adjustable-rate mortgages whose interest rate will increase along with market interest rates. Additionally financial derivatives were developed to help hedge against interest-rate risk. |
front 85 The presence of so many commercial banks in the United States is most likely the result of
| back 85 Answer: C |
front 86 The McFadden Act of 1927
| back 86 Answer: A |
front 87 The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branching regulations in the state in which they reside is the
| back 87 Answer: A |
front 88 The large number of banks in the United States is an indication of
| back 88 Answer: B |
front 89 Lack of competition in the United States banking industry can be attributed to
| back 89 Answer: D |
front 90 Which of the following is a TRUE statement concerning bank holding companies?
| back 90 Answer: B |
front 91 A financial innovation that developed as a result of banks avoidance of bank branching restrictions was
| back 91 Answer: D |
front 92 ATMs were developed because of breakthroughs in technology and as a
| back 92 Answer: A |
front 93 Financial innovations that grew out of the bank branching restrictions were
| back 93 Answer: A |
front 94 What financial innovations helped banks to get around the bank branching restrictions of the McFadden Act? | back 94 Answer: The introduction of the automated teller machine allowed a bank's customers to have access to funds from various locations not just the bank building and was not subject to the branching restrictions. Bank holding companies could own controlling interest in several banks and other companies related to banking. |
front 95 The primary reason for the recent reduction in the number of banks is
| back 95 Answer: D |
front 96 Bank holding companies that rival money center banks in size, but are not located in money center cities are
| back 96 Answer: A |
front 97 Allowing bank branching across state lines gives banks greater ability to coordinate bank operations. This makes it easier for them to receive the benefits of
| back 97 Answer: B |
front 98 The ability to use one resource to provide different products and services is
| back 98 Answer: B |
front 99 The business term for economies of scope is
| back 99 Answer: D |
front 100 The legislation that overturned the prohibition on interstate banking is
| back 100 Answer: D |
front 101 Although it has a population about half that of the United States, Japan has
| back 101 Answer: D |
front 102 Experts predict that the future structure of the U.S. banking industry will have
| back 102 Answer: C |
front 103 Bank consolidation will likely result in
| back 103 Answer: C |
front 104 Critics of nationwide banking fear
| back 104 Answer: A |
front 105 One of the concerns of increased bank consolidation is the reduction in community banks which could result in
| back 105 Answer: A |
front 106 Nationwide banking might reduce bank failures due to
| back 106 Answer: C |
front 107 As the banking system in the United States evolves, it is expected that
| back 107 Answer: D |
front 108 The legislation overturning the Glass-Steagall Act is
| back 108 Answer: B |
front 109 Under the Gramm-Leach-Bliley Act states retain regulatory authority over
| back 109 Answer: C |
front 110 Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank holding companies belongs to
| back 110 Answer: A |
front 111 As a result of the global financial crisis several of the large, free-standing investment banking firms chose to become bank holding companies. This means that they will now be regulated by
| back 111 Answer: A |
front 112 In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity.
| back 112 Answer: A |
front 113 In a ________ banking system, commercial banks engage in securities underwriting, but legal subsidiaries conduct the different activities. Also, banking and insurance are not typically undertaken together in this system.
| back 113 Answer: B |
front 114 A major difference between the United States and Japanese banking systems is that
| back 114 Answer: B |
front 115 Like the dual banking system for commercial banks, thrifts can have either ________ or ________ charters.
| back 115 Answer: A |
front 116 Unlike banks, ________ have been allowed to branch statewide since 1980.
| back 116 Answer: A |
front 117 Thrift institutions include
| back 117 Answer: D |
front 118 The FHLBS gives loans to S&Ls and thus performs a function similar to the ________ for commercial banks.
| back 118 Answer: A |
front 119 Mutual savings banks are owned by
| back 119 Answer: C |
front 120 Mutual savings banks are primarily regulated by
| back 120 Answer: A |
front 121 An essential characteristic of credit unions is that
| back 121 Answer: D |
front 122 ________ are the only depository institutions that are tax-exempt.
| back 122 Answer: D |
front 123 The spectacular growth in international banking can be explained by
| back 123 Answer: A |
front 124 What country is given credit for the birth of the Eurodollar market?
| back 124 Answer: C |
front 125 Deposits in European banks denominated in dollars for the purpose of international transactions are known as
| back 125 Answer: A |
front 126 The main center of the Eurodollar market is
| back 126 Answer: A |
front 127 Eurodollars are
| back 127 Answer: A |
front 128 Reasons for holding Eurodollars include
| back 128 Answer: B |
front 129 An advantage to American banks from operating foreign branches is that Eurodollar deposits in offshore branches are
| back 129 Answer: A |
front 130 U.S. banks have most of their branches in
| back 130 Answer: A |
front 131 A(n) ________ is a subsidiary of a U.S. bank that is engaged primarily in international banking.
| back 131 Answer: A |
front 132 ________ within the U.S. can make loans to foreigners but cannot make loans to domestic residents.
| back 132 Answer: B |
front 133 ________ of a foreign bank operates in the U.S. but cannot accept deposits from domestic residents.
| back 133 Answer: A |
front 134 If a foreign bank operates a subsidiary bank in the U.S., the subsidiary bank is
| back 134 Answer: A |
front 135 Foreign banks may engage in banking activities in the United States by opening all of the following EXCEPT
| back 135 Answer: D |
front 136 Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks in the U.S. has been
| back 136 Answer: A |
front 137 Discuss three ways in which U.S. banks can become involved in international banking. | back 137 Answer: United States banks could open a foreign branch of their bank. A U.S. bank holding company could purchase controlling interest in a foreign bank in a foreign country. A U.S. bank could open a Edge Act Corporation. A U.S. bank could open an International Banking Facility in the U.S. which accepts time deposits from foreigners and makes loans to foreigners in the U.S. |