Q&A Hero

Q: Financial instruments whose payoffs are linked to previously issued securities are called A) grandfathered bonds. B) financial derivatives. C) hedge securities. D) reversible bonds.

Q: An instrument developed to help investors and institutions hedge interest-rate risk is A) a put option. B) a call option. C) a financial derivative. D) a mortgage-backed security.

Q: The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is A) a put option. B) a call option. C) a futures contract. D) a mortgage-backed security.

Q: Adjustable rate mortgages A) reduce the interest-rate risk for financial institutions. B) benefit homeowners when interest rates rise. C) generally have higher initial interest rates than conventional fixed-rate mortgages. D) allow borrowers to avoid paying interest on portions of their mortgage loans.

Q: Adjustable rate mortgages A) protect households against higher mortgage payments when interest rates rise. B) keep financial institutions' earnings high even when interest rates are falling. C) benefit homeowners when interest rates are falling. D) generally have higher initial interest rates than on conventional fixed-rate mortgages.

Q: Rising interest-rate risk A) increased the cost of financial innovation. B) increased the demand for financial innovation. C) reduced the cost of financial innovation. D) reduced the demand for financial innovation.

Q: Uncertainty about interest-rate movements and returns is called A) market potential. B) interest-rate irregularities. C) interest-rate risk. D) financial creativity.

Q: 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. A) 5; 15 B) 4; 11.5 C) 4; 18 D) 5; 10

Q: The most significant change in the economic environment that changed the demand for financial products in recent years has been A) the aging of the baby-boomer generation. B) the dramatic increase in the volatility of interest rates. C) the dramatic increase in competition from foreign banks. D) the deregulation of financial institutions.

Q: ________ is the process of researching and developing profitable new products and services by financial institutions. A) Financial engineering B) Financial manipulation C) Customer manipulation D) Customer engineering

Q: Financial innovations occur because of financial institutions search for A) profits. B) fame. C) stability. D) recognition.

Q: State banking authorities have sole jurisdiction over state banks A) without FDIC insurance. B) that are not members of the Federal Reserve System. C) operating as bank holding companies. D) chartered in the 21st century.

Q: State banks that are not members of the Federal Reserve System are most likely to be examined by the A) Federal Reserve System. B) FDIC. C) FHLBS. D) Comptroller of the Currency.

Q: Which bank regulatory agency has the sole regulatory authority over bank holding companies? A) The FDIC B) The Comptroller of the Currency C) The FHLBS D) The Federal Reserve System

Q: Which of the following statements concerning bank regulation in the United States is true? A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. B) The Federal Reserve and the state banking authorities jointly have responsibility for the 900 state banks that are members of the Federal Reserve System. C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. D) The state banking authorities have sole regulatory responsibility for all state banks.

Q: The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the A) National Bank Act of 1863. B) Federal Reserve Act of 1913. C) Glass-Steagall Act. D) McFadden Act.

Q: The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from A) issuing equity to finance bank expansion. B) engaging in underwriting and dealing of corporate securities. C) selling new issues of government securities. D) purchasing any debt securities.

Q: With the creation of the Federal Deposit Insurance Corporation, A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while non-member commercial banks were required to buy deposit insurance. B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance. C) both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. D) both member and non-member banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.

Q: 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. A) could choose; were required B) could choose; were given the option C) were required, could choose D) were required; were required

Q: Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been A) the creation of the FDIC. B) rapid economic growth since 1941. C) the employment of new procedures by the Federal Reserve. D) better bank management.

Q: The Federal Reserve Act required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system. A) state; national B) state; municipal C) national; state D) national; municipal

Q: The Federal Reserve Act of 1913 required that A) state banks be subject to the same regulations as national banks. B) national banks establish branches in the cities containing Federal Reserve banks. C) national banks join the Federal Reserve System. D) state banks could not join the Federal Reserve System.

Q: The U.S. banking system is considered to be a dual system because A) banks offer both checking and savings accounts. B) it actually includes both banks and thrift institutions. C) it is regulated by both state and federal governments. D) it was established before the Civil War, requiring separate regulatory bodies for the North and South.

Q: Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side. A) federal government; municipalities B) state governments; municipalities C) federal government; states D) municipalities; states

Q: 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 A) bilateral regulatory system. B) tiered regulatory system. C) two-tiered regulatory system. D) dual banking system.

Q: Which regulatory body charters national banks? A) The Federal Reserve B) The FDIC C) The Comptroller of the Currency D) The U.S. Treasury

Q: The National Bank Act of 1863, and subsequent amendments to it, A) created a banking system of state-chartered banks. B) established the Office of the Comptroller of the Currency. C) broadened the regulatory powers of the Federal Reserve. D) created insurance on deposit accounts.

Q: Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in business by A) issuing credit cards. B) ignoring the regulations. C) acquiring funds through deposits. D) branching into other states.

Q: Prior to 1863, all commercial banks in the United States A) were chartered by the U.S. Treasury Department. B) were chartered by the banking commission of the state in which they operated. C) were regulated by the Federal Reserve. D) were regulated by the central bank.

Q: Before 1863, A) federally-chartered banks had regulatory advantages not granted to state-chartered banks. B) the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War. C) banks acquired funds by issuing bank notes. D) banks were required to maintain 100% of their deposits as reserves.

Q: The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of A) the National Bank Charter Amendments of 1918. B) the Garn-St. Germain Act of 1982. C) the National Bank Act of 1863. D) Federal Reserve Act of 1913.

Q: To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________. A) National Bank Act of 1863; Office of the Comptroller of the Currency B) Federal Reserve Act of 1863; Office of the Comptroller of the Currency C) National Bank Act of 1863; Office of Thrift Supervision D) Federal Reserve Act of 1863; Office of Thrift Supervision

Q: Currency circulated by banks that could be redeemed for gold was called A) junk bonds. B) banknotes. C) gold bills. D) state money.

Q: The Second Bank of the United States was denied a new charter by A) President Andrew Jackson. B) Vice President John Calhoun. C) President Benjamin Harrison. D) President John Q. Adams.

Q: 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 A) Bank of United States in 1812. B) Bank of North America in 1814. C) Second Bank of the United States in 1816. D) Second Bank of North America in 1815.

Q: The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the A) central bank. B) commercial bank. C) bank of settlement. D) monetary fund.

Q: A major controversy involving the banking industry in its early years was A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. B) whether the federal government or the states should charter banks. C) what percent of deposits banks should hold as fractional reserves. D) whether banks should be allowed to issue their own bank notes.

Q: The modern commercial banking system began in America when the A) Bank of United States was chartered in New York in 1801. B) Bank of North America was chartered in Philadelphia in 1782. C) Bank of United States was chartered in Philadelphia in 1801. D) Bank of North America was chartered in New York in 1782.

Q: Economics of Money, Banking, and Fin. Markets, 10e (Mishkin) 12.1 Historical Development of the Banking System

Q: Discuss three ways in which U.S. banks can become involved in international banking.

Q: Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks in the U.S. has been A) reduced. B) mildly expanded. C) completely eliminated. D) greatly expanded.

Q: Foreign banks may engage in banking activities in the United States by opening all of the following except A) an agency office of the foreign bank. B) a subsidiary U.S. bank. C) a branch of the foreign bank. D) a McFadden Corporation.

Q: If a foreign bank operates a subsidiary bank in the U.S., the subsidiary bank is A) subject to the same regulations as a U.S. owned bank. B) only subject to the regulations of the country in which the foreign bank is chartered. C) restricted to making loans to only foreign citizens in the U.S. D) restricted to accepting deposits from foreign citizens living in the U.S.

Q: ________ of a foreign bank operates in the U.S. but cannot accept deposits from domestic residents. A) An agency office B) A universal corporation C) A McFadden corporation D) A Basel branch

Q: ________ within the U.S. can make loans to foreigners but cannot make loans to domestic residents. A) Edge Act corporations B) International Banking Facilities C) Universal banks D) Euro banks

Q: A ________ is a subsidiary of a U.S. bank that is engaged primarily in international banking. A) Edge Act corporation B) Eurodollar agency C) universal bank D) McFadden corporation

Q: U.S. banks have most of their branches in A) Latin America, the Far East, the Caribbean, and London. B) Latin America, the Middle East, the Caribbean, and London. C) Mexico, the Middle East, the Caribbean, and London. D) South America, the Middle East, the Caribbean, and Canada.

Q: An advantage to American banks from operating foreign branches is that Eurodollar deposits in offshore branches are A) not subject to reserve requirements. B) insured by the FDIC. C) subject to extensive regulatory supervision. D) all demand deposits that pay no interest.

Q: Reasons for holding Eurodollars include A) the fact that Eurodollar deposits are insured by the FDIC. B) the fact that dollars are widely used to conduct international transactions. C) the fact that minimum transaction sizes are very low, making Eurodollars an attractive savings instrument for consumers. D) the fact that Eurodollar deposits are heavily regulated.

Q: Eurodollars are A) dollar-dominated deposits held in banks outside the United States. B) deposits held by U.S. banks in Europe. C) deposits held by U.S. banks in foreign countries. D) dollar-dominated deposits held in U.S. banks by Europeans.

Q: The main center of the Eurodollar market is A) London. B) Basel. C) Paris. D) New York.

Q: Deposits in European banks denominated in dollars for the purpose of international transactions are known as A) Eurodollars. B) European Currency Units. C) European Monetary Units. D) International Monetary Units.

Q: What country is given credit for the birth of the Eurodollar market? A) The United States B) England C) The Soviet Union D) Japan

Q: The spectacular growth in international banking can be explained by A) the rapid growth in international trade. B) the 1988 Basel Agreement. C) the desire for U.S. banks to escape burdensome domestic regulations. D) the creation of the World Trade Organization.

Q: ________ are the only depository institutions that are tax-exempt. A) Commercial banks B) Savings and loans C) Mutual savings banks D) Credit unions

Q: An essential characteristic of credit unions is that A) they are typically large. B) branching across state lines is prohibited. C) their lending is primarily for mortgage loans. D) they are organized for individuals with a common bond.

Q: Mutual savings banks are owned by A) shareholders. B) partners. C) depositors. D) foreign investors.

Q: The FHLBS gives loans to S&Ls and thus performs a function similar to the ________ for commercial banks. A) Federal Reserve B) U.S. Treasury C) Office of the Comptroller of the Currency D) U.S. Mint

Q: Thrift institutions include A) commercial banks. B) brokerage firms C) insurance companies. D) mutual savings banks.

Q: Unlike banks, ________ have been allowed to branch statewide since 1980. A) federally-chartered S&Ls B) state-chartered S&Ls C) financially troubled S&Ls D) technically insolvent S&Ls

Q: The regulatory agency responsible for supervising savings and loans institutions is the A) FSLIC. B) Fed. C) Comptroller of the Currency. D) Office of Thrift Supervision.

Q: Like the dual banking system for commercial banks, thrifts can have either ________ or ________ charters. A) state; federal B) state; local C) local; federal D) municipal; federal

Q: A major difference between the United States and Japanese banking systems is that A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding companies are illegal in the United States. D) Japanese banks are usually organized as bank holding companies.

Q: 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. A) universal B) British-style universal C) short-fence D) compartmentalized

Q: In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity. A) universal B) severable C) barrier-free D) dividerless

Q: 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 A) the Federal Reserve. B) the FDIC. C) the state banking authorities. D) the Treasury.

Q: Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank holding companies belongs to A) the SEC. B) the Comptroller of the Currency. C) the U.S. Treasury. D) the Federal Reserve.

Q: Under the Gramm-Leach-Bliley Act states retain regulatory authority over A) bank holding companies. B) securities activities. C) insurance activities. D) bank subsidiaries engaged in securities underwriting.

Q: The legislation overturning the Glass-Steagall Act is A) the McFadden Act. B) the Gramm-Leach-Bliley Act. C) the Garn-St. Germain Act D) the Riegle-Neal Act.

Q: As the banking system in the United States evolves, it is expected that A) the number and importance of small banks will increase. B) the number and importance of large banks will decrease. C) small banks will grow at the expense of large banks. D) the number and importance of large banks will increase.

Q: Nationwide banking might reduce bank failures due to A) reduced competition. B) reduced lending to small businesses. C) diversification of loan portfolios across state lines. D) elimination of community banks.

Q: One of the concerns of increased bank consolidation is the reduction in community banks which could result in A) less lending to small businesses. B) loss of cultural identity. C) higher interest rates. D) more bank regulation.

Q: Critics of nationwide banking fear A) an elimination of community banks. B) increased lending to small businesses. C) cutthroat competition. D) banks with economies of scale problems.

Q: Bank consolidation will likely result in A) less competition. B) the elimination of community banks. C) increased competition. D) a shift in assets from larger banks to smaller banks.

Q: Experts predict that the future structure of the U.S. banking industry will have A) an increased number of banks. B) as few as ten banks. C) several thousand banks. D) a few hundred banks.

Q: Although it has a population about half that of the United States, Japan has A) many more banks. B) about 25 percent of the number of banks. C) more than 5000 commercial banks. D) fewer than 100 commercial banks.

Q: The legislation that overturned the prohibition on interstate banking is A) the McFadden Act. B) the Gramm-Leach-Bliley Act. C) the Glass-Steagall Act D) the Riegle-Neal Act

Q: The business term for economies of scope is A) economies of scale. B) diversification. C) cooperation. D) synergies.

Q: The ability to use one resource to provide different products and services is A) economies of scale. B) economies of scope. C) diversification. D) vertical integration.

Q: 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 A) the dual banking system. B) economies of scale. C) disintermediation. D) interest-rate irregularities.