Q&A Hero

Q: In the absence of a national banking system, state banks grew in number and influence in the early years of the United States. a. True b. False

Q: The first Bank of the United States was a government institution. a. True b. False

Q: There was no form of paper currency in colonial America. a. True b. False

Q: A check is an example of bank currency. a. True b. False

Q: Money is a medium of exchange for people to use to trade things of value. a. True b. False

Q: What are three primary differences between a credit union and a commercial bank?

Q: Are a banks liabilities more liquid or less liquid than its assets? Explain.

Q: Explain how a banks sound business practices safeguard depositors money.

Q: Describe the effects of mergers on the banking industry.

Q: What is a currency exchange?

Q: Why are bank deposits not considered a form of bank income?

Q: The ability to transfer sums of money between financial institutions safely and effectively depends on what two factors?

Q: What activities are involved in a banks enforcement function?

Q: Briefly explain why retail banks developed in the United States.

Q: What does the term medium of exchange ​mean?

Q: Goliath Bank has net income of $20,000 and total equity of $80,000. Find the return on equity.

Q: Assume that a bank receives a $10,000 deposit from a customer and lends it to another customer to buy a used car. The bank pays a straight 6% per year interest to the customer. The spread for one year is $300. What is the interest rate the bank is charging for the loan?

Q: Reginas bank charges $1 for each ATM transaction, 50 cents for each online bill payment, and a $10 monthly maintenance fee for her checking account. Last month, Regina used an ATM five times and paid seven bills online. What did she incur in banking fees for the month?

Q: Last year, profits for Fidelity Bank totaled $1.1 million; spread was $5.6 million. Find the banks costs for the year.

Q: This month costs for SafeCo Bank were $750,000; the bank collected $970,000 in revenue. Find the banks profit for the month.

Q: Last year, First National Bank of Springfield paid $5.1 million in interest to depositors; it collected $7.8 million in interest from loans. Calculate the spread.

Q: Profit, or net ____________________, is what is left of revenue after expenses are deducted.

Q: A commercial bank that specializes only in business banking is sometimes called a(n) ____________________ bank.

Q: A(n) ____________________ intermediary is a financial institution that obtains funds from the public and uses them to finance its business.

Q: A(n) ____________________ is a cash obligation.

Q: A(n) ____________________ asset is anything that can readily be exchanged.

Q: Revenue minus ____________________ equals profit.

Q: People who put money into banks are called ____________________.

Q: A bank evaluates the ____________________ of all customers who apply for loans.

Q: A(n) ____________________ occurs when one or more banks join or acquire another bank or banks.

Q: A(n) ____________________ bank serves as the governments banker.

Q: A bank is a financial ____________________ for the safeguarding, transferring, exchanging, or lending of money.

Q: Total assets minus total liabilities equals a. return on equity. b. return on assets. c. equity. d. loss.

Q: One big difference between a commercial bank and a mutual savings bank is that a. a commercial bank is a nondepository intermediary. b. a mutual savings bank is a not-for-profit organization. c. a commercial bank is owned by depositors, not stockholders. d. a mutual savings bank is owned by depositors, not stockholders.

Q: Which of the following is a nondepository intermediary? a. commercial bank b. insurance company c. savings and loan association d. credit union

Q: Which of the following is considered a liability for a bank? a. loans b. investments c. deposits d. none of the above; banks are prohibited by law from carrying liabilities

Q: Which of the following is NOT a source of income for a bank? a. the interest earned by depositors b. investments c. loan income d. fees for services

Q: The difference between what a bank pays in interest and what it receives in interest is called a. profit. b. spread. c. gross interest income. d. loss.

Q: In the United States, banks and ____________________ work together to form the banking system and to ensure the money supply is adequate, appropriate, and trustworthy. a. consumers b. industry c. savings and loans d. the government

Q: Banks move money between a. other banks. b. banks and individual customers. c. governments. d. all of the above.

Q: One result of competition among banks is that a. more services are available to consumers. b. more banks exist now than a decade ago. c. the trend toward mergers in the banking industry has slowed. d. all of the above.

Q: Banks that manage, regulate, and protect both the money supply and other banks are a. retail banks. b. central banks. c. commercial banks. d. credit unions.

Q: Which of the following statements about banks is NOT true? a. Banks distribute the medium of exchange. b. All banks are organized as corporations. c. Banks may be chartered by either federal or state governments. d. Banks are essential to maintaining the economy.

Q: Return on equity is the ratio of net income to total assets. a. True b. False

Q: A loan company is not a financial intermediary because it does not receive deposits. a. True b. False

Q: A credit union is a not-for-profit organization. a. True b. False

Q: Interest on home-equity loans often is tax-deductible for consumers. a. True b. False

Q: Generally speaking, banks offer customers fewer services today than they did 20 years ago. a. True b. False

Q: It is illegal for banks to charge higher interest rates for loans than they pay depositors. a. True b. False

Q: Issuing credit cards is a form of bank lending. a. True b. False

Q: Record keeping is an important part of securing your money in a bank. a. True b. False

Q: Commercial banks offer their services only to businesses. a. True b. False

Q: All federally chartered banks must be corporations. a. True b. False

Q: A bank is a not-for-profit organization. a. True b. False

Q: True or false: In the trade balance approach, if people anticipate a country to experience trade deficit in the near future, the expectations will cause the countrys currency to appreciate now.

Q: True or false: Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

Q: True or false: News approach describes how the equilibrium exchange rate can be achieved when government controls news about market fundamentals, profitability, and riskiness of investments.

Q: True or false: The portfolio-balance approach of exchange rate determination assumes that households can choose to hold their wealth in money, domestic bonds, and foreign bonds.

Q: True or false: Exchange rate overshooting occurs because product prices are slow to change while asset prices adjust immediately.

Q: Perfect capital mobility between countries implies that: a. the covered interest parity holds b. the interest rate on domestic bonds equals to the interest rate on similar foreign bond plus the forward premium on foreign exchange. c. The actual portfolio composition adjusts instantaneously to desired portfolio composition. d. All of the above are correct.

Q: Following a shock to the equilibrium, prices will adjust slowly to the new equilibrium level, whereas exchange rates and interest rates adjust quickly. This causes the spot exchange rate to move too much before returning to the equilibrium level. This idea is called _______. a. hyper-exchange rate effect b. panic effect c. overshooting effect d. imperfect equilibrium effect

Q: The overshooting theory by Dornbusch is based on the assumption that: a. covered interest parity does not hold in the short run. b. uncovered interest parity does not hold in the short run. c. fisher equation does not hold in the short run. d. purchasing power parity does not hold in the short run.

Q: Assume that in a free country, people in the country can choose to hold assets in any currency. As the domestic inflation rise, the opportunity cost of holding the domestic currency _________ and people will switch to hold assets in _________ currency. a. increases; foreign b. increases; domestic c. decreases; foreign d. decreases; domestic

Q: People in the Bahamas use both Bahamian dollars and U.S. dollars to pay for goods and services. Suppose that the Fed increases money supply, causing higher inflation rate in the U.S. If the exchange rate were allowed to float, the U.S. dollar will ________ against the Bahamian dollar and Bahamians will substitute toward more __________ holding. a. appreciate; Bahamian dollars b. appreciate; U.S. dollars c. depreciate; Bahamian dollars d. depreciate; U.S. dollars

Q: Exchange rates appear to be more volatile than the monetary approach would predict, because: a. the monetary approach holds better in the short run than in the long run. b. prices of goods and services adjust instantaneously, while prices of assets are sluggish. c. prices of goods and services are sluggish to adjust, while prices of assets adjust instantaneously. d. the monetary approach is based on many unrealistic assumptions so that it fails to predict exchange rates in both short run and long run.

Q: Which of the following statements describes the Currency Substitution Approach? a. As expectations of a trade deficit change, the exchange rate today will change due to the expected change in asset holdings. b. Exchange rate adjusts to compensate for changes in international currency portfolios. c. Slowly adjusting goods prices may cause the exchange rate to over-react in the short run. d. All of the above are correct.

Q: The exchange rate can overshoot its long-run value because the ________ are sluggish in the short run, whereas the __________ adjust instantaneously to a shock. a. prices in goods and services markets; prices in assets markets b. foreign exchange markets; prices in assets markets c. prices in assets markets; prices in goods and services markets d. prices in bond markets; money balance markets

Q: Which of the following options correctly reflect the assumptions in the Overshooting Approach? a. both PPP and CIRP hold in the short run. b. PPP holds in the short run, but CIRP does not. c. CIRP holds in the short run, but PPP does not. d. Neither PPP nor CIRP holds in the short run.

Q: When citizens anticipate a country to experience trade deficits in the near future, the domestic currency would: a. Appreciate immediately b. Appreciate only in the future c. Depreciate immediately d. Depreciate only in the future

Q: Use the Portfolio-Balance Approach to answer this question. Other things remaining constant, if the supply of domestic bonds increases, what would happen to the domestic currency? a. The domestic currency would appreciate. b. The domestic currency would depreciate. c. The domestic currency would not change. d. The domestic currency would sharply depreciate and then appreciate later.

Q: Use the Portfolio-Balance Approach to answer this question. Other things remaining constant, if the supply of foreign bonds increases, what would happen to the domestic currency? a. The domestic currency would appreciate. b. The domestic currency would depreciate. c. The domestic currency would not change. d. The domestic currency would sharply depreciate and then appreciate later.

Q: The Portfolio-Balance Approach assumes: a. imperfect capital mobility b. perfectly elastic demand for foreign bonds c. interest rate equalization across countries d. imperfect substitution between domestic and foreign bonds

Q: Which of the following is NOT a factor that causes substantial exchange rate volatility? a. Unexpected news b. Changes in expectations about future trade flows c. Instantaneous adjustments by goods and services prices to shocks. d. Instantaneous reactions by financial assets markets to shocks

Q: Since news is unexpected and catches people off-guard, a. it is easy to forecast the future exchange rate. b. it causes exchange rates to fluctuate substantially. c. it causes prices of goods and services to vary more than exchange rates. d. it has no effect on exchange rates.

Q: When a high degree of currency substitution exists, to prevent currencies from becoming too variable, countries need international coordination of monetary policy.

Q: The Theory of Exchange Rate Overshooting explains high exchange rate volatility by assuming that CIRP does not hold in the short run, but PPP does.

Q: In the equilibrium approach, changes in exchange rates occur because of changes in tastes or technology and are part of the adjustment to a shock to the world economy.

Q: With imperfect substitutability, investors will hold more foreign assets only if they are compensated for risks.

Q: In general, the basic Monetary Approach to Exchange Rate (MAER) does not capture the short run volatility of prices.

Q: The Theory of Exchange Rate Overshooting explains high exchange rate volatility by assuming that ________ does not hold in the ________, but ________ does. a. PPP, short run, CIRP b. CIRP, short run, PPP c. PPP, long run, CIRP d. CIRP, long run, PPP