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Banking
Q:
All of the following were took place during the German hyperinflation in the 1920s EXCEPT
A) banks reduced lending.
B) some banks only made loans to customers who agreed to repay in terms of foreign currencies or commodities.
C) Deutsche Bank had to lay off many workers due to lack of business.
D) households and firms increased their demand for loans.
Q:
Why do you think most health insurance policies require the first $100 or so of every claim and a percentage of the bill after that to be paid by the insured?
Q:
Research has shown that nations with highly independent central banks tend to have low
A) inflation.
B) interest rates.
C) economic growth.
D) unemployment.
Q:
A very controversial issue in many states currently is whether or not insurance companies should be allowed to use a person's credit history as a tool in determining the individual's automobile and homeowner insurance premium. Without getting into the legal or ethical issues, what do you think the insurance companies' motives might be for wanting to use the credit report?
Q:
Which country experiencing hyperinflation in excess of 15 billion percent in 2008?
A) Argentina
B) Canada
C) Iceland
D) Zimbabwe
Q:
Within the insurance industry a common saying is that insurance works because of the "law of large numbers". What do you think is meant by this?
Q:
In July 2010, what was the total value of U.S. currency in circulation?
A) $500 million
B) $150 billion
C) $1080 billion
D) $6 trillion
Q:
Many insurance companies sell group policies that cover all of the employees at a particular firm, or all of the members of a particular organization. How could this policy help to overcome the problem of adverse selection?
Q:
The Fed's current position towards the existing monetary aggregates is
A) it is convinced that M1 is the best measure of the money supply.
B) it is convinced that M2 is the best measure of the money supply.
C) it is an issue of ongoing research.
D) it is reverting to considering currency alone as the best measure of the money supply.
Q:
Which insurance companies, life or property and casualty, would you think would invest more in long-term assets? Explain.
Q:
Which of the following makes up the largest share of M2?
A) M1
B) savings deposits
C) small time deposits
D) money market mutual fund shares
Q:
What is the basic difference(s) between term and whole life insurance?
Q:
Money market deposit accounts are included in
A) only M1.
B) only M2.
C) M1 and M2.
D) neither M1 nor M2.
Q:
There are two current trends in the financial industry which run in opposite directions. What are they?
Q:
Which of the following is included in M1, but not in M2?
A) currency
B) checking account deposits
C) travelers checks
D) Everything in M1 is in M2.
Q:
The growth of internet banking seems to be on the rise. Discuss what the continued growth of internet banking should do to both the economies of scale and scope of banking.
Q:
Which of the following statements is true about M2?
A) Its total value is smaller than that of M1.
B) Apart from those assets also included in M1, it includes no assets that offer check-writing features.
C) Its total value is about five times as large as M1.
D) It includes large-denomination time deposits.
Q:
Owners and managers have cited three reasons for the creation of large financial firms or universal banks. What are these reasons?
Q:
Which of the following is NOT included in M2?
A) currency
B) savings bonds
C) money market deposit accounts
D) overnight repurchase agreements
Q:
Explain why a domestic bank in the U.S. might create a subsidiary bank in a foreign location like the Cayman Islands.
Q:
The M2 aggregate
A) includes M1 plus short-term investment accounts.
B) includes M1 plus large-denomination time deposits.
C) equals currency plus checking account deposits at commercial banks.
D) is the best definition of money purely as a medium of exchange.
Q:
The Riegle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to diversify themselves geographically. Has this geographical expansion resulted in the harm to consumers that early supporters of anti-branching laws feared? Explain.
Q:
As of October 2012, the amount of money as measured by M2 was about
A) $880 billion.
B) $1700 billion.
C) $10.2 trillion.
D) $14 trillion.
Q:
The number of banks in the U.S. has fallen almost by half in the past twenty years or so. Was this the result of bank failures or were some due to another cause? Explain.
Q:
Why does the payments system continue to change over time?
Q:
It has been argued that regulations can often be the source of innovation. Provide an example of this in the banking industry.
Q:
Which of the following statements about ACH transactions is false?
A) They reduce the likelihood of missed payments.
B) They reduce transactions costs associated with check processing.
C) They reduce the costs that lenders incur in notifying customers of missed payments.
D) They typically involve digital cash.
Q:
Explain why anti-branching laws often created credit crunches that slowed economic growth.
Q:
All of the following are characteristics of debit cards EXCEPT:A) payments are deferred until a later dateB) they can be used like checksC) they eliminate the problem of trust since the bank's computer authorizes the transactionD) when used at a store, his bank instantly credits the store's account with the amount and deducts it from his account.
Q:
It has been argued that the laws that prohibited branch banking were needed to protect consumers from large monopoly banks. Does that argument hold up to close scrutiny? Explain.
Q:
What do many economists blame for the severity of the Great Depression?
A) The collapse of the banking system.
B) A rapid increase in the money supply.
C) The issuing of an excessively large amount of currency by the Federal Reserve.
D) The collapse of the electronic funds transfer system.
Q:
Fannie Mae, Ginnie Mae, and Freddie Mac are examples of: A. private regulatory bodies that supervise home mortgage lenders.B. government-sponsored enterprises chartered to encourage home lending.C. government-sponsored enterprises that were chartered to encourage small business loans.D. government-sponsored enterprises that provide homeowners insurance to people that cannot obtain it from private insurers.
Q:
All of the following are examples of electronic funds EXCEPT
A) credit cards.
B) debit cards.
C) stored value cards.
D) e-cash.
Q:
Congress chartered Sallie Mae to make loans to: A. homeowners.B. customers of securities brokers.C. small business owners.D. students.
Q:
Automatic teller machines and debit cards are examples of
A) electronic funds transfer systems.
B) commodity monies.
C) legal tender in the United States.
D) modern barter systems.
Q:
The main difference between sales finance and consumer finance is: A. the type of borrower.B. the size of the purchase involved.C. the length of time until the loan has to be repaid.D. one deals with equipment leasing and the other does not.
Q:
The use of checks in transactions
A) entails lower information costs than the use of currency.
B) entails fewer steps than settling transactions with currency.
C) avoids the cost of transporting currency back and forth.
D) entails lower information and fewer steps than settling transactions with currency.
Q:
A business needs a loan to help keep its shelves stocked. This is an example of: A. an inventory loan.B. sales finance.C. equipment leasing.D. consumer finance.
Q:
Which of the following is NOT a step involved in using checks?
A) The recipient must take the check to the bank.
B) The bank must present the check to the checkwriter's bank.
C) The funds must be transferred from the checkwriter's bank to the recipient's bank.
D) The funds must be transferred from the recipient's bank to the checkwriter's bank.
Q:
Most finance companies specialize in one of three loan types. Which of the following is not one of those three types? A. Consumer loans for purchases such as appliancesB. Margin loans for buying stockC. Sales loans for purchases such as carsD. Business loans for firms to use to buy new equipment
Q:
Checks are
A) not acceptable for settling transactions in most industrialized countries.
B) less important than currency as a means of settling transactions.
C) promises to pay on demand money deposited with a financial institution.
D) promises to pay coins minted from precious metals on demand.
Q:
Accounts receivable loans provided by finance companies provide firms with: A. start-up capital.B. the ability to turn a liability into an asset.C. the ability to turn a relatively illiquid asset into liquidity.D. inventory loans.
Q:
Which of the following is an example of fiat money?
A) a cowry shell used as money on a South Pacific island
B) a gold coin used as money in nineteenth century England
C) a Federal Reserve Note used as money in the twenty-first century United States
D) a pound of salt used as money in medieval France
Q:
Finance companies perform all of the following functions, except: A. issue commercial paper and securities.B. take deposits.C. make loans.D. lease equipment to firms.
Q:
All of the following are problems associated with commodity money EXCEPT
A) it is a cumbersome form of payments system.
B) commodities tend to have little value in and of themselves.
C) its value is dependent on its purity.
D) costs are incurred in certifying the purity and weight of commodity money.
Q:
Which of the following is not true about the information and advice investment bankers provide to clients? A. It is public information that the bank compiles and makes available to anyone.B. It is highly valued if the fees paid for it are any indication of its value.C. It is often used to identify possible acquisition and merger candidates.D. It helps improve the allocation of resources across the economy.
Q:
Which of the following is an example of a commodity money?
A) gold coins
B) dollar bills
C) British pound notes
D) Japanese yen notes
Q:
The main risk that investment banks face from their underwriting services is: A. the client will not pay for the service.B. the company issuing the securities will go bankrupt.C. the price investors pay for the security is less than the guaranteed price to the issuing firm.D. the price paid by investors exceeds the guaranteed price to the issuing firm.
Q:
The payments system is
A) the mechanism for conducting economic transactions.
B) another name for the system of foreign exchange rates.
C) the phrase used to describe how transactions are carried out in an economy that does not use money.
D) the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union.
Q:
The practice of "placing the issue" is conducted by: A. the underwriting services of investment banks.B. mutual fund companies.C. brokerage firms.D. commercial banks.
Q:
How does the existence of money affect economic growth?
Q:
The category of financial intermediaries called securities firms includes each of the following, except: A. mutual funds.B. brokerages.C. investment banks.D. credit unions.
Q:
Money can BEST be described as:
A) anything that is generally accepted as payment for goods and services or in the settlement of debts.
B) paper that can be used to purchase goods and services
C) commodities that have intrinsic value
D) any form of wealth possessed by consumers
Q:
The gap between LIBOR and the expected Federal Reserve policy interest rate provides a key measure of which of the following: A. the direction of movement of the Euro relative to the U.S. dollar on the foreign exchange market.B. the persistence and intensity of the liquidity crisis.C. the expected length of a coming global recession.D. the movement of the U.S. stock market.
Q:
The introduction of money to an economy results in:
A) higher incomes
B) higher productivity
C) increased specialization
D) a more efficient barter system
Q:
The interest rate at which banks lend each other Eurodollars is known as: A. the international federal funds rate.B. the London Interbank Offered Rate.C. the discount rate.D. the International Prime Rate.
Q:
Which of the following is NOT a problem with barter?
A) each good has multiple prices
B) high transactions costs
C) the commodity money having value for other uses besides money
D) lack of standardization of products exchanged
Q:
Often Eurodollar deposits earn higher returns than U.S. bank deposits for all of the following reasons except: A. Eurodollar deposits are not subject to U.S. reserve requirements.B. the bank does not have to pay deposit insurance premiums on these deposits.C. regulatory compliance may be more costly for a foreign bank than a U.S. bank.D. taxes on the profits on banks outside the U.S. may be lower on banks inside the U.S.
Q:
Commodity money can best be described as
A) money used to purchase agricultural products
B) a good used as money that also has value independent of its use as money
C) standardized goods like gold that trade in a financial market
D) the form of money used in a barter system
Q:
Eurodollars are: A. the currency of the European Economic Union.B. euro-denominated deposits in U.S. Banks.C. dollar-denominated deposits in banks outside the United States.D. dollars that are specially printed for use abroad to minimize counterfeiting.
Q:
Using a good as a medium of exchange confers the benefit that
A) the need to quote so many prices in trade is reduced.
B) the need for a double coincidence of wants is greatly increased.
C) the need for specialization is reduced.
D) transactions costs are increased, but they now may be paid in money terms.
Q:
The growth of international banking has: A. decreased the competition that domestic banks face.B. decreased the efficiency of most banks.C. enhanced economic growth in many countries.D. increased the monopoly power of most banks.
Q:
Money eliminates the need for
A) any government role in the economy.
B) specialization.
C) people to have a double coincidence of wants.
D) the market system.
Q:
An Edge Act Corporation is: A. a company created so a U.S. bank can operate in more than one state.B. a subsidiary of a bank created to provide insurance and securities services.C. a company created by a non-bank corporation used to purchase and operate banks.D. a subsidiary of a domestic bank that is established specifically to engage in international banking transactions.
Q:
In Moscow in 1989, what were taxi drivers using as a medium of exchange?
A) Russian rubles
B) Marlboro cigarettes
C) gold coins
D) caviar
Q:
The Gramm-Leach-Bliley Act: A. repealed the Riegle-Neal Interstate Banking and Branching Efficiency Act.B. repealed the Glass-Steagall Act's prohibition of mergers between commercial banks and insurance or securities firms.C. repealed the McFadden Act's restriction on bank branching.D. reinforced the Glass-Steagall Act's limitation on commercial banks' availability to merge with insurance or securities firms by increasing the penalties for doing so.
Q:
Which of the following is the most efficient means of trade?
A) barter
B) money
C) government rationing
D) the combination of barter with some government rationing
Q:
One result of the Riegle-Neal Interstate Banking and Branching Efficiency Act was that: A. banking system efficiency decreased.B. banks became less geographically diversified.C. banking system efficiency increased.D. banks became less geographically diversified and banking system efficiency decreased.
Q:
Which of the following is NOT a significant cost that a barter system imposes on an economy?
A) Many prices must be maintained for each good.
B) Only agricultural goods may be traded.
C) Specialization of labor is hindered.
D) The costs arising from the problem of finding two people who each want what the other produces.
Q:
The sharp reduction in the number of banks that has occurred since the mid-1990s has been due primarily to: A. bank failures from increased competition.B. bank mergers.C. the closing of banks by federal regulators.D. the revoking of state bank charters.
Q:
Andy can't make a deal with Danny. Andy has a Alex Rodriguez baseball card and would like to trade it to Danny for Danny's Albert Pujols card, but Danny doesn't want a Alex Rodriquez card. Andy's problem illustrates the drawback to a barter system known as
A) the specialization problem.
B) the double coincidence of wants problem.
C) the many prices problem.
D) the transactions problem.
Q:
One of the results of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was: A. a reversal of the branching restrictions of the McFadden Act.B. an increase in the number of banks in the U.S.C. a decrease in the average size of banks.D. a decrease in commercial banks but an increase in the number of savings and loans and savings banks.
Q:
The problem of a double coincidence of wants refers to
A) the insatiability of wants in a free market economy.
B) poorly-managed companies producing what consumers want only by coincidence.
C) the necessity in a barter system of each trading partner wanting what the other has to trade.
D) the likelihood that needs will not be the same as wants.
Q:
As a result of technology, many small businesses today: A. are located closer to their bank.B. are located further from their bank.C. have more face-to-face interactions with their banker.D. no longer need banks.
Q:
How many prices would there be in a barter economy with 100 goods?
A) 100
B) 1,000
C) 4,950
D) 10,000
Q:
The Federal Deposit Insurance Corporation (FDIC) was created: A. in 1933 as a part of the Glass-Steagall Act.B. when the Federal Reserve was created in 1914.C. prior to the stock market crash of 1929.D. in 1927 as a part of the McFadden Act.
Q:
Under a barter system
A) each good has many prices.
B) each good has a single price.
C) no prices for goods exist.
D) prices for goods are very stable.
Q:
The bank failures that occurred during the early years of the Great Depression: A. hurt large depositors the most since it was the large money center banks that failed.B. hurt small depositors the most since it was mainly small banks that failed.C. hurt the government insurance funds since FDIC covered most of the losses of depositors.D. totaled about 30% of total bank customer deposits.
Q:
A system of barter has substantial transactions costs because
A) taxes under such a system are generally a large fraction of the value of output.
B) traders must spend considerable time searching for trading partners.
C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts.
D) the uncertainties of trade result in high insurance premiums.
Q:
In the early years of the Great Depression, 1929-1933: A. over one half of all U.S. banks failed.B. two-thirds of U.S. banks failed.C. more than a third of all U.S. banks failed.D. a little less than one-quarter of U.S. banks failed.