CH 12 M/C -- FIN 475

100. The dominant holder of bank deposits in the U.S.: A. is the private sector. B. are state and local governments. C. are foreign governments. D. are foreign banks. E. None of the options is correct.

A

101. A checking account price schedule characterized by absence of any monthly account maintenance fee or per-transaction fee is called: A. free pricing. B. conditionally free pricing. C. flat-rate pricing. D. marginal cost pricing. E. nonprice competition.

A

107. From an analysis on its deposits, a bank determines that account processing and other operating expenses cost the bank $4.15 per month. It has also determined that non-operating expenses on its deposits are $1.65 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should the bank charge on its deposit accounts? A. $6.38 per month B. $5.80 per month C. $4.57 per month D. $4.15 per month E. None of the options is correct

A

109. A bank has $100 million in checking deposits with interest and non-interest costs of 8%, $600 million in savings and time deposits with interest and non-interest costs of 12%, and $100 million in equity capital with a cost of 26%. The bank has estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 20% and on savings and time deposits by 5%. What is the bank's before-tax cost of funds? A. 13.44% B. 13.25% C. 15.33% D. 19.17% E. None of the options is correct

A

113. Under the Truth in Savings Act, a bank must inform its customers of the terms being quoted on their deposits. Which of the following is not one of the terms listed? A. Interest rate information B. Balance computation method C. Early withdrawal penalty D. Transaction limitations E. Minimum balance requirements

A

119. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $100 million in new money if it pays a deposit rate of 8%, and $120 in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9.5% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank raises their deposit rate from 8 to 8.5%? A. 11% B. 8.75% C. 7.75% D. 7% E. 0.5%

A

121. _____________________ permits a customer to preauthorize a depository institution to move funds from a savings account to a transaction account in order to cover overdrafts. A. Automatic transfers (ATS) B. Sweep account C. NOW account D. SNOW account E. MMDA

A

123. Recently, time deposits have been issued with interest rates adjusted periodically (such as every 90 days). This time period is known as: A. roll period. B. maintenance period. C. computation period. D. maturity period. E. reserve period.

A

128. The degree of risk exposure, based on which the amount of insurance premiums paid by each FDIC-insured depository is determined, is an interplay of two factors—risk class to which the institution belongs to and: A. capital adequacy B. net non-performing assets C. gross non-performing assets D. percentage of total liabilities hedged E. open swap exposures

A

67. Interest payments on regular checking accounts were prohibited in the United States under terms of the: A. Glass-Steagall Act. B. McFadden-Pepper Act. C. National Bank Act. D. Garn-St. Germain Depository Institutions Act. E. None of the options is correct.

A

74. Some people feel that all individuals are entitled to some minimum level of financial services, no matter what their income level is. This issue is often called: A. lifeline banking. B. preference banking. C. nondiscriminatory banking. D. lifeboat banking. E. None of the options is correct.

A

81. According to recent studies cited in this chapter, in choosing a bank to hold their savings deposits, which of the following factors do household customers rank first? A. Familiarity B. Interest rate paid C. Transactional convenience D. Location E. Fees charged

A

85. From an analysis on its deposits, a bank determines that account processing and other operating expenses cost the bank $4.45 per month. The bank has also determined that non-operating expenses on its deposits are $1.15 per month. It has also decided that it wants a profit of $0.45 on its deposits. What monthly fee should the bank charge on its deposit accounts? A. $6.05 B. $5.60 C. $5.15 D. $4.45 E. None of the options is correct

A

89. A bank quotes an APY of 8%. A small business that has an account with the bank had $2,500 in their account for half the year and $5,000 in their account for the other half of the year. How much in total interest earnings did the business make during the year? A. $300 B. $200 C. $400 D. $150 E. None of the options is correct

A

90. Conditional deposit pricing may involve all of the following factors except: A. the level of interest rates. B. the number of transactions passing through the account. C. the average balance in the account. D. the maturity of the account. E. All of the options are used.

A

93. A traditional savings account with transactions and balances evidenced by the entries recorded in a booklet kept by the customer is called: A. passbook savings account. B. statement savings plan. C. negotiable order of withdrawal. D. money market mutual fund. E. None of the options is correct.

A

95. A time deposit that has a denomination greater than $100,000 and is generally for wealthy individuals and corporations is known as a: A. negotiable CD. B. bump-up CD. C. step-up CD. D. liquid CD. E. None of the options is correct.

A

108. A bank has $200 million in checking deposits with interest and non-interest costs of 4%, $400 million in savings and time deposits with interest and non-interest costs of 8%, and $200 million in equity capital with a cost of 24%. The bank has estimated that reserve requirements, deposit insurance fees, and uncollected balances reduce the amount of money available on checking deposits by 10% and on savings and time deposits by 5%. What is the bank's before-tax cost of funds? A. 11.00% B. 11.26% C. 11.50% D. 12.00% E. None of the options is correct

B

111. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $80 million in new money if it pays a deposit rate of 8%, and $100 million in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9% on all money that it receives in new deposits. What deposit rate should the bank offer on its deposits, if it uses the marginal cost method of determining deposit rates? A. 7% B. 7.5% C. 8% D. 8.5% E. None of the options is correct

B

120. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $100 million in new money if it pays a deposit rate of 8%, and $120 in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9.5% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank raises their deposit rate from 7.5% to 8%? A. 11% B. 8.75% C. 7.75% D. 7% E. 0.5%

B

122. Offering institutions post lower yields on SNOWs than on MMDAs because: A. ratings on institutions issuing SNOWs are higher. B. SNOWs can be drafted more frequently by customers. C. federal regulatory authorities classify MMDAs as transaction deposits. D. MMDAs carry unlimited check-writing privileges. E. MMDAs have longer maturities than SNOWs.

B

125. According to the textbook, one of the reasons why large banks in the recent years have acquired many smaller banking firms is: A. to avoid stringent regulatory norms. B. to gain access to more stable and less expensive deposits. C. to increase their credit ratings. D. to increase their geographical presence. E. to diversify their customer base.

B

127. While demand deposits have about the same gross expenses per dollar of deposit as time deposits do, the _____________ levied against transaction account customers help to lower the net cost of checkable deposits. A. higher account opening fees B. higher service fees C. higher pre-closure fees D. lower interest rates E. less number of services

B

69. A stable and predictable base of deposited funds that is not highly sensitive to movements in market interest rates and tend to remain with the bank is called: A. TT&L deposits. B. core deposits. C. consumer CDs. D. correspondent deposits. E. None of the options is correct.

B

70. Negotiable Order of Withdrawal (NOW) accounts—interest-bearing savings accounts that can be used essentially the same as checking accounts—were authorized by: A. Glass-Steagall Act. B. Depository Institutions Deregulation and Monetary Control Act (DIDMCA). C. Bank Holding Company Act. D. Garn-St. Germain Depository Institutions Act. E. None of the options is correct.

B

73. __________ are often the most profitable deposit services for a bank. A. Time deposits B. Transaction deposits C. Thrift deposits D. Passbook savings deposits E. Certificates of deposits

B

75. The formula—operating expense per unit of deposit service plus estimated overhead expense plus planned profit from each deposit service unit sold—reflects which of the deposit pricing method listed below? A. Marginal cost pricing B. Cost plus pricing C. Conditional pricing D. Upscale target pricing E. None of the options is correct

B

77. The deposit pricing method that favors large-denomination deposits because services are free if the deposit account balance stays above some minimum figure is called: A. free pricing. B. conditionally free pricing. C. flat-rate pricing. D. upscale target pricing. E. marginal cost pricing.

B

79. Depository institutions selling deposits to the public in the United States must quote the rate of return pledged to the owner of the deposit, which reflects the customer's average daily balance kept in the deposit. This quoted rate of return is known as: A. annual percentage rate (APR). B. annual percentage yield (APY). C. daily deposit yield (DDY). D. daily average return (DAR). E. None of the options is correct.

B

82. According to recent studies cited in this chapter, in choosing a bank to supply their deposits and other services, which of the following factors do business firms rank first? A. Quality of financial advice given B. Financial health of lending institution C. Whether loans are competitively priced D. Whether cash management and operations services are provided E. Quality of bank officers

B

86. A customer makes a savings deposit for 45 days. During that time he earns $5 in interest and maintains an average daily balance of $1,000. What is the annual percentage yield on this savings account? A. 0.5% B. 4.13% C. 4.07% D. 4.5% E. None of the options is correct

B

88. If you deposit $1,000 into a certificate of deposit that quotes you a 5.5% APY, how much will you have at the end of 1 year? A. $1,050.00 B. $1,055.00 C. $1,550.00 D. $1,005.50 E. None of the options is correct.

B

92. A savings account evidenced only by a computer entry for which the customer gets a monthly printout is called: A. passbook savings account. B. statement savings deposits. C. negotiable order of withdrawal. D. money market mutual fund. E. None of the options is correct.

B

96. A time deposit that is non-negotiable but allows a depositor to switch to a higher interest rate if market interest rates rise is called a: A. negotiable CD. B. bump-up CD. C. step-up CD. D. liquid CD. E. None of the options is correct.

B

102. A checking account price schedule that charges a fixed charge per check, or per period, or both is called: A. free pricing. B. conditionally free pricing. C. flat-rate pricing. D. marginal cost pricing. E. nonprice competition.

C

105. A customer makes a savings deposit for 60 days. During that time he earns $11 in interest and maintains an average daily balance of $1,500. What is the annual percentage yield on this savings account? A. 0.73% B. 4.32% C. 4.54% D. 4.78% E. None of the options is correct

C

110. A bank has $500 million in checking deposits with interest and non-interest costs of 6%, $250 million in savings and time deposits with interest and non-interest costs of 14%, and $250 million in equity capital with a cost of 25%. The bank has estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount of money available on checking deposits by 15% and on savings and time deposits by 4%. What is the bank's before-tax cost of funds? A. 15.00% B. 12.75% C. 13.29% D. 15.74% E. None of the options is correct

C

112. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $80 million in new money if it pays a deposit rate of 8%, and $100 million in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank raises its deposit rate from 7 to 7.5%? A. 0.5% B. 7.5% C. 8.0% D. 9.5% E. 10.5%

C

118. A bank expects to raise $20 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $100 million in new money if it pays a deposit rate of 8%, and $120 in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9.5% on all money that it receives in new deposits. What deposit rate should the bank offer on its deposits, if it uses the marginal cost method of determining deposits rates? A. 7% B. 7.5% C. 8% D. 8.5% E. None of the options is correct

C

126. When the government collects taxes or sells Treasuries, it usually directs these funds into TT&L deposits first: A. as per the directions of the supreme court. B. to repay for the money borrowed earlier. C. to minimize the impact of operations on the financial system. D. to decrease the money supply in the economy. E. to neutralize the impact of operations on the financial system.

C

129. In determining the balance on which interest earnings are figured, a depository institution must use the ___________________ in the deposit. A. minimum balance amount B. maximum balance amount C. full amount of the principal D. average monthly balance E. average daily balance

C

71. A deposit which offers flexible money market interest rates but is accessible for spending by writing a limited number of checks or executing preauthorized drafts is known as a(n): A. demand deposit. B. NOW account. C. MMDA. D. time deposit. E. None of the options is correct.

C

76. Using deposit fee schedules that vary deposit prices according to the number of transactions, average balance in the deposit account, and maturity of the deposits represents which of the deposit pricing method listed below? A. Marginal cost pricing B. Cost plus pricing C. Conditional pricing D. Upscale target pricing E. None of the options is correct.

C

80. According to recent studies cited in this book, in selecting a bank to hold their checking accounts, which of the following factors do household customers rank first? A. Safety. B. High deposit interest rates. C. Convenient location. D. Availability of other services. E. Low fees and low minimum balance.

C

83. A financial institution that charges its customers based on the number of services they use and grants lower deposit fees or waives some fees for a customer that purchases two or more services is practicing: A. marginal cost pricing. B. conditional pricing. C. relationship pricing. D. upscale target pricing. E. None of the options is correct.

C

84. From an analysis on its deposits, a bank determines that account processing and other operating expenses cost the bank $3.95 per month. It has also determined that non-operating expenses on its deposits are $1.35 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should the bank charge on its deposit accounts? A. $5.30 per month B. $3.95 per month C. $5.83 per month D. $5.70 per month E. None of the options is correct

C

87. A customer has a savings account for one year. During the year he earns $65.50 in interest. For 180 days he has $2,000 in the account and for another 180 days he has $1,000 in the account. What is the annual percentage yield on this savings account? A. 6.55% B. 3.28% C. 4.42% D. 8.73% E. None of the options is correct

C

91. Deposits designed to attract customers who wish to set aside money in anticipation of future expenditures or financial emergencies are called: A. drafts. B. second-party payment accounts. C. thrift deposits. D. transaction accounts. E. None of the options is correct.

C

94. An account at a bank that carries a fixed maturity date, with a fixed interest rate, and which often carries a penalty for early withdrawal of money is called a: A. demand deposit. B. transaction deposit. C. time deposit. D. money market mutual deposit. E. None of the options is correct.

C

97. A time deposit that allows for a periodic upward adjustment to the promised rate is called a: A. negotiable CD. B. bump-up CD. C. step-up CD. D. liquid CD. E. None of the options is correct.

C

103. The deposit pricing method that focuses on the added cost of bringing in new funds is called: A. free pricing. B. conditionally free pricing. C. flat-rate pricing. D. marginal cost pricing. E. nonprice competition.

D

106. A customer makes a savings deposit for 15 days. During that time he earns $15 in interest and maintains an average daily balance of $2,200. What is the annual percentage yield on the savings account? A. 0.68% B. 16.36% C. 16.59% D. 17.98% E. None of the options is correct

D

114. Which of these Acts is attempting to address the low savings rate of workers in the U.S. by including an automatic enrollment ("default option") in employees' retirement accounts? A. The Economic Recovery Tax Act of 1981 B. The Tax Reform Act of 1986 C. The Tax Relief Act of 1997 D. The Pension Protection Act of 2006 E. None of the options is correct

D

116. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%, $60 million in new money if it pays a deposit rate of 7.5%, $80 million in new money if it pays a deposit rate of 8%, and it can raise $100 million in new money if it pays a deposit rate of 8.5%. The bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises its deposit rate from 7.5% to 8%? A. 0.5% B. 7.5% C. 8.0% D. 9.5% E. 10.5%

D

124. Returns on certificates of deposits linked to performance of stock markets are known as: A. equity CDs. B. stock CDs. C. market CDs. D. index CDs. E. exchange CDs.

D

66. Deposit accounts whose principal function is to make payments for purchases of goods and services are called: A. drafts. B. second-party payments accounts. C. thrift deposits. D. transaction accounts. E. None of the options is correct.

D

68. Money market deposit accounts (MMDAs), offering flexible interest rates, accessible for payments purposes, and designed to compete with share accounts offered by money market mutual funds, were authorized by the: A. Glass-Steagall Act. B. Depository Institutions Deregulation and Monetary Control Act (DIDMCA). C. Bank Holding Company Act. D. Garn-St. Germain Depository Institutions Act. E. None of the options is correct.

D

72. The types of deposits that will be created by the banking system depend predominantly upon: A. the level of interest rates. B. the state of the economy. C. the monetary policies of the central bank. D. public preference. E. None of the options is correct.

D

78. The Federal law that requires U.S. depository institutions to make greater disclosure of the fees, interest rates, and other terms attached to the deposits they sell to the public is called the: A. Consumer Credit Protection Act. B. Fair Pricing Act. C. Consumer Full Disclosure Act. D. Truth in Savings Act. E. None of the options is correct.

D

98. A time deposit that allows the depositor to withdraw some of the funds without a withdrawal penalty is called a: A. negotiable CD. B. bump-up CD. C. step-up CD. D. liquid CD. E. None of the options is correct.

D

104. Prior to Depository Institution Deregulation and Control Act (DIDMCA) being passed, banks used ______________. This tended to distort the allocation of scarce resources. A. free pricing B. conditionally free pricing C. flat-rate pricing D. marginal cost pricing E. nonprice competition

E

115. According to the textbook, business (commercial) transaction accounts are generally more profitable than personal checking accounts. Which of the following explains the reason(s) behind this statement? A. The average size of a business transaction is smaller than a personal transaction. B. Interest expenses associated with a commercial deposit transaction are higher. C. The bank receives less investable funds in the commercial deposit transactions. D. The average size of a business transaction is smaller than a personal transaction and interest expenses associated with commercial deposit transactions are higher. E. Interest expenses associated with commercial deposit transactions are lower and a bank receives more investable funds in the commercial deposits transactions.

E

117. A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and $100 million in new money if it pays a deposit rate of 8.5%. This bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if this bank raises their deposit rate from 8% to 8.5%? A. 0.5% B. 7.5% C. 8.0% D. 9.5% E. 10.5%

E

99. Which of the following is a reason that has made IRA and Keogh accounts more attractive to depositors recently? A. Most of these accounts carry floating interest rates B. These accounts now represent more than half of total deposits of FDIC insured banks C. Individuals can deposit unlimited amounts in these accounts D. Banks need to pay at least 6% on these accounts to depositors E. Increase in FDIC insurance coverage to $250,000 on these accounts

E