Chapter 3
Depository institutions include commercial banks, savings and loans, savings banks, and credit unions
T
An open-end investment company that can issue an unlimited number of its shares to investors and use the pooled proceeds to purchase corporate and government securities is called a (n) a. mutual fund b. pension fund c. insurance company d. brokerage firm
A
An organization that sells shares in their firms to individuals and others and invests the proceeds in corporate and government securities is called a (n) a. investment company b. investment bank c. insurance company d. brokerage firm
A
Commercial banks obtain the bulk of their loanable funds from: a. depositors b. the issue of certificates of deposit c. sale of bank stock d. sale of subordinated debenture bonds
A
During the colonial period in the nation's history, banks depended on: a. their own issue of paper money b. foreign sources for their loanable funds c. deposits of foreign currency such as the Spanish dollar d. the investment of their own stockholders
A
Limited branch banking: a. permits banks to locate offices within a geographically defined distance of the main office b. is controlled by the Federal Reserve system c. means that banks may only engage in certain limited activities d. none of the above
A
Primary reserves a. include the cash assets of the bank. b. are short term securities held by banks that are quickly converted into cash at little cost to the banks. c. include securities sold in primary markets. d. include securities sold in secondary markets.
A
The Bank of North America: a. was the first incorporated bank in the United States b. was patterned after the Central Bank of England c. was established to assist in financing the Civil War d. all the above e. none of the above
A
The Monetary Control Act: a. extended the Fed's control to thrift institutions and non-member commercial banks b. has resulted in more competition among depository institutions c. increased federal deposit insurance from $40,000 to $80,000 for each account d. established minimum capital requirements for banks with federal charters
A
The National Banking Act of 1864 provided for: a. federally chartered banks b. the establishment of a system of central banks c. deregulation and monetary control d. the establishment of deposit insurance
A
The _______________________ provided for separation of commercial banking and investment banking activities in the United States. a. Glass Steagall Act b. Gramm-Leach-Bliley Act c. Garn-Saint Germain Act d. Depository Institutions Deregulation and Monetary Control Act
A
The adequacy of capital for commercial banks as measured by regulatory authorities is: a. a composite of equity capital and total assets b. a measure of investment success c. based on the total amount of deposits of a bank d. based on the ratio of federal government obligations to deposits
A
The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's liabilities and owners' capital is: a. deposits b. owner's capital c. securities d. federal funds
A
The primary purpose of this Act was to aid the savings and loan industry a. Garn-St. Germain Depository Institutions Act b. Glass-Steagall Act c. Hunt Commission legislation d. Depository Institutions Deregulation and Monetary Control Act
A
Unit banking means: a. a bank may have only one full-service office b. the bank is owned by a unit trust c. all branch offices are controlled by a central unit d. none of the above
A
Legislation that permits depository institutions to compete with money market mutual funds on an equal basis with respect to interest rates offered to investors is the: a. Garn-St. Germain Depository Institutions Act b. National Banking Act c. Hunt Commission legislation d. Depository Institutions Deregulation and Monetary Control Act
A, Garn-St. Germain allowed S&L's to issue new money market deposit accounts with no ceiling on the interest rate paid on these accounts
Which of the following would not be part of a bank's Owner's Capital? a. bank premises b. common stock of the bank c. retained earnings d. all of the above are part of a bank's Owner's Capital
A, bank premises are assets
An organization that sells or markets new securities issued by businesses to individuals and institutional investors is called a (n) a. mutual fund b. investment bank c. insurance company d. brokerage firm
B
Credit unions are: a. for profit organizations b. made up of individuals who possess common bonds of association c. institutions that derive funds from investment activities d. all the above
B
Foreign banks in the United States: a. are prohibited in all 50 states b. need the approval of the Federal Reserve c. are not subject to federal examination d. none of the above
B
In general, the effective rate of interest on a discount loan a. is lower than that on standard loan b. is higher than that on a standard loan c. is identical to that on a standard loan d. none of the above
B
Legislation that provided for the separation of commercial banking and investment banking activities in the United States is called a. Garn-St. Germain Depository Institutions Act b. Glass-Steagall Act c. Hunt Commission legislation d. Depository Institutions Deregulation and Monetary Control Act
B
NOW accounts: a. are not subject to ceiling rates under Regulation Q b. enable depository institutions to compete effectively for funds that were flowing in large amounts to money market funds c. typically pay interest rates equal to that paid by money market funds d. all the above
B
One of the advantages claimed by branch banking is: a. lower interest rates are usually available from branch bank b. convenience for customers c. banking operations are easier to regulate d. all the above
B
Statewide branch banking: a. is prohibited in all 50 states b. means that branch systems are less likely to fail than independent systems c. permits banks to be located within a geographically defined distance of the main office d. none of the above
B
The Depository Institutions Deregulation and Monetary Control Act: a. established a system of central banks b. has resulted in more competition among depository institutions c. increased federal deposit insurance from $40,000 to $80,000 for each account d. established minimum capital requirements for banks with federal charters
B
The Garn-St. Germain Depository Institutions Act, among other things: a. extended the Fed's control to thrift institutions and to commercial banks that are not members of the Fed b. enabled depository institutions to issue money market accounts with no regulated interest rate ceiling c. was designed to assist the investment banking industry d. all the above
B
The _______________________ made it possible for banks to receive federal charters and provided a basis for national banking laws. a. Glass Steagall Act b. National Banking Act c. Garn-Saint Germain Act d. Federal Reserve Act
B
The holding-company device to control two or more commercial banks: a. has diminished in importance in recent years b. has increased in importance in recent years c. is limited to state chartered banks d. is sometimes described as chain banking
B
The item on the liabilities and equity section of a bank's balance sheet that represents the smallest proportion of a typical bank's liabilities and owners' capital is: a. deposits b. owner's capital c. securities d. federal funds
B
The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of: a. interest rate risk b. credit (default) risk c. liquidity risk d. capital adequacy risk
B
The three basic ways to clear a check through the U.S. banking system includes all of the following EXCEPT: a. through a Federal Reserve Bank b. through the U.S. Treasury Bank c. through a bank clearinghouse d. bank to bank
B
__________________ is the process by which individual savings are accumulated in depository institutions and, in turn, lent or invested. a. Investing b. Financial intermediation c. The multiplier effect d. Lending e. none of the above
B
The principal liabilities of depository institutions are: a. certificates of deposits b. deposits c. loans d. all the above
B a. certificates of deposits (this is just one type of deposit so it is not the principal liability) b. deposits c. loans (this is an asset) d. all the above
An organization that received contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their retirement years is called a (n) a. mutual fund b. savings bank c. pension fund d. retirement fund
C
Another name for an open-end investment company is a: a. brokerage firm b. finance company c. mutual fund d. investment bank
C
Reasons that banks become insolvent include all of the following EXCEPT: a. excessive credit risk b. interest rate risk c. a bank's assets exceeding its liabilities d. all of the above are reasons that banks become insolvent
C
The Resolution Trust Corporation was brought into existence to: a. help savings and loan institutions invest funds in a wide range of higher yielding instruments b. authorize savings and loan institutions to issue a new money market account with no regulated interest rate ceiling c. take over and liquidate the assets of failed savings and loan institutions d. all the above
C
The _______________________ was designed mainly to assist the savings and loan industry. a. Glass Steagall Act b. Gramm-Leach-Bliley Act c. Garn-Saint Germain Act d. Depository Institutions Deregulation and Monetary Control Act
C
The function of adequate bank capital for a commercial bank is to: a. meet bank reserve requirements b. provide funds for real estate loans c. provide a cushion against credit risk and interest rate risk d. support the purchase of bank buildings and equipment
C
The interest rate charged by banks for short-term unsecured loans to their highest quality business customers is referred to as the: a. discount rate b. federal funds rate c. prime rate d. all the above
C
_________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals. a. Insurance companies b. Commercial finance companies c. Depository institutions d. Investment banks e. none of the above
C
Which of the following institutions is not part of the modern banking system (depository institutions)? a. credit unions b. savings and loan associations c. mutual funds d. savings banks
C, a type of investment company or financial institution, not a depository institution
The principal assets of savings banks are: a. securities b. vault cash and deposits at other banks c. mortgage loans d. all the above
C, definition of saving banks, primarily mortgage loans
Which of the following are not thrift institutions? a. credit unions b. savings and loan institutions c. commercial banks d. all the above
C, definition of thrift institutions
Which of the following is not an asset of depository institutions? a. cash b. unsecured loans c. time deposits d. U.S. government securities
C, these are a liability not an asset for all depository institutions, not just commercial banks
The principal assets of banks do not include: a. cash b. loans c. time deposits d. securities owned
C, time deposits are liability
An organization that provides loans directly to consumers and businesses or aid individuals in obtaining financing for durable goods is called a (n) a. commercial bank b. investment bank c. savings and loan d. finance company
D
Financial institutions include: a. banks b. pension funds c. insurance companies d. all of the above
D
The First Bank of the United States ceased operations because: a. the need to provide financing for the Civil War was not supported by Congress b. of the opposition of state banking interests c. its charter had expired and there was no provision for its renewal d. both b and c
D
The National Banking Act of 1864: a. established minimum capital requirements for federally chartered banks b. regulated loans with respect to safety and liquidity c. established minimum reserve requirements d. all of the above
D
The _______________________ established the U.S. central banking system and increased the effectiveness of commercial banking in general. a. Glass Steagall Act b. National Banking Act c. Garn-Saint Germain Act d. Federal Reserve Act
D
The _______________________ was designed to reduce or eliminate interest rate limitations and increase access to various sources of funds available to banks and thrifts and expand the uses of the funds of S&Ls. a. Glass Steagall Act b. Gramm-Leach-Bliley Act c. Garn-Saint Germain Act d. Depository Institutions Deregulation and Monetary Control Act
D
The item on the assets side of a bank's balance sheet that represents the largest proportion of bank assets is: a. deposits b. owner's capital c. securities d. loans
D
The most basic functions of depository institutions are: a. safekeeping for depositors b. record keeping for depositors c. efficient and economical transfer of payments d. accepting deposits and granting loans
D
The notes of the Bank of North America a. served as a circulating medium of exchange b. were loaned liberally to the government c. were redeemed in metallic coins upon demand d. all the above e. none of the above
D
Types of financial institutions include all of the following EXCEPT: a. commercial banks b. pension funds c. insurance companies d. all of the above are types of financial institutions
D
Which of the following statements is correct? a. The Gramm-Leach-Bliley Act of 1999 allowed commercial banks to again participate in investment banking activities. b. The Federal Reserve System brought the American economy a system of central banks. c. "Wildcat banking" during the first half of the 1800s referred to risky banking practices by many state banks, such as excessive note issues, lack of adequate bank capital, and insufficient reserves against their notes and deposits. d. All the above statements are correct.
D
Types of financial institutions include all of the following EXCEPT: a. commercial banks b. pension funds c. insurance companies d. brokerage firms e. all of the above are types of financial institutions
E
An investment bank accepts deposits, makes loans, and issues checking accounts
F
Credit risk is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.
F
Insurance companies receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years
F
Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities
F
Investment banks accept deposits and makes loans to individuals and businesses.
F
Savings and loan associations are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit
F
Secondary reserves are vault cash and deposits held at other depository institutions and at Federal Reserve Banks.
F
The Monetary Control Act prohibited the Federal Reserve from controlling thrift institutions.
F
The U.S. banking system as it exists today is relatively unchanged since just before the Civil War.
F
The bank holding company may not engage in direct banking activities.
F
The prime rate of interest remained relatively stable from 2004-2012
F
Today, reserve requirements imposed by the Federal Reserve apply only to member banks.
F, Monetary Control Act
Investment banking firms assist individuals to purchase new or existing securities issues or to sell previously purchased securities.
F, definition of brokerage firms
Commercial banks provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.
F, finance companies provide loans directly to consumers and businesses
The primary types of assets on a bank's balance sheet include cash and deposits
F, loans are 59% of assets, deposits are a liability not an asset
Mortgage banking firms provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.
F, they don't provide loans directly to consumers and businesses, finance companies do this
Investment banking firms sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities
F, they sell or market new securities issued by other businesses to individuals and corporate investors
Bank solvency reflects the ability to keep the value of a bank's assets greater than its liabilities
T
Credit risk is the chance of nonpayment or delayed payment of interest or principal
T
Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.
T
Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates.
T
International banking exists when banks operate in more than one country.
T
Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities
T
Major types of financial institutions in the U.S. include commercial banks, mutual funds, insurance companies, and pension funds.
T
Mutual funds are open-end investment companies that can issue an unlimited number of shares to its investors and use the pooled proceeds to purchase corporate and government securities.
T
Part of the reason that the Banking Act of 1933 (Glass-Steagall Act) was passed was in response to the large numbers of bank failures.
T
Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years
T
Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees.
T
The Basel Accord was an agreement between major central banks to adopt capital adequacy requirements for internationally involved banks.
T
The Federal Reserve Act of 1913 created a system of central banks in the United States.
T
The Glass-Steagall Act was repealed with the passage of the Gramm-Leach-Bliley Act of 1999.
T
The National Banking Act of 1864 made it possible for banks to receive federal charters.
T
The largest type of assets on a bank's balance is loans
T
The largest type of liabilities on a bank's balance sheet is deposits
T
The principal assets of depository institutions are cash, securities, loans, and fixed assets
T
Branch banks are those banking offices that are controlled by a single parent bank.
T, branch banking allows a bank to have more than one full-service office
Investment banking firms sell or market new securities issued by businesses to individual and institutional investors
T, definition of investment banking firms
The effective rate of interest is generally lower on a standard loan than an otherwise equivalent discount loan.
T, on a discount loan you pay the interest upfront
The main provisions of the Monetary Control Act of 1980 are deregulation and monetary control.
T, the Depository Institutions Deregulation and Monetary Control Act 1980 is often referred to simply and the Monetary Control Act of 1980
Commercial banks accept deposits and makes loans to individuals and businesses.
T, two of the things mentioned in the definition of commercial banks