FINA 4400 Quiz Review

After World War II, the victors set up a fixed exchange rate system that became known as the Bretton Woods system, which remains in effect to this day.

False

Although controls on capital outflows are often ineffective, controls on capital inflows generally work well.

False

Bank failures in the U.S. have spiked only twice: in the 1930s and around 2010.

False

Disintermediation occurs when finds are deposited into banks and lent to borrowers.

False

Financial innovation has widened the cost advantages that banks have in acquiring funds, helping to explain why bank profitability has soared in recent years.

False

The difference between merchandise exports and imports is called the current account balance.

False

To be classified as a well-capitalized bank, a bank's leverage ratio must exceed 8 percent.

False

When the payoff method is used to resolve a failed bank, both large and small depositors are protected from suffering losses.

False

An SIV, or structured investment vehicle, is an off-balance-sheet entity that shields a sponsoring institution from risk. What happened to some of these SIVs when they ran into financial problems?

Troubled SIVs became an asset of the sponsoring institution — the off-balance-sheet status was meaningless.

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate, or APR, on loans.

True

Checkable deposits, a traditional source of low-cost funds for banks, have declined dramatically in importance, falling from over 60 percent of bank liabilities to less than 10 percent today.

True

Even when an ATM is owned by a bank, states typically have special provisions that allow wider establishment of ATMs than is permissible for traditional "brick and mortar" branches.

True

Limitations of the Basel Accord became apparent because the regulatory measure of bank risk as stipulated by the risk weights differed substantially from the actual risk the bank faced.

True

Mutual savings banks are similar to S&Ls, but are jointly owned by the depositors.

True

The current account shows international transactions that involve current flows of funds into and out of a country.

True

When it acts as a lender of last resort, the IMF may increase the likelihood that financial institutions take excessive risks and thus increase moral hazard.

True

The difference between merchandise exports and imports is called the

trade balance

The chartering process is especially designed to deal with the ________ problem, and regular bank examinations help to reduce the ________ problem.

adverse selection; moral hazard

A special subsidiary of a U.S. bank that is engaged in international banking is called

an Edge Act corporation

The United States exports more services than it imports, by $262 billion. Net exports has a deficit of $500 billion, versus a merchandise trade ________ of ________ billion.

deficit; $762

Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side.

federal governments; states

Which of the following are important factors in determining the degree and timing of financial innovation?

-changes in regulation -changes in financial market conditions -changes in technology

Which of the following solutions have been proposed to solve the too-big-to-fail problem?

-impose higher capital requirements on large, systemically important financial institutions -do nothing, since Dodd-Frank effectively eliminated the problem -break up large, systemically important financial institutions

What kind of exchange rate system did the Bretton Woods agreement establish?

Fixed

Research at the World Bank has found that, on average, the adoption of explicit government deposit insurance is associated with ________ banking sector stability and a ________ incidence of banking crises.

less; higher

Given the size of the statistical discrepancy needed to balance the balance of payments account, one can infer that

many international transactions go unrecorded

Which of the following is least likely to accompany financial consolidation and the development of large, complex banking organizations?

moral hazard problems will become less important

Credit cards date back to

prior to World War II.

Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks has been

reduced

A balance of payments ________ is associated with a ________ of international reserves.

surplus; gain