Chapter 12- Test 2

Adjustable rate mortgages

benefit homeowners when interest rates are falling

Eurodollars are

dollar-dominated deposits held in banks outside the United States.

The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from

engaging in underwriting and dealing of corporate securities.

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

federal government; states

Uncertainty about interest-rate movements and returns is called ________.

interest-rate risk

So-called fallen angels differ from junk bonds in that

junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously bonds that have had their credit ratings fall below Baa.

The Federal Reserve Act of 1913 required that

national banks join the Federal Reserve System

The Federal Reserve Act required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system.

national; state

The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of

the National Bank Act of 1863.

Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been

the creation of the FDIC

A major controversy involving the banking industry in its early years was

whether the federal government or the states should charter banks.

The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is

a futures contract.

The modern commercial banking system began in America when the

Bank of North America was chartered in Philadelphia in 1782.

________ is the process of researching and developing profitable new products and services by financial institutions.

Financial engineering

The main center of the Eurodollar market is

London.

To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________.

National Bank Act of 1863; Office of the Comptroller of the Currency

The Second Bank of the United States was denied a new charter by

President Andrew Jackson.

Because of the abuses by state banks and the clear need for a central bank to help the federal government raise funds during the War of 1812, Congress created the

Second Bank of the United States in 1816.

Which regulatory body charters national banks?

The Comptroller of the Currency

An instrument developed to help investors and institutions hedge interest-rate risk is

a financial derivative.