Chapter 3

Multiple Answer Questions: Select ALL of the following that are ways to clear a check through the U.S. banking system: a. through a Federal Reserve Bank b. through the U.S. Treasury Bank c. through a bank clearinghouse d. bank to bank

a, c, and d

The Equity Capital Ratio for a bank with owners' equity of $3 million is 6 percent. This bank's total assets would be: (Pick the closest answer.) a. $50,000,000 b. $180,000 c. $2,820,000 d. $4,180,000

a. $50,000,000

If $6,800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay a total of to the lender. (Pick the closest answer.) a. $7,140 b. $340 c. $6,460 d. $6,800

a. $7,140

If $8,300 is deposited today in a bank for one year at a standard interest rate of 3.7 percent per year, at the end of the year the depositor would receive a total of from the bank. (Pick the closest answer.) a. $8,607.10 b. $8,330.71 c. $8,485.27 d. $8,256.75

a. $8,607.10

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 Bank Act c. Hunt Commission legislation d. Depository Institutions Deregulation and Monetary Control Act

a. Garn-St. Germain Depository Institutions Act

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. Garn-St. Germain Depository Institutions Act

The _________________ provided for separation of commercial banking and investment banking activities in the U.S. a. Glass Steagall Act b. Gramm- Leach- Bliley Act c. Garn-Saint Germain Act d. Depository Institutions Deregulation and Monetary Control Act

a. Glass Steagall Act

__________________ are the two important forms of contractual savings organizations. a. Insurance companies and pension funds b. Banks and insurance companies c. Investment banks and pension funds d. Pension funds and brokerage firms e. none of the above

a. Insurance companies and pension funds

_____________ accept and invest individual savings and also facilitate the sale and transfer of securities between investors. a. Securities firms b. Pension funds c. Asset management companies d. none of the above

a. Securities firms

_______________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals. a. Thrift institutions b. Securities firms c. Pension funds d. Finance firms e. none of the above

a. Thrift institutions

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. a bank may have only one full-service office

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. a composite of equity capital and total assets

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

a. accepting deposits and granting loans

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

a. bank premises

Multiple Answer Question: Select ALL of the following that are liabilities or owner's capital of commercial banks: a. certificates of deposit b. demand deposits c. loans secured by real estate d. investments in mutual funds e. retained earnings

a. certificates of deposit b. demand deposits e. retained earnings

Commercial banks obtain the bulk of their loan able funds from: a. depositors b. the issue of certificates of deposit c. sale of bank stock d. sale of subordinated debenture bonds

a. depositors

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 owner's capital is: a. deposits b. owner's capital c. securities d. federal funds

a. deposits

The Monetary Control Act: a. extended the Fed's control to thrift institutions and non-member commericial 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. extended the Fed's control to thrift institutions and non-member commercial banks

The National Banking Act of 1864 provided for: a. federally charted banks b. the establishment of a system of central banks c. deregulation and monetary control d. the establishment of deposit insurance

a. federally charted banks

Primary reserves: a. include the cash assets of the bank b. are short term securities held by bank 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. include the cash assets of the bank

The risk associated with changing market interest rates on the value of underlying debt instruments is a. interest rate risk b. credit (default) risk c. liquidity risk d. capital adequacy risk e. inflation risk

a. interest rate risk

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. investment company

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. mutual fund

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. permits banks to locate offices within a geographically defined distance of the main office

During the colonial period in the nation's history, banks depended on: a. their own issue of paper money b. foreign sources for their loan able funds c. deposits of foreign currency such as the Spanish dollar d. the investment of their own stockholders

a. their own issue of paper money

Multiple Answer Question: Select ALL of the following that are an asset of commercial banks: a. vault cash b. loans to individuals c. time deposits d. U.S. government securities e. demand deposits

a. vault cash b. loans to individuals d. U.S. government securities

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 of the above e. none of the above

a. was the first incorporated bank in the United States

If $6,800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay in interest to the lender. (Pick the closest answer.) a. $7,140 b. $340 c. $6,460 d. $6,800

b. $340

If $18,200 is borrowed for one year and at the end of the year the borrower repays $18,837 to the lender, the standard annual interest rate paid was: (Pick the closest answer.) a. 3.38% b. 3.5% c. 1.04% d. 3.72%

b. 3.5%

The Equity Capital Ratio for a bank with equity capital of $3 million and total assets of $50 million would be: (Pick the closest answer.) a. 3% b. 6% c. 2.83% d. 5.66%

b. 6%

If $8,500 is borrowed on a discount basis and the rate is 6 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.) a. 6.04% b. 6.4% c. 5.9% d. 6.0%

b. 6.4%

If you received $7,990 today on a discount loan and had to repay $8,500 one year later, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.) a. 6.04% b. 6.4% c. 5.9% d. 6.0%

b. 6.4%

___________________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses. a. Banks b. contractual savings organizations c. Investment banking firms d. Brokerage firms e. none of the above

b. Contractual savings organizations

___________________ 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. Financial itermediation

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. Glass-Steagall Act

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. National Banking Act

One of the advantages claimed by branch banking is: a. lower interest rates are usually available from branch banks b. convenience for customers c. banking operations are easier to regulate d. all of the above

b. convenience for customers

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. credit (default) risk

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 interests rates equal to that paid by money market funds d. all of the above

b. enable depository institutions to compete effectively for funds that were flowing in large amounts to money market funds

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 of the above

b. enabled depository institutions to issue money market accounts with no regulated interest rate ceiling

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. has increased in importance in recent years

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. has resulted in more competition among depository institutions

When market interest rates decrease, debt instruments (bonds) in value. a. decrease b. increase c. stay the same d. there is no relationship between market interest rates and the value of debt instruments

b. increase

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. investment company

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. is higher than that on a standard loan

Credit unions are: a. for profit organizations b. made up of individuals who posses common bonds of association c. institutions that derive funds from investment activities d. all of the above

b. made up of individuals who possess common bonds of association

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. means that branch systems are less likely to fail than independent systems

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. need the approval of the Federal Reserve

The item on the liabilities and equity section of a bank's balance sheet that represents the smallest proportion of typical bank's liabilities and owner's capital is: a. deposits b. owner's capital c. securities d. federal funds

b. owner's captial

Investment companies (mutual funds), investment banking firms, and brokerage firms are the primary types of ____________. a. banks b. securities firms c. pension funds d. finance companies e. none of the above

b. securities firms

If $45,000 is borrowed for one year at a standard interest rate of 4.25 percent per year, at the end of the year the borrower would repay in interest to the lender. (Pick the closest answer.) a. $1,800 b. $191.50 c. $1,912.50 d. $19,125

c. $1,912.50

If $12,500 is borrowed for one year at a standard interest rate of 4.2 percent per year, at the end of the year the borrower would repay a total of to the lender. (Pick the closest answer.) a. $52.50 b. $12,552.50 c. $13,025.00 d. $17,750.00

c. $13,025.00

If $1,500 is deposited today in a bank for one year and at the end of the year the depositor receives $1,531.50 from the bank, the standard annual interest rate paid was: (Pick the closest answer.) a. 2.0% b. 2.2% c. 2.1% d. 2.3%

c. 2.1%

______________ 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. Depository intitutions

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. Garn- Saint Germain Act

_________________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England, New York, and New Jersey, with most of their assets continuing to be invested in mortgage loans. a. Commercial banks b. Thrift institutions c. Savings banks d. Credit unions e. none of the above

c. Savings banks

Reasons that banks become insolvent include all of the follwoing 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 inslovent

c. a bank's assets exceeding its liabilities

Checks may be cleared by: a. the Federal Reserve b. banks in the banking system c. both a and b d. neither a nor b

c. both a and b

A depository institution that accepts deposits, issues checking-writing accounts, and makes loans to businesses and individuals is called a (n) a. mutual fund b. investment bank c. commercial bank d. pension fund

c. commercial bank

Multiple Answer Question: Select ALL of the following that are NOT thrift institutions: a. credit unions b. savings and loan associations c. commercial banks d. investment banking firms

c. commercial banks d. investment banking firms

The likelihood that a bank will be unable to meet its depositor withdrawal demands and/or other liabilities when they are due is a. interest rate risk b. credit (default) risk c. liquidity risk d. capital adequacy risk e. inflation risk

c. liquidity risk

The principal assets of savings banks are: a. securities b. vault cash and deposits at other banks c. mortgage loans d. all of the above

c. mortgage loans

Another name for an open-end investment company is a: a. brokerage firm b. finance company c. mutual fund d. investment bank

c. mutual fund

Multiple Answer Question: Select ALL of the following that are NOT depository institutions: a. credit unions b. savings and loan associations c. mutual funds d. savings banks e. brokerage firms

c. mutual funds e. brokerage firms

An organization that receives contributions from employees and/or thier 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. pension fund

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 of the above

c. prime rate

The function of adeuate 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. provide a cushion against credit risk and interest rate risk

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 of the above

c. take over and liquidate the assets of failed saving and loan institutions

The principal assets of banks do not include: a. cash b. loans c. time deposits d. securities owned

c. time deposits

If $5,200 is deposited today in a bank for one year at a standard interest rate of 3.15 percent per year, at the end of the year the depositor would receive in interest from the bank. (Pick the closest answer.) a. $161.20 b. $166.40 c. $165.92 d. $163.80

d. $163.80

The Equity Capital Ratio for a bank with total assets of $50 million is 6 percent. This bank's equity capital would be: (Pick the closest answer.) a. $47,000,000 b. $53,000,000 c. $3,500,000 d. $3,000,000

d. $3,000,000

If $5,000 is borrowed on a discount basis and the rate is 10 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.) a. 10% b. 10.1% c. 11% d. 11.1%

d. 11.1%

If $6,800 is borrowed for one year and at the end of the year the borrower repays $7,140 to the lender, the standard annual interest rate paid was: (Pick the closest answer.) a. 7.1% b. 4.8% c. 3.4% d. 5.0%

d. 5.0%

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 1800's 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 of the above statements are correct.

d. All of the above statements are correct.

_______________ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their members. a. Commercial banks b. Thrift institutions c. Savings banks d. Credit unions e. none of the above

d. Credit unions

The ______________________ was designed to reduce or eliminate interest rate limitations and increase access to various sources of fund 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. Depository Institutions Deregulation and Monetary Control Act

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. Federal Reserve Act

____________ provide loans directly to consumers and businesses and help borrowers obtain mortgage loans on real property. a. Banks b. Securities firms c. Pension funds d. Finance firms e. none of the above

d. Finance firms

Financial institutions include: a. banks b. pension funds c. insurance companies d. all of the above

d. all of the above

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. all of the above

The notes of the Bank of the 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 of the above e. none of the above

d. all of the above

Types of financial institutions include all of the following EXCEPT: a. commercial banks b. pensions funds c. insurance companies d. all of the above are types of financial institutions

d. all of the above are types of financial institutions

The First Bank of the United States ceased operations because: a. the need to provide financing for the Civil Was was not supported by Congress b. of the opposition of state banking interests c. its charter has expired and there was no provision for its renewal d. both b and c

d. both b and c

_______________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ help individuals obtain mortgage loans on homes and other real property by bringing together borrowers and institutional investors. a. thrift institutions, savings and loans b. thrift institutions, mortgage banking firms c. finance companies, savings and loans d. finance companies, mortgage banking firms e. none of the above

d. finance companies, mortgage banking firms

An organization that provided 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. finance company

The item on the assets side of a bank's balance sheet that represents the largest bank assets is: a. deposits b. owner's capital c. securities d. loans

d. loans

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. all of the above are types of financial institutions

. _______________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England , New York, and New Jersey, with most of their assets continuing to be invested in mortgage loans. a. Commercial banks b. Thrift institutions c. Credit unions d. Finance companies e. none of the above

e. none of the above

. _______________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ help individuals obtain mortgage loans on homes and other real property by bringing together borrowers and institutional investors. a. thrift institutions, savings and loans b. thrift institutions, mortgage banking firms c. property brokers, savings and loans d. property brokers, mortgage banking firms e. none of the above

e. none of the above

______________ accept savings form individuals and then lend these pooled savings to businesses, governments, and individuals. a. Insurance companies b. Commercial finance companies c. Government institutions d. Investment banks e. none of the above

e. none of the above

_______________ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their members. a. Commercial banks b. Thrift institutions c. Savings banks d. Brokerage firms e. none of the above

e. none of the above

_______________ sell or market new securities issued by businesses to individual and institutional investors, whereas ______________ assist individuals who want to purchase new or existing securities issues or who want to sell previously purchased securities. a. Brokerage firms, investment banks b. Investment banks, savings banks c. Savings banks, investment banks d. Brokerage firms, savings banks e. none of the above

e. none of the above

_________________ are the two important forms of contractual savings organizations. a. Insurance companies and brokerage firms b. Banks and insurance companies c. Investment banks and pension funds d. Pension funds and brokerage firms e. none of the above

e. none of the above

__________________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals. a. Banks b. Securities firms c. Pension funds d. Finance companies e. none of the above

e. none of the above

___________________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses. a. Banks b. Finance companies c. Investment banking firms d. Brokerage firms e. none of the above

e. none of the above