FIN 3305 CH.19
Eurodollars are A) dollar-denominated deposits held in banks outside the United States. B) deposits held by U.S. banks in Europe. C) deposits held by U.S. banks in foreign countries. D) dollar-denominated deposits held in U.S. banks by Europeans.
A) dollar-denominated deposits held in banks outside the United States.
Deposits in European banks denominated in dollars for the purpose of international transactions are known as ________. A) Eurodollars B) European Currency Units C) euros D) International Monetary Units
A) Eurodollars
The prohibition against banks underwriting corporate securities and engaging in brokerage, real estate, and insurance activities was repealed by the A) Gramm-Leach-Bliley Financial Services Modernization Act. B) Competitive Equality in Banking Act. C) Depositary Institution Deregulation and Monetary Control Act. D) Glass-Steagall Act.
A) Gramm-Leach-Bliley Financial Services Modernization Act.
Which of the following is not a reason for the disappointing revenue growth and profits of Internet-only banks? A) High cost per transaction B) Security concerns C) Customer preferences D) Technical problems
A) High cost per transaction
U.S. banks have most of their foreign branches in A) Latin America, the Far East, the Caribbean, and London. B) Latin America, the Middle East, the Caribbean, and London. C) Mexico, the Middle East, the Caribbean, and London. D) South America, the Middle East, the Caribbean, and Canada.
A) Latin America, the Far East, the Caribbean, and London.
The main center of the Eurodollar market is ________. A) London B) Basel C) Paris D) New York
A) London
The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branching regulations of the state in which they reside is the A) McFadden Act. B) National Banking Act. C) Glass-Steagall Act. D) Garn-St. Germain Act.
A) McFadden Act.
In 1977, ________ pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status. A) Michael Milken B) Roger Milliken C) Ivan Boskey D) Carl Ichan
A) Michael Milken
What is the key difference between an S&L and a mutual savings bank? A) Mutual savings banks are jointly owned by depositors, whereas S&Ls aren't. B) The FDIC insures an S&L's deposits, but not those of mutual savings banks. C) Both A and B are correct. D) Neither A nor B is correct.
A) Mutual savings banks are jointly owned by depositors, whereas S&Ls aren't.
To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________. A) National Banking Act of 1863; Office of the Comptroller of the Currency B) Federal Reserve Act of 1863; Office of the Comptroller of the Currency C) National Banking Act of 1863; Office of Thrift Supervision D) Federal Reserve Act of 1863; Office of Thrift Supervision
A) National Banking Act of 1863; Office of the Comptroller of the Currency
The Second Bank of the United States was denied a new charter by A) President Andrew Jackson. B) Vice President John Calhoun. C) President Benjamin Harrison. D) President John Q. Adams.
A) President Andrew Jackson.
Which of the following is not expected to result from bank consolidation in the U.S.? A) The disappearance of small community banks. B) The acceleration of the decline in the number of banks. C) Banks will be more efficient. D) Banks will be less likely to fail.
A) The disappearance of small community banks.
In September of 2008, the money market mutual fund Reserve Primary Fund had a price of less than $1.00 for a dollar invested. How did this happen? A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went broke. B) The fund invested in high-yield junk bonds, which defaulted. C) The fund invested in Treasuries, which yielded less than 0% returns. D) This actually didn't happen. It cannot happen since the fund only invested in low-risk debt.
A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went broke.
As a result of shared electronic banking facilities, A) barriers to branching have become less burdensome. B) banking has become less competitive. C) both of the above have occurred. D) neither of the above has occurred.
A) barriers to branching have become less burdensome.
The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the A) central bank. B) commercial bank. C) bank of settlement. D) Treasury Department.
A) central bank.
The McFadden Act of 1927 A) effectively prohibited banks from branching across state lines. B) required that banks maintain bank capital equal to at least 6 percent of their assets. C) effectively required that banks maintain a correspondent relationship with large money center banks. D) did all of the above.
A) effectively prohibited banks from branching across state lines.
So-called fallen angels differ from junk bonds in that A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds which have had their credit ratings fall below Baa. B) junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings. C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C. D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C.
A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds which have had their credit ratings fall below Baa.
"Stripping" a Treasury bond A) means selling each of its future payments as a separate zero-coupon bond. B) decreases the total present discounted value of future payments. C) both A and B. D) none of the above.
A) means selling each of its future payments as a separate zero-coupon bond.
Credit cards date back to A) prior to World War II. B) just after World War II. C) the early 1950s. D) the late 1950s.
A) prior to World War II.
Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks has been ________. A) reduced B) mildly expanded C) completely eliminated D) greatly expanded
A) reduced
The Federal Reserve's Regulation Q A) set maximum interest rates banks could pay on deposits. B) set minimum interest rates banks could pay on deposits. C) set maximum interest rates banks could charge on loans. D) discouraged disintermediation.
A) set maximum interest rates banks could pay on deposits
A smart card is a form of A) stored-value card. B) credit card. C) debit card. D) e-cash card.
A) stored-value card.
Bank managers look on reserve requirements as a A) tax on deposits. B) subsidy on deposits. C) subsidy on loans. D) tax on loans.
A) tax on deposits
Burdensome regulations, along with inflation and rising interest rates, help to explain A) the rapid pace of financial innovations in banking in the 1960s and 1970s. B) the low rate of bank failures in the 1980s. C) both A and B of the above. D) neither A nor B of the above
A) the rapid pace of financial innovations in banking in the 1960s and 1970s.
In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity. A) universal B) British-style universal C) barrier-free D) seamless
A) universal
Because their members share a common bond, credit unions are typically quite small; most hold less than ________ of assets. A) $500,000 B) $10 million C) $100 million D) $1 billion
B) $10 million
Bank failures and mergers have caused the number of commercial banks in the U.S. to decline from around ________ in the 1970s to below ________ today. A) 25,000; 10,000 B) 15,000; 8,000 C) 25,000; 20,000 D) 15,000; 5,000
B) 15,000; 8,000
Checking accounts that earn interest (such as NOW accounts) were not available until ________. A) 1962 B) 1972 C) 1982 D) 1992
B) 1972
One factor contributing to the decline in income advantages that banks once had is the increased competition from the commercial paper market, which has grown in size to over ________ percent of commercial and industrial bank loans today. A) 20 B) 30 C) 40 D) 50
B) 30
Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around ________ percent of total credit advanced to near ________ percent by 2012. A) 60; 30 B) 40; 22 C) 25; 20 D) 30; 15
B) 40; 22
There are approximately how many commercial banks in the United States currently? A) 5,000 B) 6,200 C) 1,000 D) 1,250
B) 6,200
One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over ________ percent of banks' source of funds to ________ percent today. A) 70; 30 B) 60; 5 C) 50; 20 D) 40; 15
B) 60; 5
Regulations restricting branching have promoted the development of what two financial innovations? A) Bank consolidation and nationwide banking B) Bank holding companies and automated teller machines C) Money market mutual funds and sweep accounts D) Reserve requirements and restrictions on interest paid on deposits
B) Bank holding companies and automated teller machines
The modern commercial banking system began in America when the A) Bank of the United States was chartered in New York in 1801. B) Bank of North America was chartered in Philadelphia in 1782. C) Bank of the United States was chartered in Philadelphia in 1801. D) Bank of North America was chartered in New York in 1782.
B) Bank of North America was chartered in Philadelphia in 1782.
In a ________ banking system, commercial banks engage in securities underwriting, but separate subsidiaries conduct the different activities. Also, banking and insurance are not typically undertaken together in this system. A) universal B) British-style universal C) divided D) compartmentalized E) severable
B) British-style universal
State banks that are not members of the Federal Reserve System are most likely to be examined by the A) Federal Reserve System. B) Federal Deposit Insurance Corporation. C) Federal Home Loan Bank System. D) Comptroller of the Currency
B) Federal Deposit Insurance Corporation.
A major difference between the United States and Japanese banking systems is that A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding companies are illegal in the United States. D) both A and C of the above E) both B and C of the above
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot.
Which of the following statements concerning bank regulation in the United States are true? A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System. C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. D) All of the above are true. E) Only A and B of the above are true.
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System.
In the usual GNMA pass-through security, the ________ has direct ownership of a pro-rata share of the portfolio of mortgage loans. A) seller B) buyer C) financial institution issuing the mortgage loan D) financial institution securitizing the mortgage loan
B) buyer
A form of electronic money used on the Internet to pay for goods and services is A) e-money. B) e-cash. C) a smart card. D) a virtual bank.
B) e-cash.
A bank with a large credit-card customer base can market other financial products to these customers at a low cost. This is an example of A) economies of scale. B) economies of scope. C) becoming a superregional bank. D) none of the above.
B) economies of scope.
The Glass-Steagall Act prohibited commercial banks from A) issuing equity to finance bank expansion. B) engaging in underwriting of and dealing in corporate securities. C) selling new issues of government securities. D) purchasing any debt securities.
B) engaging in underwriting of and dealing in corporate securities.
In 1975, financial institutions developed financial derivatives that included ________. A) adjustable-rate mortgages B) futures contracts C) financial engineering D) virtual banks
B) futures contracts
In the 1950s, the interest rate on three-month Treasury bills fluctuated between 1.0% and 3.5%. In the 1980s, the three-month Treasury bill rate ranged from 5% to over 15%. From this, one could predict that in the 1980s interest-rate risk was ________ and the demand for financial innovation was ________. A) greater; lower B) greater; greater C) lower; lower D) lower; greater
B) greater; greater
Thrift institutions' importance as a source of funds for borrowers A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent today. B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today. C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent today. D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent today.
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today
Rising interest-rate risk ________ the ________ financial innovation. A) increased; cost of B) increased; demand for C) reduced; cost of D) reduced; demand for
B) increased; demand for
The traditional financial intermediation role of banking has been to make ________-term loans and to fund them with ________-term deposits. A) short; long B) long; short C) short; short D) long; long
B) long; short
The process in which people seeking higher interest rates take their money out of financial institutions is called ________. A) capital mobility B) loophole mining C) disintermediation D) deposit jumping
C) disintermediation
With the creation of the Federal Deposit Insurance Corporation, A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while nonmember commercial banks were required to buy deposit insurance. B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while nonmember commercial banks could choose to buy deposit insurance. C) both member and nonmember banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. D) both member and nonmember banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.
B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while nonmember commercial banks could choose to buy deposit insurance.
The most important developments that have reduced banks' cost advantages in the past twenty years include A) the growth of the junk bond market. B) the competition from money market mutual funds. C) the growth of securitization. D) all of the above. E) only A and B of the above.
B) the competition from money market mutual funds.
The most significant change in the economic environment that changed the demand for financial products since 1970 has been A) the aging of the baby-boomer generation. B) the dramatic increase in the volatility of interest rates. C) the dramatic increase in competition from foreign banks. D) the deregulation of financial institutions.
B) the dramatic increase in the volatility of interest rates.
The entry of Sears, AT&T, and GM into the credit card business is an indication of A) government's efforts to deregulate the provision of financial services. B) the rising profitability of credit card operations. C) the reduction in costs of credit card operations since 1990. D) the sale of unprofitable operations by Bank of America and Citicorp
B) the rising profitability of credit card operations.
A major controversy involving the U.S. banking industry in its early years was A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. B) whether the federal government or the states should charter banks. C) what percent of deposits banks should hold as fractional reserves. D) whether banks should be allowed to issue their own bank notes.
B) whether the federal government or the states should charter banks.
Which of the following is not a financial innovation stimulated by information technology? A) Credit card B) Debit card C) Adjustable-rate mortgage D) Electronic banking
C) Adjustable-rate mortgage
Which of the following is an advantage of forming a bank holding company? A) It allows ownership of several banks where branching is prohibited. B) It allows owners to engage in activities related to banking that are prohibited to banks. C) Both A and B of the above. D) None of the above.
C) Both A and B of the above
The legislation that separated investment banking from commercial banking was the A) National Bank Act. B) Federal Reserve Act. C) Glass-Steagall Act. D) McFadden Act.
C) Glass-Steagall Act.
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 A) First Bank of the United States in 1812. B) Bank of North America in 1814. C) Second Bank of the United States in 1816. D) Federal Reserve System in 1813.
C) Second Bank of the United States in 1816.
Which regulatory body charters national banks? A) The Federal Reserve B) The Federal Deposit Insurance Corporation C) The Comptroller of the Currency D) None of the above
C) The Comptroller of the Currency
A special subsidiary of a U.S. bank that is engaged in international banking is called A) an international banking facility. B) an agency office. C) an Edge Act corporation. D) a foreign bank subsidiary.
C) an Edge Act corporation
An electronic machine that allows customers to make deposits, get cash, transfer funds from one account to another, and check balances is A) an automated banking machine. B) the virtual bank. C) an automated teller machine. D) a smart card.
C) an automated teller machine
Before 1863, A) federally chartered banks had regulatory advantages not granted to state-chartered banks. B) the number of federally chartered banks grew at a much faster rate than at any other time since the end of the Civil War. C) banks acquired funds by issuing banknotes. D) the Federal Reserve System regulated only federally chartered banks. E) the Comptroller of the Currency regulated both state and federally chartered banks.
C) banks acquired funds by issuing banknotes.
Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side. A) federal government; municipalities B) state governments; municipalities C) federal government; states D) municipalities; states
C) federal government; states
As a result of restrictive banking regulations, the United States A) has too few banks when compared to other industrialized countries. B) has banks that are quite large relative to those in other countries. C) has too many banks when compared to other industrialized countries. D) has both A and B of the above.
C) has too many banks when compared to other industrialized countries.
The most important source of the changes in supply conditions that stimulate financial innovation has been the A) aging of the baby-boomer generation. B) dramatic increase in the volatility of interest rates. C) improvement in information technology. D) dramatic increase in competition from foreign banks. E) deregulation of financial institutions.
C) improvement in information technology.
Although federal banking legislation in the 1860s attempted to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in business by A) issuing credit cards. B) ignoring the regulations. C) issuing deposits. D) branching into other states.
C) issuing deposits.
So-called fallen angels differ from junk bonds in that A) junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa. B) fallen angels refer to newly issued bonds with low credit ratings. C) junk bonds refer to newly issued bonds with low credit ratings. D) they are both A and B of the above.
C) junk bonds refer to newly issued bonds with low credit ratings.
The Federal Reserve Act of 1913 required that A) state banks be subject to the same regulations as national banks. B) national banks establish branches in the cities containing Federal Reserve banks. C) national banks join the Federal Reserve System. D) all of the above be done.
C) 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. A) state; national B) state; municipal C) national; state D) national; municipal
C) national; state
New computer technology has A) increased the cost of financial innovation. B) increased the demand for financial innovation. C) reduced the cost of financial innovation. D) reduced the demand for financial innovation.
C) reduced the cost of financial innovation.
The presence of so many commercial banks in the United States is most likely the result of A) consumers' strong preference for dealing with only local banks. B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks. C) regulations that restrict the ability of banks to open branches. D) all of the above.
C) regulations that restrict the ability of banks to open branches.
The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as ________. A) standardization B) homogenization C) securitization D) adverse selection
C) securitization
A financial innovation that enables banks to avoid the "tax" from reserve requirements by taking any balances above a certain amount in a corporation's checking account at the end of the business day and investing them in overnight securities that pay interest is called a ________. A) money market mutual fund B) deposit rate ceiling C) sweep account D) disintermediation
C) sweep account
The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of A) the National Bank Charter Amendments of 1918. B) the Glass-St. Germain Act of 1982. C) the National Bank Act of 1863. D) none of the above.
C) the National Bank Act of 1863.
The driving force behind the securitization of mortgages and automobile loans has been A) the rising regulatory constraints on substitute financial instruments. B) the desire of mortgage and auto lenders to exit this field of lending. C) the improvement in computer technology. D) the relaxation of regulatory restrictions on credit card operations.
C) the improvement in computer technology.
It now appears that the predominant delivery system for banking services in the future will be A) Internet-only banks. B) traditional banks. C) traditional banks supplemented with online services. D) none of the above.
C) traditional banks supplemented with online services.
With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while nonmember commercial banks ________ to buy deposit insurance. A) could choose; were required B) could choose; were given the option C) were required; could choose D) were required; were required
C) were required; could choose
Since the late 1970s, thrift institutions' importance as a source of funds for borrowers has shrunk markedly, from above ________ percent of total credit advanced to below ________ percent today. A) 30; 20 B) 30; 15 C) 40; 5 D) 20; 10
D) 20; 10
Which of the following are important factors in determining the degree and timing of financial innovation? A) Changes in technology B) Changes in financial market conditions C) Changes in regulation D) All of the above E) Only A and B of the above
D) All of the above
Which of the following is a reason for the rapid expansion of international banking? A) The rapid growth in international trade B) The growth of multinational corporations C) The desire of U.S. banks to expand D) All of the above
D) All of the above
Which of the following statements concerning bank regulation in the United States is true? A) The Office of the Comptroller of the Currency has the primary responsibility for national banks. B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System. C) The Fed has sole regulatory responsibility over bank holding companies. D) All of the above are true. E) Only A and B of the above are true.
D) All of the above are true.
Which of the following is an example of a financial innovation introduced to avoid regulations? A) Securitization B) Junk bond C) Debit card D) Sweep account
D) Sweep account
Which bank regulatory agency has the sole regulatory authority over bank holding companies? A) The Federal Deposit Insurance Corporation B) The Comptroller of the Currency C) The Federal Bank Holding Company Agency D) The Federal Reserve System
D) The Federal Reserve System
Large fluctuations in interest rates lead to A) substantial capital gains and losses to owners of securities. B) greater uncertainty about returns on investments. C) greater interest-rate risk. D) all of the above.
D) all of the above
The growing use and proliferation of ATMs has been stimulated by A) lower transaction costs. B) greater customer convenience. C) declining cost of the ATM equipment. D) all of the above.
D) all of the above.
The most important developments that have reduced banks' income advantages in the past twenty years include A) the growth of the commercial paper market. B) the growth of the junk bond market. C) the growth of securitization. D) all of the above. E) only A and B of the above.
D) all of the above.
Rising market interest rates in the 1960s and the 1970s, combined with regulated deposit rate ceilings, A) worked in the short-run to give mortgage-issuing institutions a source of low-cost funds. B) led eventually to an outflow of deposits from depository institutions. C) led to financial innovations that worked to avoid these regulations. D) did all of the above. E) did only A and C of the above.
D) did all of the above.
The McFadden Act's prohibition against interstate branching A) was weakened by the introduction of shared electronic banking facilities that provide banking services nationwide. B) was weakened by regional compacts that allowed banks to own banks in other states in their region. C) impeded banks' ability to diversify their loans and take advantage of economies of scale. D) did all of the above.
D) did all of the above.
In recent years, commercial banks have been allowed to A) invest in real estate. B) enter certain insurance markets. C) underwrite stocks. D) do all of the above. E) do only A and B of the above
D) do all of the above.
Adjustable-rate mortgages A) benefit homeowners when interest rates are falling. B) reduce financial institutions' interest-rate risk. C) reduce households' risk of having to pay higher mortgage payments when interest rates rise. D) do only A and B of the above.
D) do only A and B of the above.
The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a A) bilateral regulatory system. B) tiered regulatory system. C) two-tiered regulatory system. D) dual banking system.
D) dual banking system.
High-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as ________. A) municipal bonds B) Yankee bonds C) "fallen angels" D) junk bonds
D) junk bonds
When disintermediation occurs, the banking system ________ deposits and bank lending ________. A) gains; increases B) gains; decreases C) loses; increases D) loses; decreases
D) loses; decreases
Before 1863, A) the Federal Reserve System regulated only federally chartered banks. B) the Comptroller of the Currency regulated both state and federally chartered banks. C) the number of federally chartered banks grew at a much faster rate than at any other time since the end of the Civil War. D) none of the above occurred.
D) none of the above occurred
The Riegle-Neal Act of 1994 A) required all banks to become universal banks. B) removed ceilings on bank deposit interest rates. C) allowed banks to underwrite insurance and securities and engage in real estate activities. D) overturned prohibitions on interstate banking and branching.
D) overturned prohibitions on interstate banking and branching.
Investment banking activities of the commercial banks were blamed for many bank failures. This led to A) the passage of the National Bank Charter Amendments Act of 1918. B) the passage of the Garn-St. Germain Act of 1982. C) the passage of the National Bank Act of 1863. D) the passage of the Glass-Steagall Act of 1933. E) the establishment of the Federal Deposit Insurance Corporation in 1933.
D) the passage of the Glass-Steagall Act of 1933.
Which of the following are true statements concerning bank holding companies? A) Bank holding companies own almost all large banks. B) Bank holding companies have experienced dramatic growth in the past twenty-five years. C) Through a loophole in the McFadden Act, bank holding companies have successfully evaded interstate branching restrictions. D) All of the above are true. E) Only A and B of the above are true.
E) Only A and B of the above are true
Major differences between the United States and Japanese banking systems include: A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding companies are illegal in Japan. D) both A and C of the above. E) both B and C of the above
E) both B and C of the above
The National Banking Act of 1863, and subsequent amendments to it, A) created a banking system of federally chartered banks. B) established the Office of the Comptroller of the Currency. C) broadened the regulatory powers of the Federal Reserve. D) did all of the above. E) did only A and B of the above.
E) did only A and B of the above.
Adjustable-rate mortgages A) protect households against higher mortgage payments when interest rates rise. B) keep financial institutions' earnings high even when interest rates are falling. C) have many attractive attributes, explaining why so few households now seek fixed-rate mortgages. D) do only A and B of the above. E) do none of the above.
E) do none of the above.
The most important developments that have reduced banks' cost advantages in the past twenty years include A) the elimination of Regulation Q ceilings. B) the competition from money market mutual funds. C) the growth of securitization. D) all of the above. E) only A and B of the above.
E) only A and B of the above
The most important developments that have reduced banks' income advantages in the past twenty years include A) the growth of the commercial paper market. B) the growth of the junk bond market. C) the elimination of Regulation Q ceilings. D) all of the above. E) only A and B of the above.
E) only A and B of the above
A firm issuing credit cards earns income from A) loans it makes to credit card holders. B) payments made to it by stores on credit card purchases. C) payments made to it by manufacturers of the products sold in stores on credit card purchases. D) all of the above. E) only A and B of the above.
E) only A and B of the above.
Examples of financial services that became practical realities as the result of new computer technology include A) credit cards. B) electronic banking facilities. C) checking accounts. D) all of the above. E) only A and B of the above.
E) only A and B of the above.
The bundling of mortgages into a saleable security (usually for large institutional investors) is called ________. A) disintermediation B) quasi-intermediation C) futures bundling D) hedge optioning E) securitization
E) securitization
Americans are the biggest users of checks in the world but nonetheless are ahead of Europeans in the proportion of noncash payments that are made by electronic means.
FALSE
Bank holding companies are regulated by the FDIC.
FALSE
Disintermediation occurs when funds are deposited into banks and lent to borrowers.
FALSE
Economies of scope come from increasing the size of a given financial activity and economies of scale come from combining different activities to lower their costs.
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 existence of large numbers of banks in the United States indicates the presence of vigorous competition.
FALSE
The future structure of the U.S. banking industry is likely to be characterized by many more smaller banks, as customers demand neighborhood banks operated by people they know personally.
FALSE
Unlike commercial banks, S&Ls can only be chartered by the federal government.
FALSE
A change in the financial environment will stimulate a search by financial institutions for innovations that are likely to be profitable.
TRUE
An alternative corporate structure for U.S. banks that operate overseas is the Edge Act corporation, a special subsidiary engaged primarily in international banking
TRUE
Bank holding companies that have begun to rival the money center banks in size but whose headquarters are not based in one of the money center cities are called superregional banks.
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
Eurodollars are created when deposits in accounts in the United States are transferred to a bank outside the country and are kept in the form of dollars.
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
Reserve requirements that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest rates that can be paid on deposits have been the major forces behind financial innovation.
TRUE
Restrictions on commercial banks' securities and insurance activities put American banks at a competitive disadvantage relative to foreign banks.
TRUE
Securitization is the process of transforming illiquid financial assets such as residential mortgages into marketable securities.
TRUE
The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated.
TRUE
Today, the United States has a dual banking system in which banks supervised by the federal government and banks supervised by the states operate side by side.
TRUE
