Topic 1 (Commercial Banking Chapter 1, 3 & 14)

The view that depositors hire banks to analyze the financial condition of prospective borrowers and continually evaluate the condition of outstanding loans is referred to as: A. Delegated monitoring B. The concept of financial intermediation C. The liquidity function in banking D. Market imperfection theory E. The efficiency contribution of banking

A. Delegated monitoring

The phenomenon of convergence refers to: A. Financial service firms expanding into other product lines B. Firms reducing their product lines C. Bank merger activity D. Globalization in banking E. Technological innovation in banking

A. Financial service firms expanding into other product lines

Which of the following is not a purpose of bank regulation: A. Guarantee minimal profitability of the banking system B. Provide monetary stability C. Ensure safety and soundness of banks D. Provide competitive financial system E. Protect consumers from abuses by banks

A. Guarantee minimal profitability of the banking system

Examples of imperfections in the financial system which allow banks to exist include which of the following? A. Informational asymmetry B. Efficiency of markets C. All individuals and businesses have full information about all investment opportunities. D. All individuals and businesses have no difficulty meeting their liquidity needs on their own. E. All of the above are examples of the imperfections that exist.

A. Informational asymmetry

During the middle ages, banks encountered religious opposition because: A. Loans to the poor often carried high interest rates B. Loans and deposits were primarily for wealthy customers C. The Industrial Revolution demanded new methods of making payments and obtaining credit D. Savings and wealth were lost due to war, theft and expropriation by governments E. All of the above

A. Loans to the poor often carried high interest rates

Hutton, J.C. Penney, and Sears Roebuck are among leading firms that in the1980's organized competitors with banks that are known as: A. Nonbank Banks B. Discount Security Brokerage Companies C. Money Market Funds D. Finance Companies E. Investment Banking Units

A. Nonbank Banks

The First National Bank of Lakeland makes risky loans to business to expand and grow their businesses while at the same time accepting funds into checking accounts that are insured by the FDIC. Which of the following services is this bank offering to their customers? A. Risky arbitrage services B. Liquidity services C. Ability of the bank to evaluate information D. Divisibility of money services E. Credit services

A. Risky arbitrage services

The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (among others) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing? A. The intermediation role B. The payment role C. The risk management role D. The guarantor role E. The policy role

A. The intermediation role

Jonathan Robbins has an account in a bank that does not have a physical branch. Jonathan does all of his banking business over the internet. What type of bank does Jonathan have his account at? A. Virtual Bank B. Mortgage Bank C. Community Bank D. Affiliated Bank E. None of the above

A. Virtual Bank

Bank equipment leasing activity involves: A. A bank leasing its office facilities instead of buying B. A bank buying equipment and then leasing the item to a customer C. A customer buying equipment and then leasing it to a bank D. A bank leasing computer equipment E. None of the above

B. A bank buying equipment and then leasing the item to a customer

31. Which one of the following is charged with setting policy and overseeing a bank's performance? A. Stockholders B. Board of directors C. Regulators D. Depositors E. None of the above.

B. Board of directors

33. Before any financial services can be offered to anyone a bank in the United States must have a: A. Certificate of deposit insurance B. Charter of incorporation C. List of established customers D. New building constructed to be the bank's permanent home E. None of the above.

B. Charter of incorporation

Smaller, locally focused commercial and savings banks that offer narrower but more personalized menu of financial services are known as: A. Money center banks B. Community banks C. Mutual Funds D. State banks E. Fringe banks.

B. Community banks

A study of history shows that one of the first services offered by banks was: A. Equipment Leasing B. Currency Exchange C. Security Brokerage and Underwriting D. Sale of Real Estate E. None of the above

B. Currency Exchange

Drew Davis goes to his local bank to get help developing a financial plan and making investment decisions. Which of the more recent services banks offer is Drew taking advantage of? A. Getting a consumer loan B. Getting financial advice C. Managing cash D. Getting venture capital services E. Buying a retirement plan

B. Getting financial advice

Banks with less than ___________in assets are generally called community banks. A. More than $1 billion B. Less than $1 billion C. More than $10 billion D. Less than $1 trillion E. More than $1 trillion

B. Less than $1 billion

Religious opposition decreased during the Renaissance because: A. Loans to the poor often carried high interest rates B. Loans and deposits were primarily for wealthy customers C. The Industrial Revolution demanded new methods of making payments and obtaining credit D. Savings and wealth were lost due to war, theft and expropriation by governments E. All of the above

B. Loans and deposits were primarily for wealthy customers

The Charleston Southern Bank makes loans for families to purchase new and existing homes but does not take deposits. What type of bank is this most likely to be? A. Virtual Bank B. Mortgage Bank C. Community Bank D. Affiliated Bank E. None of the above

B. Mortgage Bank

Major trends affecting the performance of financial firms today include all of these except: A. Greater product-line diversification B. Reduced branching C. Geographic diversification D. Convergence E. Increasing automation

B. Reduced branching

Which of the following is not a current trend in the banking industry? A. The number of banks is declining B. The number of bank branches is declining C. The number of bank services is increasing D. The number of bank competitors is increasing E. Bank industry convergence

B. The number of bank branches is declining

A bank that wires funds for the purchase of a beach house in South Carolina for a customer in Oklahoma is carrying out the __________ of banks. A. The intermediation role B. The payment role C. The guarantor role D. The agency role E. The policy role

B. The payment role

Chris Jones gets a cashier's check from Wachovia Bank to make his down payment on a new home. Which of the following roles is the bank performing? A. The intermediation role B. The payment role C. The risk management role D. The guarantor role E. The policy role

B. The payment role

The U.S. government wants to prevent money laundering by drug cartels. To promote this goal, they have asked banks to report any cash deposits greater than $10,000 to the government. Which of the following roles is the bank performing? A. The intermediation role B. The payment role C. The risk management role D. The guarantor role E. The policy role

E. The policy role

1. Bank size is not considered a significant factor in determining how banks are organized.

False

12. Research evidence suggests that banks taken over by interstate banking organizations have generally increased their market shares over their competitors within the same state and generally are more profitable than their competitors.

False

15. Branch banks tend to offer a wider menu of services than unit banks.

False

16. Recent research suggests that branch banks tend to be more profitable than either unit or holding company banks, while interstate banks tend to be the most profitable of all.

False

18. Agency theory suggests that bank management will always pursue the goal of maximizing the return of the bank's shareholders.

False

2. Nearly three quarters of all U.S. banks exceed $100 million in asset size apiece.

False

20. Bank holding companies that want to achieve the goal of risk reduction in earnings risk through interstate banking can achieve the same level of risk reduction by entering any of the fifty states.

False

23. Banks which operate entirely on the web are known as invisible banks.

False

26. There are only a very small number of unit banks in the U.S. today.

False

27. Traditional brick-and-mortar bank branch offices are on the decline in the U.S. today.

False

4. State-chartered banks in the United States represent about a quarter of all U.S.-chartered banks, while national banks account for approximately three quarters of all U.S. chartered banks.

False

5. The majority of all U.S. banks are members of the Federal Reserve System.

False

7. Over half of all U.S. states today limit branching activity.

False

8. The average U.S. bank is larger in size (in terms of number of branch offices) than the average Canadian bank.

False

9. Despite the rapid growth of automation in U.S. banking, there are more full-service branch banking offices than automated teller machines across the whole U.S.

False

Convergence refers to the fact that the number of bank mergers has increased in recent years. (T/F)

False

Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services. (T/F)

False

Money-center banks usually service local communities, towns, and cities, offering a narrow menu of services to the public. (T/F)

False

Nonbank banks can offer deposits to the public, but these deposits are not eligible for insurance coverage by the FDIC. (T/F)

False

The number of independently owned banks has risen in the United States over the last decade. (T/F)

False

The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry. (T/F)

False

Today U.S. banks account for approximately fifty percent of the largest banks in the world. (T/F)

False

Under U.S. federal law, an institution making only loans to households and offering uninsured checkable deposits and savings deposits qualifies as a commercial bank. (T/F)

False

When banks serve as conduits for government policy this is referred to as their agency role. (T/F)

False

10. In the United States there are more one-bank holding companies than multi-bank holding companies.

True

11. Bank holding companies hold more than 90 percent of the industry's assets in the United States.

True

13. The concentration of bank deposits at the local level (that is in urban communities and rural counties) has displayed only moderate changes in recent years.

True

14. There is evidence that branch banks charge higher fees for some banking services than do unit banks.

True

17. Less than 10 percent of the largest banks in the U.S. control almost 90 percent of the industry assets.

True

19. Recent research suggests that the relationship between bank size and the cost of production per unit is roughly U shaped.

True

21. Bank holding companies are allowed to own nonbank businesses as long as those businesses offer services closely related to banking.

True

22. Banks tend to have a higher proportion of outside directors than a typical manufacturing firm.

True

24. Banks acquired by holding companies are referred to as affiliated banks.

True

25. Bank organizational structure has become more complex in recent years.

True

28. Community banks are usually smaller banks that are devoted principally to the markets for smaller, locally based deposits and loans.

True

29. The question of whether financial firms operate as efficiently as possible requires researchers to look into the issue of x-efficiency. The concept requires an assessment of the financial firm's operating costs in relation to its cost-efficient frontier.

True

3. Nearly all U.S. banks with federal or state charters have their deposits insured by the Federal Deposit Insurance Corporation.

True

6. A banking corporation chartered by either federal or state governments that operates only one full-service office is called a unit bank.

True

A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market. (T/F)

True

According to the delegated monitoring theory banks are able to attract borrowing customers because they pledge confidentiality. (T/F)

True

According to the textbook, banks are those financial institutions that today offer the widest range of financial services of any business firm in the economy. (T/F)

True

According to the textbook, high-volume banking is required to make efficient use of automation and other technological innovations. (T/F)

True

According to the textbook, traditional banking may be on the decline. (T/F)

True

Banks which offer virtually all financial services are known as universal banks. (T/F)

True

Current theory suggests that banks exist because of imperfections in our financial system. (T/F)

True

Lending institutions act as delegated monitors and can diversify and reduce their risk exposure, resulting in increased safety for savers' funds. (T/F)

True

Life insurance companies, securities firms, and mortgage companies all compete with the traditional bank. (T/F)

True

The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table". (T/F)

True

The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role. (T/F)

True

The role performed by banks in which they stand behind their customers when those customers are unable to pay a debt obligation is known as the guarantor role. (T/F)

True

In the United States a commercial bank qualifies as a "bank" under federal law if it offers: A. Consumer installment loans, CDs B. Savings deposits, commercial loans C. Checking accounts, commercial loans D. Security investments, inventory loans to business customers E. Commercial deposit accounts, consumer savings plans

C. Checking accounts, commercial loans

The Edmond National Bank serves only the City of Edmond, Oklahoma and concentrates on providing the best possible service to this city. What type of bank is this most likely to be? A. Virtual Bank B. Mortgage Bank C. Community Bank D. Affiliated Bank E. None of the above

C. Community Bank

30. In banking, organizational form follows __________ because banks usually are organized in such a way as to carry out the tasks and supply the services demanded of them. The term that correctly fills in the blank in the sentence above is: A. Bank size B. Management's decision C. Function D. Regulation E. Location

C. Function

Banks perform the indispensable task of: A. Creating money without making loan. B. Absorbing the excess liquidity created by other financial institutions C. Intermediating between surplus-spending individuals or institutions and deficit-spending individuals or institutions D. Issuing risky deposits E. None of the above

C. Intermediating between surplus-spending individuals or institutions and deficit-spending individuals or institutions

The banking services that includes executing buy and sell orders for security trading customers and marketing new securities to raise funds for corporations and other institutions is referred to: A. Comprehensive Packaging B. Wrap-around Accounts C. Investment Banking D. Professional Banking E. None of the above.

C. Investment Banking

The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bank who invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer is the Bartholemew bakery taking advantage of? A. Getting a consumer loan B. Getting financial advice C. Managing cash D. Getting venture capital services E. Buying a retirement plan

C. Managing cash

Which of the following is considered a depository financial institution? A. Mortgage company B. Mutual fund C. Savings and Loan associations D. Federal Reserve E. Insurance company

C. Savings and Loan associations

Banks like the Medici Bank in Italy and the Hochstetter Bank in Germany were successful because and they responded well to these new needs. A. Loans to the poor often carried high interest rates B. Loans and deposits were primarily for wealthy customers C. The Industrial Revolution demanded new methods of making payments and obtaining credit D. Savings and wealth were lost due to war, theft and expropriation by governments E. All of the above

C. The Industrial Revolution demanded new methods of making payments and obtaining credit

Alexander Phua goes to his local bank and gets an insurance policy that protects him against loss in case he is in a car accident. Which of the following roles is the bank performing? A. The intermediation role B. The payment role C. The risk management role D. The guarantor role E. The policy role

C. The risk management role

Which of the following types of banks would most likely offer the largest number of financial services? A. A retail bank B. A community bank C. A commercial bank D. A universal bank E. An international bank

D. A universal bank

Wholesale banks are those banks that: A. Sell at a discount relative to all commercial banks B. Only make loans to the wholesale industry C. Lend almost exclusively to farmers D. Are large banks which serve corporations and government E. Have only retail customers

D. Are large banks which serve corporations and government

Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount he would spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide is he taking advantage of? A. Risky arbitrage services B. Liquidity services C. Ability of the bank to evaluate information D. Divisibility of money services E. Credit services

D. Divisibility of money services

MyWebCast is a new company that makes it easy for individuals to create streaming videos on the internet to share with friends and family for a small fee. MyWebCast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is MyWebCast taking advantange of? A. Getting a consumer loan B. Getting financial advice C. Managing cash D. Getting venture capital services E. Buying a retirement plan

D. Getting venture capital services

35. One of the few states that has opted out of interstate banking is: A. New York B. Ohio C. Texas D. Montana E. None of the above

D. Montana

Which of the following is considered a fringe bank? A. Community Bank B. Wholesale Bank C. Merchant Bank D. Payday Lender E. None of the above

D. Payday Lender

Which of the following is a trend that has affected all banks today? A. Increased isolation of banks in the U.S. B. Decreased competition from other financial institutions C. Decreased amount of services provided by modern banks D. Rising funding costs E. Increased regulations

D. Rising funding costs

Early European banks were places for safekeeping of wealth because: A. Loans to the poor often carried high interest rates B. Loans and deposits were primarily for wealthy customers C. The industrial revolution demanded new methods of making payments and obtaining credit D. Savings and wealth were lost due to war, theft and expropriation by governments E. All of the above

D. Savings and wealth were lost due to war, theft and expropriation by governments

A bank which manages the investment portfolio and pays the bills of an elderly customer who is unable to do it for him or herself is carrying out the __________ of banks. A. The intermediation role B. The payment role C. The guarantor role D. The agency role E. The policy role

D. The agency role

The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit. Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan, Bank of America will. Which of the following roles is the bank performing? A. The intermediation role B. The payment role C. The risk management role D. The guarantor role E. The policy role

D. The guarantor role

34. In the United States there are close to __________ commercial banks in operation. Which number shown below is closest to the actual total number of U.S. banks operating in the U.S.? A. 20,500 B. 13,500 C. 11,500 D. 9,000 E. 7,500

E. 7,500

The principal functions and services offered by many financial-service firms today include: A. Lending and investing money B. Making payments of behalf of customers to facilitate their purchases of goods and services C. Managing and protecting customers' cash and other property D. Assisting customers in raising and investing funds profitably E. All of the above

E. All of the above

32. The largest banks possess some potential advantages over small and medium-size banks, according to the textbook. What specific advantage of the largest banks over small and medium-sized banks is not mentioned in the text? A. Greater diversification geographically and by product line B. Availability of financial capital at lower cost C. Greater professional expertise to allocate capital to the most promising products and services D. Better positioned to take advantage of the opportunities afforded by interstate banking. E. All of the above were mentioned in the text as advantages typically possessed by the largest banks.

E. All of the above were mentioned in the text as advantages typically possessed by the largest banks.

Included among leading structural trends in the U.S. banking industry in recent years are: A. The number of independently owned banks has declined B. The average size of individual banking firms has increased C. Entry across state lines from neighboring states has increased D. A and B only E. All of the above.

E. All of the above.

Which of the following has been an important trend regarding consolidation and geographic expansion in banks? A. Increased bank branching activity B. The formation of more holding companies to purchase smaller banks C. Mergers among some of the largest banks in the industry D. A and C above E. All of the above.

E. All of the above.

Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on making regular contributions to this account until she retires. Which of the financial services is Chandriga taking advantage of? A. Getting a consumer loan B. Getting financial advice C. Managing cash D. Getting venture capital services E. Buying a retirement plan

E. Buying a retirement plan

Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator for his condo. What service that a bank provides is he taking advantage of? A. Risky arbitrage services B. Liquidity services C. Ability of a bank to evaluate information D. Divisibility of money services E. Credit services

E. Credit services

During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of Bear Stearns reaffirmed the importance of the fundamental principle of: A. Superior management B. Globalization C. Government bailout D. Regulatory arbitrage E. Public trust and confidence in the system

E. Public trust and confidence in the system