FINC 409 Chapter 3 Questions

Today, reserve requirements imposed by the Federal Reserve apply only to member banks.

F Monetary Control Act

.Investment banks accept deposits and makes loans to individuals and businesses.

F commercial banks do this

Investment banking firms assist individuals to purchase new or existing securities issues or to sell previously purchased securities.

F definition of brokerage firms

Credit risk is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.

F definition of liquidity risk

.Secondary reserves are vault cash and deposits held at other depository institutions and at Federal Reserve Banks.

F definition of primary reserves

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

A

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

A

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

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

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

A

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

If $8,300 is deposited 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

___________ 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

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

A

Limited branch banking: a. permits banks to located 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

Primary reserves a. include the cash assets of the firm under the heading "cash and balances due from depository institutions. b. are short term securities held by banks that are quickly converted into cash at little cost to the banks. c. reflects the bank's ability to meet depositor withdrawals. d. reflects the bank's ability to keep the value of a bank's assets greater than its liabilities.

A

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 the above e. none of the above

A

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

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

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

A

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

A

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

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

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

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 are part of a bank's Owner's Capital

A

________ 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

____________ 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

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

B

. 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 abov

B

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

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

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

If $8,500 is borrowed on a discount basis and the rate is 6 percent, the 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

If you received $7,990 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

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

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

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

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

B

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

B

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 located within a geographically defined distance of the main office d. none of the above

B

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

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

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

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 the above

B

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

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

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

B

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 risk c. liquidity risk d. capital adequacy risk

B

The principal liabilities of depository institutions are: a. certificates of deposits b. deposits c. loans d. all the above

B

The three basic ways to clear a check through the U.S. banking system includes all of the following EXCEPT: a. through a Federal Reserve Bank b. through the U.S. Treasury Bank c. through a bank clearinghouse d. bank to bank

B

__________ 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

___________ 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

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

C

An organization that received contributions from employees and/or their 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

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

If $1,500 is deposited 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

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

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

Reasons that banks become insolvent include all of the following EXCEPT: a. excessive credit risk b. interest rate risk c. insufficient collateral d. all of the above are correct

C

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 the above

C

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

The function of adequate 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

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 fund rate c. prime rate d. all the above

C

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

C

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

C

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

C

Which of the following are not thrift institutions? a. credit unions b. savings and loan institutions c. commercial banks d. all the above

C

Which of the following institutions is not part of the modern banking system (depository institutions)? a. credit unions b. savings and loan associations c. mutual funds d. savings banks

C

Which of the following is not an asset of depository institutions? a. cash b. unsecured loans c. time deposits d. U.S. government securities

C

Which of the following statements is most correct? a. The Gramm-Leach-Bliley Act of 1999 provides the basis for modern bank regulation. b. The Federal Reserve System was created in large measure to force state chartered banks into conformity with nationally chartered banks. c. "Wildcat banking" during the first half of the 1800s 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 the above statements are equally correct.

C

_________ 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

___________ 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

. If $5,200 is deposited 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

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

An organization that provides 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

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

D

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

D

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

D

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

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

The _______________________ was designed to reduce or eliminate interest rate limitations and increase access to various sources of funds available to banks and thrifts and expand the Federal Reserve's control over thrifts and non-member banks. a. Glass Steagall Act b. Gramm-Leach-Bliley Act c. Garn-Saint Germain Act d. Depository Institutions Deregulation and Monetary Control Act

D

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

D

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

D

The notes of the Bank of North America a. served as a circulating medium of exchange b. loaned liberally to the government c. were redeemed in metallic coins upon demand d. all the above e. none of the above

D

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

D

_______ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ originate 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

_________ 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

_________ 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

. 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

The prime rate of interest has been relatively stable during the past twenty-five years.

F

_________ 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

_________ 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

_________ 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. Personal service firms c. Investment banking firms d. Brokerage firms e. none of the above

E

_________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ originate 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

__________ 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

__________ 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

__________ sell or market new securities issued by businesses to individual and institutional investors, whereas ______________ firms 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

___________ accept savings from 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

.Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

F

.The bank holding company may not engage in direct banking activities.

F

Savings and loan associations are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

F

The Monetary Control Act prohibited the Federal Reserve from controlling thrift institutions.

F

The U.S. banking system as it exists today is relatively unchanged since just before the Civil War.

F

Insurance companies receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

F definition on pension funds

Commercial banks provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes

F finance companies provide loans directly to consumers and businesses

The primary types of assets on a bank's balance sheet include cash and deposits.

F loans are 59% of assets, deposits are a liability not an asset

Mortgage banking firms provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes

F they don't provide loans directly to consumers and businesses, finance companies do this

Investment banking firms sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities

F they sell or market new securities issued by other businesses to individuals and corporate investors

An investment bank accepts deposits, makes loans, and issues checking accounts

F this is the definition of a commercial bank

.Commercial banks accept deposits and makes loans to individuals and businesses.

T

Bank solvency reflects the ability to keep the value of a bank's assets greater than its liabilities.

T

Credit risk is the chance of nonpayment or delayed payment of interest or principal.

T

Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

T

Depository institutions include commercial banks, savings and loans, savings banks, and credit unions.

T

Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates.

T

International banking exists when banks operate in more than one country

T

Investment banking firms sell or market new securities issued by businesses to individual and institutional investors.

T

Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

T

Major types of financial institutions in the U.S. include commercial banks, mutual funds, insurance companies, and pension funds.

T

Mutual funds are open-end investment companies that can issue an unlimited number of shares to its investors and use the pooled proceeds to purchase corporate and government securities.

T

Part of the reason that the Banking Act of 1933 was passed was in response to the large numbers of bank failures.

T

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

T

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees.

T

The Basel Accord was an agreement between major central banks to adopt capital adequacy requirements for internationally involved banks.

T

The Federal Reserve Act of 1913 created a system of central banks in the United States

T

The Glass-Steagall Act was repealed with the passage of the Gramm-Leach-Bliley Act of 1999.

T

The National Banking Act of 1864 made it possible for banks to receive federal charters

T

The effective rate of interest is generally lower on a standard loan than an otherwise equivalent discount loan.

T

The largest type of assets on a bank's balance is loans.

T

The largest type of liabilities on a bank's balance sheet is deposits.

T

The main provisions of the Monetary Control Act of 1980 are deregulation and monetary control.

T

The principal assets of depository institutions are cash, securities, loans, and fixed assets.

T

.Branch banks are those banking offices that are controlled by a single parent bank.

T branch banking allows a bank to have more than one full-service office