FIN 3313 Exam 2 Review
In 1927, Congress passed the _________, which forbade a bank from operating in more than one state and required national banks to abide by the state banking laws of the state in which they operated.
McFadden Act
Which of the following Acts established the Comptroller of the Currency as an Office to the U.S. Treasury?
National Banking Act of 1863
When investment banks buy or sell securities on their own account, it's called
proprietary trading.
Restrictive covenants
put restrictions on the use of borrowed funds.
Finance companies
raise funds in financial markets to lend to households and firms
With the decline in commercial and industrial loans has come an increase in:
real estate loans.
One of the Securities and Exchange Commission's main goals is to:
reduce information asymmetries.
The most liquid form of assets on a bank's balance sheet are:
reserves.
A cash item in the process of collection is
a check drawn against another bank, from whom the funds have not yet been collected.
The increased use of credit cards has led to:
a decline in consumer loans.
A syndicate is
a group of investment banks underwriting a large security issue.
Banks use repurchase agreements to
borrow funds from business firms or other banks.
The assumption of asymmetric information means that
borrowers know more than lenders.
A letter of credit is effectively a(n) ___________ against a loan default
insurance policy
The "lemon problem" in the used car market arises from
the difficulty buyers have in distinguishing good cars from lemons.
The phrase dual banking system refers to
the system whereby depository institutions are regulated by at least two federal financial regulatory agencies.
One method that lenders use to mitigate the adverse selection problem is
to incorporate a program of credit rationing.
A bank's reserves are equal to:
vault cash plus deposits at the Fed.
The free-rider problem arises:
when people benefit from a good without paying for it.
The FDIC was created in
1933 by Congress as a result of the banking collapse in the early years of the Great Depression.
Why do higher interests rates increase adverse selection problems in the loan market?
As interest rates rise, the creditworthiness of the average loan applicant declines.
National banks are chartered by the:
Comptroller of the Currency
The ___________________, passed in 1991, enacted regulatory changes intended to insure the safety and soundness of banks and thrifts.
Federal Deposit Insurance Corporation Improvement Act (FDICIA)
Which of the following rules affected hedge funds as a result of the Dodd-Frank Act of 2010?
Large hedge funds must register with the SEC.
The First Hedge Fund to be bailed out was _______. This is notable because it was founded by two _______.
Long-Term Capital Management; Nobel Prize winning Economists
Which asset is sometimes referred to as a bank's secondary reserves?
U.S. government securities
Credit ratings reduce:
adverse selection
A load fund
charges a commission for purchases or sales.
A loan to a commercial bank made directly from the Fed is called a:
discount loan.
The FDIC _______ short-term borrowing by shadow banks, and shadow banks are normally _______ to receive loans from the Fed when they suffer liquidity problems.
does not insure; not eligible
Banks require collateral for loans in order to
ensure that borrowers have significant amounts of their own funds invested in their business.
Overnight bank-to-bank loans are called:
federal funds.
The development of new financial securities or investment strategies using sophisticated models is known as
financial engineering.
Banks deal with problems of adverse selection by
gathering information about the default risk of borrowers.
In a hostile takeover a firm can offer a price for company stock that is __________ than the value __________ approves.
greater than market value but less; management
Money market mutual funds
hold portfolios of short-term assets.
When a bank wishes to build a long-term relationship with a borrower, it may offer:
interest-free loans.
A balance sheet
is a statement showing an individual's or a firm's financial position at a particular point in time.
A bank run involves
large numbers of depositors withdrawing their deposits within a short period of time.
The Glass-Steagall Act was designed to
legally separate investment banking from commercial banking.
The very low interest rates following the financial crisis of 2007-2009 resulted in
many people moving their funds from CDs and money marketaccounts to checking accounts in order to have more liquidity without sacrificing much interest
The purpose of collateral and restrictive covenants is to reduce_______ in loan contracts.
moral hazard
The 'shadow banking system' refers to
nonbank financial institutions such as investment banks and hedge funds.
The Gramm-Leach-Bliley Act
passed in 1999, allowed certain bank holding companies to be certified as financial holding companies and permitted the entity to engage in a broad array of financial and nonfinancial activities furthering the deregulation movement.
What are the two main objectives of policymakers in restoring the Glass-Steagall Act?
reduce risk in the financial system and reduce the size of banks
A ___________ is when a bank sells a security to another institution with a promise to buy it back later at a higher price.
repurchase agreement
Moral hazard arises from
savers' difficulties in monitoring borrowers.
Mutual funds
sell shares to savers and purchase assets with the funds.
Why are U.S. government securities referred to as a bank's secondary reserves?
They are very liquid.
