Fin 307 S07 L. Pierson Doti Study Questions Chapters 8-14 <a href="/keyword/financial-institution/" >financial institution</a> s Intro Chapter 8 1. Explain why <a href="/keyword/financial-institution/" >financial institution</a> s exist, from the point of view of the economy and from their own advantages over individual direct transactions. 2. Explain asymmetric information problems and how they relate to <a href="/keyword/financial-institution/" >financial institution</a> management. 3. Describe the following types of non-depository FIs. Give examples within each group. How does each acquire and invest funds? Who regulates each type? A. Securities Market B. Insurance C. Pension funds D. Government Credit Agencies E. Finance Companies F. Investment Companies 4. Explain why a contributory pension fund is the best investment possible for most people starting their first job. 5. Explain the difference between defined benefit and defined contribution pension funds. 6. When would you need an investment bank? 7. Describe the three types of depository <a href="/keyword/financial-institution/" >financial institution</a> s. 8. Explain how Glass Steagall 1933 and Gramm-Leach-Bliley 2000 affected <a href="/keyword/financial-institution/" >financial institution</a> consolidation. Terms for Chapter 8 FI economies of scale Whole life Term life Hedge funds Portability Fannie Mae Freddie Mac Securities Market Investment banks Brokers Dealers Insurance Property casualty insurance Permanent life Pension funds Vesting Contributory Defined benefit Defined contribution Government Credit Agencies Finance Companies Mutual Funds REIT Investment Banks Depository <a href="/keyword/financial-institution/" >financial institution</a> s Commercial Banks, Savings Banks and Credit Unions Chapter 9 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. What two activities define a bank? How did the US get dual banking? What was the Bank of the United States? What was the Second Bank of the US? Why did each of the above BUS fail? What was &quot;free&quot; about the Free Banking Era 1836 1864? How did the 1863 National Banking System create a &quot;two-tiered&quot; system? How did the Federal Reserve System differ from NBS? What changes occurred in the Fed's structure in the 1930s? List and describe the major items on a bank balance sheet. Explain how banks account for reserves against loan losses. Fin 307 S07 L. Pierson Doti 12. Who determines required reserves? 13. Describe the following catagories of loans and their importance to banks. a. Agricultural b. Real estate c. Commercial d. Consumer 14. Describe the types of bank deposits. Explain how significant each is to bank balance sheets. 15. How much is bank capital, compared to assets? 16. How do savings institutions compare to banks? 17. What are credit unions and how are they changing? Terms for Chapter 9 National or state charters Bank of the United States Second Bank of the US Free Banking National Banking National Banking System Federal Reserve System Bank Balance Sheet Dual Banking Reserves Vault cash Required reserves Excess reserves Cash items in process of collection Secondary reserves Loans Agricultural Loans Real estate Loans Commercial Loans Chapters Depository Institutions Management Chapter 10 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. List and describe the main items on the bank income statement. What are the main sources and uses of bank funds? Describe the main costs of making loans. Describe the main costs of accepting deposits. Explain how the MR/MC model applies to banks What can banks do to differentiate themselves from other banks? Describe the biggest source of bank revenues. Describe the biggest item of bank cost. Explain why interest rates do move together. Explain why interest rates do not move together. Explain how changes in the yield curve can affect bank profits Describe the overall bank profitability levels and what has happened to them recently. Deposit cost Interest expense Real resources Cost of deposit Consumer Loans Bank physical capital Transaction deposits Non-transaction deposit Discount loans Fed funds Repurchase agreements Capital Equity Retained earnings Loan loss reserves Savings Institutions Credit Union Membership Branch banking Bank run Installment credit Collateral Vault Cash Terms for Chapter 10 Interest earned Fees Costs Loan cost Fin 307 S07 L. Pierson Doti ROA Credit derivatives ROE Net interest margin Depository Institution Regulation Chapter 11 Explain how camels relate to banking. Describe the advantages and disadvantages of branch banking. Describe the advantages and disadvantages of insurance on bank deposits. Describe each of the agencies that regulate depository institutions. Describe the advantages and disadvantages of usury laws. Explain the changes in financial regulation in the 1980s. How did this contribute to widespread S&amp;L failures? 7. What are the trends in regulation in the 1990s to the present? Terms Chapter 11 CAMELS Rating Capital Assets Management Earnings Liquidity Safety Liquidity Solvency Branching McFadden Act 1927 Glass-Steagall Act 1933 Efficiency Information access FDIC FSLIC Usury Disintermediation DIDMC 1980 Gramm-Leach-Bliley Act 1999 Garn-St. Germain 1982 1. 2. 3. 4. 5. 6. Depository Institutions and Money Chapter 13 1. Describe each of the players and their role in money creation. 2. Use T-accounts to explain the deposit multiplier process. 3. Explain why the deposit multiplier is: _1__ [rr+ e + c] 4. If the reserve requirement is 10%, the excess reserves are 2% and the currency ratio is 23%, what is the deposit multiplier? 5. If the deposit multiplier is 3, what is the maximum amount of deposits that can be created with new excess reserves of $2000? 6. If a deposit of $5000 in new funds comes into the banking system, what is the amount of new excess reserves? 7. What is the money multiplier? 8. Use T-accounts to show the amount of new money that can be created with a reserve requirement of 10%, excess reserves at 5% and the currency ratio at 25%. Show 5 rounds. 9. With reserve requirement of 10%, excess reserves at 5% and the currency ratio at 25%, what is the maximum amount of M1 created? 10. Do 5 to 9 several times, changing the numbers! 11. Explain the M2 multiplier. Terms Chapter 13 Fin 307 S07 L. Pierson Doti Required reserve ratio Required reserves Excess reserves Excess reserve ratio Loaned-up Deposit expansion multiplier Chapter 14 Central Banks 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Describe each of the usual functions of a central bank. Describe the circumstances leading to the establishment of the Fed. Explain why the Fed has twelve banks instead of one. Describe how the Fed conducted monetary policy prior to the 1930s. Who led the Fed bankers in the 1920s? Describe the change in the Fed structure that occurred in the 1930s. What changes in the Fed policies occurred from WWII to the present? Describe the modern Fed structure. Describe the members and the powers of the Board of Governors. Why is the FOMC so important? Describe the powers and duties the 12 Fed banks have today. Money multiplier T-account Total reserves Monetary base Currency ratio Terms to Know Chapter 14 Bank of England European Central Bank Bank of the United States Second BUS Free banking Greenbacks Gold Standard Bimetallism Panics Federal Reserve System Lender of last resort FR districts FR Banks Member banks FR Board FOMC FOMC directive Paperless system Discount rate Benjamin Strong FR Independence US Treasury Trading desk Discount window OMO Repurchase agreements Open window Alexander Hamilton Continental note Bimetallic backing Andrew Jackson