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econ423finalreviewanswer - Practice Problems — Chapter 18...

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Unformatted text preview: Practice Problems — Chapter 18 For Final Exam Review Econ 423, Summer 2009 Lauren Heller Name L: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The modern commercial banking system began in America when the A) Bank of the United States was chartered in New York in 1801. Bank of North America was chartered in Philadelphia in 1782. C) Bank of North America was chartered in New York in 1782. D) Bank of the United States was chartered in Philadelphia in 1801. 2) A major controversy involving the U.S. banking industry in its early years was A) what percent of deposits banks should hold as fractional reserves. 13 whether banks should be allowed to issue their own ba nk notes. (City-whether the federal government or the states should charter banks. ED) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. 3) The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the A) Treasury Department. C) bank of settlement. IB)__\commerCial bank. 11))ycentral bank. 4) Th}5econd Bank of the United States was denied a new charter by KAJ/President Andrew Jackson. B) V i ce— President Iohn Calhoun. C) President John Q. Adams. D) President Benjamin Harrison. 5) Before 1863, A) the Comptroller of the Currency regulated both state— and federally—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. (gybanks acquired funds by issuing banknotes. federally— chartered banks had regulatow advantages not granted to state—chartered banks. E) the Federal Reserve System regulated only federally— chartered banks. 6) Although federal banking legislation in the 18603 attempted to eliminate stateechartered banks by tin/posing a prohibitive tax on banknotes, these banks have been able to stay in business by i‘A)"issuing deposits. B) branching into other states. C) issuing credit cards. D) ignoring the regulations. '7) 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) federal government; states C) municipalities; states ) state governments; municipalities 4) 8) The Federal Reserve Act required all System, while A) state; municipal C) national; municipal banks to become members of the Federal Reserve banks could choose to become members of the system. (EL-national; state D) state; national 9) With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System to purchase FDIC insurance for their depositors, while non—member commercial banks to buy deposit insurance. /A)i were required, could choose El could choose; were given the option B) were required; were required D) could choose; were required. '10) Investment banking activities of the commercial banks were blamed for many bank failures. This led to A) the passage of the Carri—St. Germain Act of 1982. B) the passage of the National Bank Act of 1863. "/C)lthe passage of the Glass—Steagall Act of “1933. K0) the passage of the National Bank Charter Amendments Act of 1918. E) the establishment of the Federal Deposit Insurance Corporation in 1933. 11) The Glass»Steagall Act prohibited commercial banks from A) issuing equity to finance bank expansion. {(13) selling new issues of government securities. engaging in underwriting of and dealing in corporate securities. D) purchasing any debt securities. 12) State banks that are not members of the Federal Reserve System are most likely to be examined by 31?"; WFederal Deposit Insurance Corporation. C) Federal Home Loan Bank System. B) Comptroller of the Currency. D) Federal Reserve System. 13) Which regulatory body charters national banks? A) The Federal Reserve @The Comptroller of the Currency C) The Federal Deposit Insurance Corporation D) None of the above 14) Which of the following statements concerningr bank regulation in the United States are true? A) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank -/ "holding companies. @fil‘he 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 the primary responsibility for state banks that are members of the Federal Reserve System. D) All of the above are true. E) Only A and B of the above are true. N “I 8) L/ a ..=\ 9} If) 10) "xe/ x". 11) C... 15) Which of the following are important factors in determining the degree and timing of financial 15) .__/ innovation? A) Changes in financial market conditions B) Changes in technology fl‘Changes in regulation L'D :‘All of the above B) Only A and B of the above 16) New computer technology has 16) / A) increased the cost of financial innovation. B) reduced the demand for financial innovation. (C) increased the demand for financial innovation. reduced the cost of financial innovation. A 17) Rising interest—rate risk the financial innovation. 17) lb/ A) reduced; demand for B) increased; cost of increased; demand for D) reduced; cost of 18) Adjustabie—rate mortgages 18) A) protect households against higher mortgage payments when interest rates rise. B) have many attractive attributes, explaining why so few households now seek fixedwrate mortgages. C) keep financial institutions earnings high even when interest rates are falling. do only A and B of the above. @)none of the above. 19) Credit cards date back to m 19) A) just after World War ll. @prior to World War 11. C) the late 1950s ) the early 1950s. p. I' 20) A firm issuing credit cards earns income from 20) A) payments made to it by stores on credit card purchases. B) loans it makes to credit card holders. C) payments made to it by manufacturers of the products sold in stores on credit card purchases. 2) all of the above. K.5); only A and B of the above. (“‘1 21) The entry of Sears, AT&T and GM into the credit card business is an indication of 21) -.~_// A) the reduction in costs of credit card operations since 1990. B) the sale of unprofitable operations by Bank of America and Citicorp. up) government's efforts to deregulate the provision. of financial services. the rising profitability of credit card operations. f x. f l 22) Which of the following is an example of a financial innoyation introduced to avoid regulations? 22) A) Junk bond B) Debit card {(3)}Sweep account D) Securitization 23) "S 'pping" a Treasury bond Q95)! 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. 24) High—yield bonds rated below investment grade by the bond—ra tin g agencies are frequently refe’rrecl to as (A ijunk bonds. N ) municipal bonds. B) "fallen angels." D) Yankee bonds. 25) Of all residential mortgages, approximately are now securitized. 5;) two— fifths two— thirds ) one-fourth D) three—fourths E) one—half 26) In the usual GNMA pass—through security. the of the portfolio of mortgage loans. buyer B) seller C) financial institution issuing the mortgage loan D) financial institution securitizing the mortgage loan has direct ownership of a pro—rata share 27) Bank managers look on reserve requirements as a Al‘subsidy on loans. B) subsidy on deposits. {C ,e’tax on deposits. D) tax on loans. 28) Burdensorne regulations, along with inflation and rising interest rates, help to explain A) the low rate of bank failures in the 1980s. @lhe rapid pace of financial innovations in banking in the 1960s and 1970s. C) both A and B of the above. D) neither A nor B of the above. 29) The Federal Reserve's Regulation Q A) set minimum interest rates banks could pay on deposits. B) discouraged disintermediation. C.) set maximum interest rates banks could charge on loans. 7 '- . . . i: D);'set maxrmum interest rates banks could pay on deposits. w 30) When disintermediation occurs the banking system deposits and bank lending A) loses; increases C) gains; increases riflgains; decreases eyescs; decreases 31) Which of the following is not a reason for the disappointing revenue growth and profits of Internet—-onl.y banks? A) technical problems (fa/high cost per transaction 13) customer preferences D) security concerns x. 23) It“) 3:1- 24) f". 25) a 26) _.-"_—' 32) ltrnow appears that the predominant delivery system for banking services in the future will be traditional banks supplemented with online services. B) Tnternet—only banks. C) traditional banks. D) none of the above. 33) Since 1974, c0mmercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around 20/04. 6) 35; 25 34) The traditional financial intermediation role of banking has been to make and to fund them with -term deposits. A) short; long B) long; long percent of total credit advanced to near percent by B) 25; 20 c.) 60; 30 D) 30; 15 —term loans a" D "lon ,' short \) g C) short; short 35) The most important developments that have reduced banks' cost advantages in the past twenty years include A) the growth of securitization. Fa" ‘- ' . _ . ' B) the competltion from. money market mutual tunds. \C) the growth of the junk bond market. D) all of the above. B) only A and B of the above. 36) Th presence of so many commercial banks in the United States is most likely the result of éjregulations that restrict the ability of banks to open branches. B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks. C) consumers' strong preference for dealing with only local banks. D) all of the above. 37) 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. 6' Both A and B. D) None of the above. 38) As a result of sha red electronic banking facilities, A) banking has become less competitive. (\ly barriers to branching have become less burdensome. C) both of the above have occurred. D) neither of the above has occurred. 39) Since the passage of the international Banking Act of '1978, the competitive advantage enjoyed by foreign banks has been A) mildly expanded. C) greatly expanded. @ieduced. D) completely eliminated. 40) in 1975, financial institutions developed financial derivatives that include A) virtual bank. 13) financial engineering. C) adjustable—rate mortgage. futures contracts. \_/ Ln i" "l 35) a“; 15.3:- / -_./ 38) ...
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This note was uploaded on 08/31/2009 for the course ECON 423 taught by Professor Vd during the Summer '08 term at UNC.

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econ423finalreviewanswer - Practice Problems — Chapter 18...

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