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Unformatted text preview: Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 18 1 Commercial Banking Industry: Structure and Competition 18.1 Multi ple Choi ce 1) The modern commercial banking system began in America when the A) Bank of the B) United States was chartered in New York in 1801. Bank of North America was chartered in Philadelphia in 1782. C) Bank of the D) United States was chartered in Philadelphia in 1801. Bank of North America was chartered in New York in 1782. Answer: B Question Status: Previous Edition 2) A major controversy involving the U.S. banking industry in its early years was A) whether banks accept deposits and make loans or whether these functions should be separated into different should both institutions. B) whether the C) federal government or the states should charter banks. what percent of deposits banks should hold as fractional reserves. D) whether banks should be allowed to issue their own bank notes. Answer: B Question Status: Previous Edition 3) The nt institution that has responsibility for the amount of money and credit supplied in the economy as a governme whole is the A) central bank. B) commercial C) bank. bank of D) settlement. Treasury Department. Answer: A Question Status: Previous Edition 4) Because abuses by state banks and the clear need for a central bank to help the federal government raise funds of the during the War of 1812, Congress created the A) First Bank of B) the United States in 1812. Bank of North America in 1814. C) Second Bank of the United States in 1816. D) Federal Reserve System in 1813. Answer: C Question Status: Previous Edition 5) The Second Bank of the United States was denied a new charter by A) President B) Andrew Jackson. Vice-President John Calhoun. C) President D) Benjamin Harrison. President John Q. Adams. Answer: A Question Status: Previous Edition 6) Before 1863, A) federallyB) chartered banks had regulatory advantages not granted to state-chartered banks. the number of chartered banks grew at a much faster rate than at any other time since the end of the Civil War. federallyC) banks acquired funds by issuing banknotes. D) the Federal E) Reserve System regulated only federally-chartered banks. the Comptroller of the Currency regulated both state- and federally-chartered banks. Answer: C Question Status: Previous Edition 7) Before 1863, A) the Federal B) Reserve System regulated only federally-chartered banks. the Comptroller of the Currency regulated both state- and federally-chartered banks. C) the number of chartered banks grew at a much faster rate than at any other time since the end of the Civil War. federallyD) none of the above. Answer: D Question Status: Previous Edition 8) Although banking legislation in the 1860s attempted to eliminate state-chartered banks by imposing a prohibitive federal tax on banknotes, these banks have been able to stay in business by A) issuing credit cards. B) ignoring the C) regulations. issuing D) deposits. branching into other states. Answer: C Question Status: Previous Edition 9) The belief failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage that bank of A) the National B) Bank Charter Amendments of 1918. the Glass-St. C) Germain Act of 1982. the National D) Bank Act of 1863. none of the above. Answer: C Question Status: Previous Edition 10) To the abuses of the state-chartered banks, the _________ created a new banking system of federally eliminate chartered banks, supervised by the _________ A) National B) Banking Act of 1863; Office of the Comptroller of the Currency. Federal Reserve Act of 1863; Office of the Comptroller of the Currency. C) National D) Banking Act of 1863; Office of Thrift Supervision. Federal Reserve Act of 1863; Office of Thrift Supervision. Answer: A Question Status: Previous Edition 11) The National Banking Act of 1863, and subsequent amendments to it, A) created a B) banking system of federally-chartered banks. established the Office of the Comptroller of the Currency. C) broadened the regulatory powers of the Federal Reserve. D) did all of the E) above. did only A and B of the above. Answer: E Question Status: Previous Edition 12) The system that has evolved in the United States whereby banks are regulated at the state level, the national regulatory level, or both, is known as a A) bilateral B) regulatory system. tiered C) regulatory system. two-tiered D) regulatory system. dual banking system. Answer: D Question Status: Previous Edition 13) Today the States has a dual banking system in which banks supervised by the _________ and by the _________ United operate side-by-side. A) federal B) government; municipalities state C) governments; municipalities federal D) government; states municipalities; states Answer: C Question Status: Previous Edition 14) The Federal Reserve Act of 1913 required that A) state banks be subject to the same regulations as national banks. B) national banks establish branches in the cities containing Federal Reserve banks. C) national banks join the Federal Reserve System. D) all of the above be done. Answer: C Question Status: Previous Edition 15) The Federal Reserve Act required all _________ banks to become members of the Federal Reserve System, while _________ banks could choose to become members of the system. A) state; national B) state; municipal C) national; state D) national; municipal Answer: C Question Status: Previous Edition 16) With the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System _________ to creation purchase FDIC insurance for their depositors, while non-member commercial banks _________ to buy of the deposit insurance. A) could choose; were required B) could choose; were given the option C) were required, could choose D) were required; were required Answer: C Question Status: Previous Edition 17) With the creation of the Federal Deposit Insurance Corporation, A) member banks Reserve System were given the option to purchase FDIC insurance for their depositors, while nonof the Federal member commercial banks were required to buy deposit insurance. B) member banks Reserve System were required to purchase FDIC insurance for their depositors, while non-member of the Federal commercial banks could choose to buy deposit insurance. C) both member member banks of the Federal Reserve System were required to purchase FDIC insurance for their and nondepositors. D) both member member banks of the Federal Reserve System could choose, but were not required, to purchase and nonFDIC insurance for their depositors. Answer: B Question Status: Previous Edition 18) Probably significant factor explaining the drastic drop in the number of bank failures since the Great Depression the most has been A) the creation of the FDIC. B) rapid economic growth since 1941. C) the employment of new procedures by the Federal Reserve. D) better bank management. Answer: A Question Status: Previous Edition 19) Investmen t banking activities of the commercial banks were blamed for many bank failures. This led to A) the passage of the National Bank Charter Amendments Act of 1918. B) the passage of the Garn-St. Germain Act of 1982. C) the passage of the National Bank Act of 1863. D) the passage of the Glass-Steagall Act of 1933. E) the establishment of the Federal Deposit Insurance Corporation in 1933. Answer: D Question Status: Previous Edition 20) The Glass-Steagall Act prohibited commercial banks from A) issuing equity to finance bank expansion. B) engaging in C) underwriting of and dealing in corporate securities. selling new D) issues of government securities. purchasing any debt securities. Answer: B Question Status: Previous Edition 21) Which bank regulatory agency has the sole regulatory authority over bank holding companies? A) The Federal B) Deposit Insurance Corporation The C) Comptroller of the Currency The Federal D) Bank Holding Company Agency The Federal Reserve System Answer: D Question Status: Previous Edition 22) State banks that are not members of the Federal Reserve System are most likely to be examined by the A) Federal Reserve System. B) Federal Deposit Insurance Corporation. C) Federal Home Loan Bank System. D) Comptroller of the Currency. Answer: B Question Status: Previous Edition 23) Which regulatory body charters national banks? A) The Federal B) Reserve The Federal C) Deposit Insurance Corporation The D) Comptroller of the Currency None of the above Answer: C Question Status: Previous Edition 24) Which of the following statements concerning bank regulation in the United States are true? A) The Office of the Comptroller of the Currency has the primary responsibility for national banks. B) The Federal state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve and the Reserve System. C) The Fed has D) sole regulatory responsibility over bank holding companies. All of the above are true. E) Only A and B of the above are true. Answer: D Question Status: Previous Edition 25) Which of the following statements concerning bank regulation in the United States are true? A) The Office of of the Currency has the primary responsibility for state banks that are members of the Federal the Comptroller Reserve System. B) The Federal state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve and the Reserve System. C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. D) All of the above are true. E) Only A and B of the above are true. Answer: B Question Status: Previous Edition 26) Which of the following are important factors in determining the degree and timing of financial innovation? A) Changes in B) technology Changes in C) financial market conditions Changes in D) regulation All of the above E) Only A and B of the above Answer: D Question Status: Previous Edition 27) New computer technology has A) increased the B) cost of financial innovation. increased the C) demand for financial innovation. reduced the cost of financial innovation. D) reduced the demand for financial innovation. Answer: C Question Status: Previous Edition 28) Rising interest-rate risk _________ the _________ financial innovation. A) increased; cost of B) increased; C) demand for reduced; cost of D) reduced; demand for Answer: B Question Status: Previous Edition 29) Large fluctuations in interest rates lead to A) substantial B) capital gains and losses to owners of securities. greater C) uncertainty about returns on investments. greater interest- rate risk. D) all of the above. Answer: D Question Status: Previous Edition 30) In the rate on three-month Treasury bills fluctuated between 1.0% and 3.5%. In the 1980s, the three-month 1950s the Treasury bill rate ranged from 5% to over 15%. From this one could predict that in the 1980s interestinterest rate risk was _________ and the demand for financial innovation was _________. A) greater; lower B) greater; greater C) lower; lower D) lower; greater Answer: B Question Status: Previous Edition 31) The most t change in the economic environment that changed the demand for financial products since 1970 has significan been A) the aging of the baby-boomer generation. B) the dramatic C) increase in the volatility of interest rates. the dramatic D) increase in competition from foreign banks. the deregulation of financial institutions. Answer: B Question Status: Previous Edition 32) Adjustabl e-rate mortgages A) protect B) households against higher mortgage payments when interest rates rise. keep financial institutions' earnings high even when interest rates are falling. C) have many D) attractive attributes, explaining why so few households now seek fixed-rate mortgages. do only A and B of the above. E) none of the above. Answer: E Question Status: Previous Edition 33) Adjustabl e-rate mortgages A) benefit B) homeowners when interest rates are falling. reduce financial institutions' interest-rate risk. C) reduce D) households' risk of having to pay higher mortgage payments when interest rates rise. do only A and B of the above. Answer: D Question Status: Previous Edition 34) The most important source of the changes in supply conditions that stimulate financial innovation has been the A) aging of the B) baby-boomer generation. dramatic C) increase in the volatility of interest rates. improvement in information technology. D) dramatic E) increase in competition from foreign banks. deregulation of financial institutions. Answer: C Question Status: Previous Edition 35) Examples of financial services that became practical realities as the result of new computer technology include A) credit cards. B) electronic C) banking facilities. checking D) accounts. all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 36) Credit cards date back to A) prior to World War II. B) just after World War II. C) the early 1950s. D) the late 1950s. Answer: A Question Status: Previous Edition 37) A firm issuing credit cards earns income from A) loans it makes to credit card holders. B) payments made to it by stores on credit card purchases. C) payments made to it by manufacturers of the products sold in stores on credit card purchases. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 38) The entry of Sears, AT&T and GM into the credit card business is an indication of A) government's B) efforts to deregulate the provision of financial services. the rising C) profitability of credit card operations. the reduction in costs of credit card operations since 1990. D) the sale of unprofitable operations by Bank of America and Citicorp. Answer: B Question Status: Previous Edition 39) A smart- card is a form of A) stored-value B) card. credit card. C) debit card. D) e-cash card. Answer: A Question Status: Previous Edition 40) Which of the following is not a financial innovation stimulated by information technology? A) Credit card B) Debit card C) Adjustable-rate mortgage D) Electronic banking Answer: C Question Status: Previous Edition 41) Which of the following is an example of a financial innovation introduced to avoid regulations? A) Securitization B) Junk bond C) Debit card D) Sweep account Answer: D Question Status: Previous Edition 42) "Stripping " a Treasury bond A) means selling each of its future payments as a separate zero-coupon bond. B) decreases the C) total present discounted value of future payments. both A and B. D) none of the above. Answer: A Question Status: Previous Edition 43) So-called fallen angels differ from junk bonds in that A) junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa. B) fallen angels C) refer to newly issued bonds with low credit ratings. junk bonds refer to newly issued bonds with low credit ratings. D) both A and B of the above. Answer: C Question Status: Previous Edition 44) So-called fallen angels differ from junk bonds in that A) junk bonds refer bonds with low credit ratings, whereas fallen angels refer to previously issued bonds which have to newly issued had their credit ratings fall below Baa. B) junk bonds refer issued bonds which have had their credit ratings fall below Baa, whereas fallen angels refer to to previously newly issued bonds with low credit ratings. C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C. D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C. Answer: A Question Status: Previous Edition 45) High- yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as A) municipal B) bonds. Yankee bonds. C) "fallen angels." D) junk bonds. Answer: D Question Status: Previous Edition 46) In 1977, _ pioneered the concept of selling new public issues of junk bonds for companies that had not yet ________ achieved investment-grade status. A) Michael Milken B) Roger Milliken C) Ivan Boskey D) Carl Ichan Answer: A Question Status: Previous Edition 47) The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as A) standardization. B) homogenization . C) securitization. D) adverse selection. Answer: C Question Status: Previous Edition 48) The driving force behind the securitization of mortgages and automobile loans has been A) the rising B) regulatory constraints on substitute financial instruments. the desire of C) mortgage and auto lenders to exit this field of lending. the D) improvement in computer technology. the relaxation of regulatory restrictions on credit card operations. Answer: C Question Status: Previous Edition 49) The of GNMA-guaranteed mortgages into a saleable security (usually for large institutional investors) is bundling called A) disintermediatio n. B) quasiC) intermediation. futures D) bundling. hedge E) optioning. securitization. Answer: E Question Status: Previous Edition 50) Of all residential mortgages, approximately _________ are now securitized. A) one-fourth B) two-fifths C) one-half D) two-thirds E) three-fourths Answer: D Question Status: Previous Edition 51) In the usual GNMA pass-through security, the _________ has direct ownership of a pro-rata share of the portfolio of mortgage loans. A) seller B) buyer C) financial D) institution issuing the mortgage loan financial institution securitizing the mortgage loan Answer: B Question Status: Previous Edition 52) Bank managers look on reserve requirements as a A) tax on deposits. B) subsidy on C) deposits. subsidy on D) loans. tax on loans. Answer: A Question Status: Previous Edition 53) Checking accounts that earn interest (such as NOW accounts) were not available until A) 1962. B) 1972. C) 1982. D) 1992. Answer: B Question Status: Previous Edition 54) Burdenso me regulations, along with inflation and rising interest rates, help to explain A) the rapid pace of financial innovations in banking in the 1960s and 1970s. B) the low rate of bank failures in the 1980s. C) both A and B of the above. D) neither A nor B of the above. Answer: A Question Status: Previous Edition 55) The Federal Reserve's Regulation Q A) set maximum interest rates banks could pay on deposits. B) set minimum C) interest rates banks could pay on deposits. set maximum interest rates banks could charge on loans. D) discouraged disintermediation. Answer: A Question Status: Previous Edition 56) When disintermediation occurs the banking system _________ deposits and bank lending _________. A) gains; increases B) gains; decreases C) loses; increases D) loses; decreases Answer: D Question Status: Previous Edition 57) Which of the following is not a reason for the disappointing revenue growth and profits of Internet-only banks? A) high cost per B) transaction security C) concerns customer D) preferences technical problems Answer: A Question Status: Previous Edition 58) It now appears that the predominant delivery system for banking services in the future will be A) Internet-only B) banks. traditional C) banks. traditional D) banks supplemented with online services. none of the above. Answer: C Question Status: Previous Edition 59) The growing use and proliferation of ATMs has been stimulated by A) lower B) transaction costs. greater C) customer convenience. declining cost of the ATM equipment. D) all of the above. Answer: D Question Status: Previous Edition 60) Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around _________ percent of total credit advanced to near _________ percent by 2004. A) 60; 30 B) 35; 25 C) 25; 20 D) 30; 15 Answer: B Question Status: Previous Edition 61) Thrift institutions' importance as a source of funds for borrowers A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent today. B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today. C) has expanded from around 15 percent of total credit advanced in the late 1970s to above 25 percent today. dramatically, D) has expanded from around 15 percent of total credit advanced in the late 1970s to above 30 percent today. dramatically, Answer: B Question Status: Previous Edition 62) Since the 1970s, thrift institutions' importance as a source of funds for borrowers has shrunk markedly, from above late _________ percent of total credit advanced to below _________ percent today. A) 30; 20 B) 30; 15 C) 40; 5 D) 20; 10 Answer: D Question Status: Previous Edition 63) Bank failures and mergers have caused the number of commercial banks in the U.S. to decline from around _________ in the 1970s to below _________ today. A) 25,000; 10,000 B) 15,000; 10,000 C) 25,000; 20,000 D) 15,000; 5,000 Answer: B Question Status: Previous Edition 64) The financial intermediation role of banking has been to make _________-term loans and to fund them with traditional _________-term deposits. A) short; long B) long; short C) short; short D) long; long Answer: B Question Status: Previous Edition 65) The which people seeking higher interest rates take their money out of financial institutions is called process in A) capital mobility. B) loophole C) mining. disintermediatio n. D) deposit jumping. Answer: C Question Status: Previous Edition 66) One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over _________ percent of banks' source of funds to _________ percent today. A) 70; 30 B) 60; 10 C) 50; 20 D) 40; 15 Answer: B Question Status: Previous Edition 67) The most important developments that have reduced banks' cost advantages in the past twenty years include A) the elimination of Regulation Q ceilings. B) the competition from money market mutual funds. C) the growth of securitization. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 68) The most important developments that have reduced banks' cost advantages in the past twenty years include A) the growth of the junk bond market. B) the competition from money market mutual funds. C) the growth of securitization. D) all of the above. E) only A and B of the above. Answer: B Question Status: Previous Edition 69) The most important developments that have reduced banks' income advantages in the past twenty years include A) the growth of the commercial paper market. B) the growth of the junk bond market. C) the growth of securitization. D) all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 70) The most important developments that have reduced banks' income advantages in the past twenty years include A) the growth of the commercial paper market. B) the growth of the junk bond market. C) the elimination of Regulation Q ceilings. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 71) One ng to the decline in income advantages that banks once had is the increased competition from the factor commercial paper market, which has grown from _________ percent of commercial and industrial bank contributi loans to over _________ percent today. A) 10; 20 B) 5; 20 C) 10; 40 D) 5; 40 Answer: B Question Status: Previous Edition 72) Rising market interest rates in the 1960s and the 1970s, combined with regulated deposit rate ceilings, A) worked in the short-run to give mortgage-issuing institutions a source of low-cost funds. B) led eventually to an outflow of deposits from depository institutions. C) led to financial innovations that worked to avoid these regulations. D) did all of the E) above. did only A and C of the above. Answer: D Question Status: Previous Edition 73) The presence of so many commercial banks in the United States is most likely the result of A) consumers' B) strong preference for dealing with only local banks. adverse selection and C) moral hazard problems that give local banks a competitive advantage over larger banks. regulations that restrict the ability of banks to open branches. D) all of the above. Answer: C Question Status: Previous Edition 74) The large number of banks in the United States is an indication that A) there is B) vigorous competition within the banking industry. there is a lack of competition within the banking industry. C) only efficient banks are operating within the United States. D) none of the above. Answer: B Question Status: Previous Edition 75) The McFadden Act of 1927 A) effectively B) prohibited banks from branching across state lines. required that C) banks maintain bank capital equal to at least 6 percent of their assets. effectively D) required that banks maintain a correspondent relationship with large money center banks. did all of the above. Answer: A Question Status: Previous Edition 76) The that effectively prohibited banks from branching across state lines and forced all national banks to legislation conform to the branching regulations of the state in which they reside is the A) McFadden Act. B) National C) Banking Act. Glass-Steagall Act. D) Garn-St. Germain Act. Answer: A Question Status: Previous Edition 77) Which of the following is an advantage of forming a bank holding company? A) It allows B) ownership of several banks where branching is prohibited. It allows C) owners to engage in activities related to banking that are prohibited to banks. Both A and B. D) None of the above. Answer: C Question Status: Previous Edition 78) Which of the following are true statements concerning bank holding companies? A) Bank holding companies own almost all large banks. B) Bank holding companies have experienced dramatic growth in the past twenty-five years. C) Through a McFadden Act, bank holding companies have successfully evaded interstate branching restrictions. loophole in the D) All of the above are true. E) Only A and B of the above are true. Answer: E Question Status: Previous Edition 79) As a result of shared electronic banking facilities, A) barriers to B) branching have become less burdensome. banking has C) become less competitive. both of the D) above have occurred. neither of the above has occurred. Answer: A Question Status: Previous Edition 80) The McFadden Act's prohibition against interstate branching A) was weakened introduction of shared electronic banking facilities that provide banking services nationwide. by the B) was weakened by regional compacts that allowed banks to own banks in other states in their region. C) impeded banks' ability to diversify their loans and take advantage of economies of scale. D) all of the above. Answer: D Question Status: Previous Edition 81) A bank with a large credit-card customer base can market other financial products to these customers at a low cost. This is an example of A) economies of B) scale. economies of C) scope. becoming a D) superregional bank. none of the above. Answer: B Question Status: Previous Edition 82) The only country without a true national banking system in which banks have branches throughout the nation is A) Canada. B) Japan. C) the United D) Kingdom. the United States. Answer: D Question Status: Previous Edition 83) As a result of restrictive banking regulations, the United States A) has too few B) banks when compared to other industrialized countries. has banks that are quite large relative to those in other countries. C) has too many banks when compared to other industrialized countries. D) both A and B of the above. Answer: C Question Status: Previous Edition 84) Although it has a population about half that of the United States, Japan has A) many more B) banks. about 10 C) percent of the number of banks. about 5 percent of the number of banks. D) about 1 percent of the number of banks. Answer: D Question Status: Previous Edition 85) Which of the following is not expected to result from bank consolidation in the U.S.? A) Disappearance of small community banks B) Acceleration of the decline in the number of banks C) Banks will be more efficient D) Banks will be less likely to fail Answer: A Question Status: Previous Edition 86) The legislation that separated investment banking from commercial banking was the A) National Bank Act. B) Federal Reserve Act. C) Glass-Steagall Act. D) McFadden Act. Answer: C Question Status: Previous Edition 87) The n against banks underwriting corporate securities and engaging in brokerage, real estate, and insurance prohibitio activities was repealed by the A) Gramm-Leach- Bliley Financial Services Modernization Act. B) Competitive C) Equality in Banking Act. Depositary D) Institution Deregulation and Monetary Control Act. Glass-Steagall Act. Answer: A Question Status: Previous Edition 88) The Riegle-Neal Act of 1994 A) required all B) banks to become universal banks. removed C) ceilings on bank deposit interest rates. allowed banks to underwrite insurance and securities and engage in real estate activities. D) overturned prohibitions on interstate banking and branching. Answer: D Question Status: Previous Edition 89) In recent years, commercial banks have been allowed to A) invest in real B) estate. enter certain C) insurance markets. underwrite D) stocks. do all of the E) above. only A and B of the above. Answer: D Question Status: Previous Edition 90) In a _ banking system, commercial banks provide a full range of banking, securities, and insurance services, ________ all within a single legal entity. A) universal B) British-style C) universal barrier-free D) seamless Answer: A Question Status: Previous Edition 91) In a _ banking system, commercial banks engage in securities underwriting, but separate subsidiaries conduct ________ the different activities. Also, banking and insurance are not typically undertaken together in this system. A) universal B) British-style C) universal divided D) compartmentali zed E) severable Answer: B Question Status: Previous Edition 92) A major difference between the United States and Japanese banking systems is that A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding D) companies are illegal in the United States. both A and C of the above. E) both B and C of the above. Answer: B Question Status: Previous Edition 93) Major differences between the United States and Japanese banking systems include: A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding D) companies are illegal in Japan. both A and C of the above. E) both B and C of the above. Answer: E Question Status: Previous Edition 94) Which of the following is a reason for the rapid expansion of international banking? A) The rapid B) growth in international trade The growth of multinational corporations C) The desire of D) U.S. banks to expand All of the above Answer: D Question Status: Previous Edition 95) Since the the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks has been passage of A) reduced. B) mildly C) expanded. completely D) eliminated. greatly expanded. Answer: A Question Status: Previous Edition 96) A special subsidiary of a U.S. bank that is engaged in international banking is called A) an international banking facility. B) an agency C) office. an Edge Act D) corporation. a foreign bank subsidiary. Answer: C Question Status: Previous Edition 97) U.S. banks have most of their foreign branches in A) Latin America, the Far East, the Caribbean, and London. B) Latin America, the Middle East, the Caribbean, and London. C) Mexico, the D) Middle East, the Caribbean, and London. South America, the Middle East, the Caribbean, and Canada. Answer: A Question Status: Previous Edition 98) Eurodolla rs are A) dollarB) denominated deposits held in banks outside the United States. deposits held by U.S. banks in Europe. C) deposits held by U.S. banks in foreign countries. D) dollar- denominated deposits held in U.S. banks by Europeans. Answer: A Question Status: Previous Edition 99) Deposits in European banks denominated in dollars for the purpose of international transactions are known as A) Eurodollars. B) European C) Currency Units. Euros. D) International Monetary Units. Answer: A Question Status: Previous Edition 100) The main center of the Eurodollar market is A) London. B) Basel. C) Paris. D) New York. Answer: A Question Status: Previous Edition 101) In 1975, financial institutions developed financial derivatives that include A) adjustable-rate mortgage. B) futures C) contracts. financial D) engineering. virtual bank. Answer: B Question Status: New 102) An machine that allows customers to make deposits, get cash, transfer funds from one account to another electronic and check balances is A) an automated B) banking machine. the virtual bank. C) an automated teller machine. D) a smart card. Answer: C Question Status: New 103) A from of electronic money used on the Internet to pay for goods and services is A) e-money. B) e-cash. C) a smart card. D) a virtual bank. Answer: B Question Status: New 104) A n that enables banks to avoid the "tax" from reserve requirements by taking any balances above a certain financial amount in a corporation's checking account at the end of the business day and investing them in innovatio overnight secuirities that pay interest is A) a money market mutual funds. B) deposit rate C) ceilings. sweep account. D) disintermediatio n. Answer: C Question Status: New 105) There are approximately how many commerical banks in the United States? A) 5000 B) 7500 C) 1000 D) 1250 Answer: B Question Status: New 106) Regulatio ns restricting branching have promoted the development of what two financial innovations? A) bank B) consolidation and nationwide banking bank holding C) companies and automated teller machines money market mutual funds and sweep accounts D) reserve requirements and restrictions on interest paid on deposits Answer: B Question Status: New 18.2 True/ 1) Today the States has a dual banking system in which banks supervised by the federal government and banks United supervised by the states operate side-by-side. Answer: TRUE Question Status: Previous Edition 2) Bank holding companies are regulated by the FDIC. Answer: FALSE Question Status: Previous Edition 3) The existence of large numbers of banks in the United States indicates the presence of vigorous competition. Answer: FALSE Question Status: Previous Edition 4) Even ATM is owned by a bank, states typically have special provisions that allow wider establishment of when an ATMs than is permissible for traditional "brick and mortar" branches. Answer: TRUE Question Status: Previous Edition 5) Bank holding companies that have begun to rival the money center banks in size but whose headquarters are not based in one of the money center cities are called superregional banks. Answer: TRUE Question Status: Previous Edition 6) The future structure of the U.S. banking industry is likely to be characterized by many more smaller banks, as customers demand neighborhood banks operated by people they know personally. Answer: FALSE Question Status: Previous Edition 7) Restrictio commercial banks' securities and insurance activities put American banks at a competitive disadvantage ns on relative to foreign banks. Answer: TRUE Question Status: Previous Edition 8) Eurodolla created when deposits in accounts in the United States are transferred to a bank outside the country and rs are are kept in the form of dollars. Answer: TRUE Question Status: Previous Edition 9) Financial n has widened the cost advantages that banks have in acquiring funds, helping to explain why bank innovatio profitability has soared in recent years. Answer: FALSE Question Status: Previous Edition 10) American biggest users of checks in the world but nonetheless are ahead of Europeans in the proportion of noncash s are the payments that are made by electronic means. Answer: FALSE Question Status: Previous Edition 11) Securitiza process of transforming illiquid financial assets such as residential mortgages into marketable securities. tion is the Answer: TRUE Question Status: Previous Edition 12) Disinterm ediation occurs when funds are deposited into banks and lent to borrowers. Answer: FALSE Question Status: Previous Edition 13) The underlying Treasury STRIPS is that an investor will earn a higher interest rate when reinvestment risk is principle eliminated. Answer: TRUE Question Status: Previous Edition 14) Economie come from increasing the size of a given financial activity and economies of scale come from combining s of scope different activities to lower their costs. Answer: FALSE Question Status: Previous Edition 15) Checkabl deposits, a traditional source of low-cost funds for banks, have declined dramatically in importance, e falling from over 60 percent of bank liabilities to 10 percent today. Answer: TRUE Question Status: Previous Edition 16) A change financial environment will stimulate a search by financial institutions for innovations that are likely to be in the profitable. Answer: TRUE Question Status: New 17) Reserve nts that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest requireme rates that can be paid on deposits have been the major forces behind financial innovation. Answer: TRUE Question Status: New 18) An e corporate structure for U.S. banks that operate overseas is the Edge Act corporation, a special alternativ subsidiary engaged primarily in international banking. Answer: TRUE Question Status: New 18.3 Essay 1) What financial innovations are best explained as attempts to avoid regulations? Question Status: Previous Edition 2) What new banking have been spawned by the advances in information technology of the past two decades? Is it forms of likely that traditional banks will disappear as a result of these innovations? Why? Question Status: Previous Edition 3) What new payments have been spawned by the advances in information technology of the past two decades? Is it forms of likely that ours will become a cashless society anytime soon as a result of these innovations? Why? making Question Status: Previous Edition 4) What are STRIPS? What roles have reinvestment risk and information technology played in the development of Treasury this financial product? Question Status: Previous Edition 5) What are the reasons for the decline of traditional banking? Question Status: Previous Edition 6) Is the large number of banking firms in the United States an indication of a competitive banking industry? Explain why or why not. Question Status: Previous Edition 7) Are bank consolidation and nationwide banking good things? Why? Question Status: Previous Edition 8) When and why was the Glass-Steagall Act passed? When and why was it repealed? Question Status: Previous Edition 9) Describe corporations, international banking facilities, and the structure of foreign banks in the United States. Edge Act Question Status: Previous Edition 10) Explain the innovations that have been created to lower interest-rate risk. Question Status: New ...
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