Question 1

The Federal Reserve System was created in response to

Accepted Answer

A) the stock market crash of 1929. 
B) the ending of the Civil War. 
C) banking panics. 
D) difficulties of the free-banking era. 
A) the stock market crash of 1929. 
B) the ending of the Civil War. 
C) banking panics. 
D) difficulties of the free-banking era. C

Question 2

The Competitive Equality Banking Act of 1987

Accepted Answer

A) made branching across state lines legal. 
B) forbade the opening of additional nonbank banks. 
C) mandated that banks charge the same interest rate to all customers receiving a particular type of loan. 
D) made bank holding companies illegal. 
A) made branching across state lines legal. 
B) forbade the opening of additional nonbank banks. 
C) mandated that banks charge the same interest rate to all customers receiving a particular type of loan. 
D) made bank holding companies illegal. B

Question 3

Bank holding companies are supervised by

Accepted Answer

A) state banking authorities in the state in which the holding company is chartered. 
B) the Office of the Comptroller of the Currency. 
C) the Federal Reserve System. 
D) the Office of Thrift Supervision. 
A) state banking authorities in the state in which the holding company is chartered. 
B) the Office of the Comptroller of the Currency. 
C) the Federal Reserve System. 
D) the Office of Thrift Supervision. C

Question 4

The Bank Holding Company Act of 1956 defined a bank as a financial institution that

Accepted Answer

A) makes commercial loans. 
B) accepts demand deposits. 
C) makes commercial loans and accepts demand deposits. 
D) makes commercial loans, accepts demand deposit, and holds government securities. 
A) makes commercial loans. 
B) accepts demand deposits. 
C) makes commercial loans and accepts demand deposits. 
D) makes commercial loans, accepts demand deposit, and holds government securities.

Question 5

In the Japanese economy, the link between keiretsu, or industry groups, and their main banks

Accepted Answer

A) probably resulted in group firms growing more slowly than nongroup firms. 
B) resulted in group firms paying higher loan interest rates than they would have in bond markets. 
C) was finally declared illegal by the Japanese government in the early 1980s. 
D) was abolished by international agreement in 1992. 
A) probably resulted in group firms growing more slowly than nongroup firms. 
B) resulted in group firms paying higher loan interest rates than they would have in bond markets. 
C) was finally declared illegal by the Japanese government in the early 1980s. 
D) was abolished by international agreement in 1992.

Question 6

Which of the following is NOT true of the purchase and assumption method of handling a bank failure?

Accepted Answer

A) This method is used by the Federal Reserve but not by the FDIC. 
B) This method is more common than the payoff method. 
C) The goodwill of the failed bank is preserved. 
D) Another financial institution will take over the failed bank. 
A) This method is used by the Federal Reserve but not by the FDIC. 
B) This method is more common than the payoff method. 
C) The goodwill of the failed bank is preserved. 
D) Another financial institution will take over the failed bank.

Question 7

One consequence of the close relationship between banks and industry in Germany is that

Accepted Answer

A) German industry is inefficient because it has been able to obtain credit so easily. 
B) German banks are much more likely to fail than are U.S. banks. 
C) German securities markets are less well developed than U.S. securities markets. 
D) there are many more banks in Germany than in the United States. 
A) German industry is inefficient because it has been able to obtain credit so easily. 
B) German banks are much more likely to fail than are U.S. banks. 
C) German securities markets are less well developed than U.S. securities markets. 
D) there are many more banks in Germany than in the United States.

Question 8

Risk-based capital requirements result in

Accepted Answer

A) higher interest rates on deposits. 
B) higher capital requirements for banks with riskier portfolios. 
C) higher federal deposit insurance premiums for bank managers with poor records of handling their personal finances. 
D) greater capital being required of banks with a history of bank runs. 
A) higher interest rates on deposits. 
B) higher capital requirements for banks with riskier portfolios. 
C) higher federal deposit insurance premiums for bank managers with poor records of handling their personal finances. 
D) greater capital being required of banks with a history of bank runs.

Question 9

Concern for the health of banking institutions has focused on

Accepted Answer

A) interest rate risk. 
B) fraud by bank officers. 
C) reckless, but not fraudulent, investments by bank officers. 
D) information problems and liquidity risk. 
A) interest rate risk. 
B) fraud by bank officers. 
C) reckless, but not fraudulent, investments by bank officers. 
D) information problems and liquidity risk.

Question 10

The United States has a dual banking system in the sense that

Accepted Answer

A) the public may deposit money in either commercial banks or savings-and-loan associations. 
B) banks offer both demand deposits and time deposits to savers. 
C) banks are chartered by the federal government and by state governments. 
D) banks both take in deposits and make loans. 
A) the public may deposit money in either commercial banks or savings-and-loan associations. 
B) banks offer both demand deposits and time deposits to savers. 
C) banks are chartered by the federal government and by state governments. 
D) banks both take in deposits and make loans.

Question 11

Which of the following statements was NOT true of the Glass-Steagall Act?

Accepted Answer

A) It probably resulted in borrowers paying more to issue new securities. 
B) Its elimination may have exposed the FDIC to additional risk. 
C) The Supreme Court ruled that the act applied to the overseas activities of banks. 
D) In 1989 the Fed gave some commercial banks the limited power to underwrite corporate bonds. 
A) It probably resulted in borrowers paying more to issue new securities. 
B) Its elimination may have exposed the FDIC to additional risk. 
C) The Supreme Court ruled that the act applied to the overseas activities of banks. 
D) In 1989 the Fed gave some commercial banks the limited power to underwrite corporate bonds.

Question 12

Congress introduced deposit insurance in response to

Accepted Answer

A) the savings-and-loan crisis of the 1980s. 
B) the banking crisis of the 1930s. 
C) the demise of the Second Bank of the United States in 1836. 
D) the demise of the First Bank of the United States in 1811. 
A) the savings-and-loan crisis of the 1980s. 
B) the banking crisis of the 1930s. 
C) the demise of the Second Bank of the United States in 1836. 
D) the demise of the First Bank of the United States in 1811.

Question 13

Comparing the U.S. banking system to the systems in other major industrial countries, which of the following statements is true?

Accepted Answer

A) The United States has more banks and more bank offices per capita. 
B) The United States has fewer banks and fewer bank offices per capita. 
C) The United States has more banks, but about the same number of bank offices per capita. 
D) The United States has about the same number of banks, but more bank offices per capita. 
A) The United States has more banks and more bank offices per capita. 
B) The United States has fewer banks and fewer bank offices per capita. 
C) The United States has more banks, but about the same number of bank offices per capita. 
D) The United States has about the same number of banks, but more bank offices per capita.

Question 14

Contagion refers to

Accepted Answer

A) the spreading of bad news about one bank to include other banks. 
B) the tendency for one bank regulator to become more strict if other bank regulators become more strict. 
C) the tendency for the desire for increased bank regulation to spread from one politician to another. 
D) the tendency for one bad loan in a bank portfolio to cause other loans in the portfolio to go bad. 
A) the spreading of bad news about one bank to include other banks. 
B) the tendency for one bank regulator to become more strict if other bank regulators become more strict. 
C) the tendency for the desire for increased bank regulation to spread from one politician to another. 
D) the tendency for one bad loan in a bank portfolio to cause other loans in the portfolio to go bad.

Question 15

Why have regulators in recent years increasingly focused attention on assessments of banks' internal risk management? Why might a bank's current balance sheet not provide sufficient information on a bank's risk position?

Accepted Answer

The modern financial system has many new

Question 16

Research on the Free Banking Period has found that

Accepted Answer

A) holders of state bank notes took only small losses. 
B) holders of state bank notes took substantial losses. 
C) bank failures during the period were due largely to a loss of consumer confidence. 
D) bank failures had little to do with changes in the value of banks' assets. 
A) holders of state bank notes took only small losses. 
B) holders of state bank notes took substantial losses. 
C) bank failures during the period were due largely to a loss of consumer confidence. 
D) bank failures had little to do with changes in the value of banks' assets.

Question 17

The best explanation for the persistence of geographic restrictions on banks is that

Accepted Answer

A) these restrictions have promoted competition among banks. 
B) these restrictions have reduced the exposure of banks to credit risk. 
C) Americans have long distrusted large, big-city banks. 
D) these restrictions have reduced the costs of loans for most borrowers. 
A) these restrictions have promoted competition among banks. 
B) these restrictions have reduced the exposure of banks to credit risk. 
C) Americans have long distrusted large, big-city banks. 
D) these restrictions have reduced the costs of loans for most borrowers.

Question 18

Savers cannot know the true health of banks because

Accepted Answer

A) bank finance is too complicated for most savers to understand. 
B) bank balance sheets are kept confidential for competitive reasons. 
C) banks have private information about their loan portfolios. 
D) bank officials are barred by government regulation from divulging to the public details of their loan portfolios. 
A) bank finance is too complicated for most savers to understand. 
B) bank balance sheets are kept confidential for competitive reasons. 
C) banks have private information about their loan portfolios. 
D) bank officials are barred by government regulation from divulging to the public details of their loan portfolios.

Question 19

What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries?

Accepted Answer

A) Economies of scale are greater in banking in the United States than in banking in other countries. 
B) legislation that led to the development of state and national banks. 
C) the Federal Reserve System. 
D) the National Bank. 
A) Economies of scale are greater in banking in the United States than in banking in other countries. 
B) legislation that led to the development of state and national banks. 
C) the Federal Reserve System. 
D) the National Bank.

Question 20

Who were the chief foes of the attempt to establish a national banking system in the early nineteenth century?

Accepted Answer

A) Manufacturers located in big cities 
B) Shipping companies located in big cities 
C) Financial interest located in big cities 
D) Agricultural and rural interests 
A) Manufacturers located in big cities 
B) Shipping companies located in big cities 
C) Financial interest located in big cities 
D) Agricultural and rural interests

Exam 14: The Banking Industry

The Federal Reserve System was created in response to

The Competitive Equality Banking Act of 1987

Bank holding companies are supervised by

The Bank Holding Company Act of 1956 defined a bank as a financial institution that

In the Japanese economy, the link between keiretsu, or industry groups, and their main banks

Which of the following is NOT true of the purchase and assumption method of handling a bank failure?

One consequence of the close relationship between banks and industry in Germany is that

Risk-based capital requirements result in

Concern for the health of banking institutions has focused on

The United States has a dual banking system in the sense that

Which of the following statements was NOT true of the Glass-Steagall Act?

Congress introduced deposit insurance in response to

Comparing the U.S. banking system to the systems in other major industrial countries, which of the following statements is true?

Contagion refers to

Why have regulators in recent years increasingly focused attention on assessments of banks' internal risk management? Why might a bank's current balance sheet not provide sufficient information on a bank's risk position?

Research on the Free Banking Period has found that

The best explanation for the persistence of geographic restrictions on banks is that

Savers cannot know the true health of banks because

What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries?

Who were the chief foes of the attempt to establish a national banking system in the early nineteenth century?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters