Question 1

Combining commercial banking and investment banking in the same organization produces a risk for that organization

Accepted Answer

A)  that must be above that of investment banking. 
B)  that is the same as investment banking, the riskier of the two activities. 
C)  somewhere in between the risk of the two activities. 
D)  that may be below that of commercial banking. 
A)  that must be above that of investment banking. 
B)  that is the same as investment banking, the riskier of the two activities. 
C)  somewhere in between the risk of the two activities. 
D)  that may be below that of commercial banking. D

Question 2

Suppose a bank has total assets of $4,000,000,000, of which $1,000,000,000 are cash assets and government securities with a "risk weight" of 0% and $3,000,000,000 are loans with a risk weight of 50%. The bank has total deposits and other liabilities of $3,500,000,000. The bank's risk-based capital ratio is

Accepted Answer

A)  14.3%. 
B)  25.0%. 
C)  33.3%. 
D)  37.5%. 
A)  14.3%. 
B)  25.0%. 
C)  33.3%. 
D)  37.5%. C

Question 3

A major reason for regulating the financial sector is to facilitate __________ policy.

Accepted Answer

A)  monetary 
B)  fiscal 
C)  antitrust 
D)  merger 
A)  monetary 
B)  fiscal 
C)  antitrust 
D)  merger A

Question 4

When the Federal Reserve was formed, federally-chartered banks were __________ Fed member banks.

Accepted Answer

A)  allowed to become 
B)  required to become 
C)  given the option to become 
D)  not allowed to become 
A)  allowed to become 
B)  required to become 
C)  given the option to become 
D)  not allowed to become

Question 5

There is __________ problem with deposit insurance as the insurer shares disproportionately in the __________ risk of banking.

Accepted Answer

A)  an adverse selection; upside 
B)  an adverse selection; downside 
C)  a moral hazard; upside 
D)  a moral hazard; downside 
A)  an adverse selection; upside 
B)  an adverse selection; downside 
C)  a moral hazard; upside 
D)  a moral hazard; downside

Question 6

Our "dual" banking system refers to

Accepted Answer

A)  commercial banks and thrifts. 
B)  federal and state chartering and supervision of commercial banks. 
C)  stockholder-ownership and depositor-ownership of depository institutions. 
D)  banks that are members and non-members of the Fed. 
A)  commercial banks and thrifts. 
B)  federal and state chartering and supervision of commercial banks. 
C)  stockholder-ownership and depositor-ownership of depository institutions. 
D)  banks that are members and non-members of the Fed.

Question 7

Suppose a bank has total assets of $3,000,000,000, of which $1,000,000,000 are cash assets and government securities with a "risk weight" of 0% and $2,000,000,000 are loans with a risk weight of 50%. The bank has total deposits and other liabilities of $2,800,000,000. The bank's risk-based capital ratio is

Accepted Answer

A)  6.7%. 
B)  20.0%. 
C)  33.3%. 
D)  50%. 
A)  6.7%. 
B)  20.0%. 
C)  33.3%. 
D)  50%.

Question 8

The regulator that determines the permissible activities any bank may engage in is the

Accepted Answer

A)  Federal Reserve. 
B)  FDIC. 
C)  House Banking Committee. 
D)  Comptroller of the Currency. 
A)  Federal Reserve. 
B)  FDIC. 
C)  House Banking Committee. 
D)  Comptroller of the Currency.

Question 9

Suppose a bank has total assets of $3,000,000,000 and total deposits and other liabilities of $2,800,000,000. The bank's leverage ratio is

Accepted Answer

A)  6.7%. 
B)  7.1%. 
C)  5.6%. 
D)  93.3%. 
A)  6.7%. 
B)  7.1%. 
C)  5.6%. 
D)  93.3%.

Question 10

Federal deposit insurance in the United States began in

Accepted Answer

A)  1864. 
B)  1933. 
C)  1968. 
D)  1984. 
A)  1864. 
B)  1933. 
C)  1968. 
D)  1984.

Question 11

Credit unions are federally insured through the

Accepted Answer

A)  FDIC. 
B)  FSLIC. 
C)  NCUSIF. 
D)  Comptroller of the Currency. 
A)  FDIC. 
B)  FSLIC. 
C)  NCUSIF. 
D)  Comptroller of the Currency.

Question 12

Savings-and-loans are now federally insured through the

Accepted Answer

A)  FDIC. 
B)  FSLIC. 
C)  NCUSIF. 
D)  Comptroller of the Currency. 
A)  FDIC. 
B)  FSLIC. 
C)  NCUSIF. 
D)  Comptroller of the Currency.

Question 13

The textbook states that in attacking moral hazard, having both risk-based capital requirements and risk-based deposit insurance premiums

Accepted Answer

A)  is necessary, to deal with the problem from both sides of the bank's balance sheet. 
B)  is redundant and that one of the policies should be ended. 
C)  is necessary in order to deal with the moral hazard of both bankers and depositors. 
D)  may be redundant in theory but advisable in practice given the difficulty of measuring risk. 
A)  is necessary, to deal with the problem from both sides of the bank's balance sheet. 
B)  is redundant and that one of the policies should be ended. 
C)  is necessary in order to deal with the moral hazard of both bankers and depositors. 
D)  may be redundant in theory but advisable in practice given the difficulty of measuring risk.

Question 14

Must a corporation inform the SEC when it borrows from a commercial bank or through the private placements market?

Accepted Answer

A)  Only from the private placements market 
B)  Only from the commercial bank 
C)  From both 
D)  From neither 
A)  Only from the private placements market 
B)  Only from the commercial bank 
C)  From both 
D)  From neither

Question 15

The Glass-Steagall Act forbids banks from owning

Accepted Answer

A)  municipal bonds. 
B)  corporate stock. 
C)  home mortgages. 
D)  bonds issued by foreign governments. 
A)  municipal bonds. 
B)  corporate stock. 
C)  home mortgages. 
D)  bonds issued by foreign governments.

Question 16

"Universal banking" can lower the risk of participating financial institutions if

Accepted Answer

A)  there is high correlation in the returns of the permitted activities. 
B)  there is low correlation in the returns of the permitted activities. 
C)  there are firewalls between all the permitted activities. 
D)  none of the customers of the institution are federally insured. 
A)  there is high correlation in the returns of the permitted activities. 
B)  there is low correlation in the returns of the permitted activities. 
C)  there are firewalls between all the permitted activities. 
D)  none of the customers of the institution are federally insured.

Question 17

In the 1960s, banks started __________ in order to maneuver around the Glass-Steagall act.

Accepted Answer

A)  opening foreign branches 
B)  using Section 20 affiliates 
C)  forming one-bank holding companies 
D)  dropping Federal Reserve membership 
A)  opening foreign branches 
B)  using Section 20 affiliates 
C)  forming one-bank holding companies 
D)  dropping Federal Reserve membership

Question 18

The __________ is a regulator of intermediated markets?

Accepted Answer

A)  SEC 
B)  Commodities Futures Trading Commission 
C)  NYSE 
D)  FDIC 
A)  SEC 
B)  Commodities Futures Trading Commission 
C)  NYSE 
D)  FDIC

Question 19

A bank has total assets of $3,000,000. Of these assets, $200,000 are cash and $300,000 are Treasury securities. Furthermore, the bank holds municipal revenue bonds of $600,000, residential mortgages of $1,000,000, and consumer and commercial loans of $900,000. The bank has capital of $100,000. This bank's risk-adjusted capital ratio is

Accepted Answer

A)  9.3%. 
B)  4.0%. 
C)  3.3%. 
D)  8.0%. 
A)  9.3%. 
B)  4.0%. 
C)  3.3%. 
D)  8.0%.

Question 20

For state member banks, the "primary" federal regulator is the

Accepted Answer

A)  Federal Reserve. 
B)  FDIC. 
C)  House Banking Committee. 
D)  Comptroller of the Currency. 
A)  Federal Reserve. 
B)  FDIC. 
C)  House Banking Committee. 
D)  Comptroller of the Currency.

Exam 15: The Regulation of Markets and Institutions

Combining commercial banking and investment banking in the same organization produces a risk for that organization

A major reason for regulating the financial sector is to facilitate __________ policy.

When the Federal Reserve was formed, federally-chartered banks were __________ Fed member banks.

There is __________ problem with deposit insurance as the insurer shares disproportionately in the __________ risk of banking.

Our "dual" banking system refers to

The regulator that determines the permissible activities any bank may engage in is the

Suppose a bank has total assets of $3,000,000,000 and total deposits and other liabilities of $2,800,000,000. The bank's leverage ratio is

Federal deposit insurance in the United States began in

Credit unions are federally insured through the

Savings-and-loans are now federally insured through the

The textbook states that in attacking moral hazard, having both risk-based capital requirements and risk-based deposit insurance premiums

Must a corporation inform the SEC when it borrows from a commercial bank or through the private placements market?

The Glass-Steagall Act forbids banks from owning

"Universal banking" can lower the risk of participating financial institutions if

In the 1960s, banks started __________ in order to maneuver around the Glass-Steagall act.

The __________ is a regulator of intermediated markets?

For state member banks, the "primary" federal regulator is the

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

There is problem with deposit insurance as the insurer shares disproportionately in the risk of banking.