Question 1

Newly-issued high-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as

Accepted Answer

A) municipal bonds. 
B) Yankee bonds. 
C) "fallen angels." 
D) junk bonds. 
A) municipal bonds. 
B) Yankee bonds. 
C) "fallen angels." 
D) junk bonds.

Question 2

Financial innovations occur because of financial institutions search for

Accepted Answer

A) profits. 
B) fame. 
C) stability. 
D) recognition. 
A) profits. 
B) fame. 
C) stability. 
D) recognition.

Question 3

Experts predict that the future structure of the U.S.banking industry will have

Accepted Answer

A) an increased number of banks. 
B) as few as ten banks. 
C) several thousand banks. 
D) a few hundred banks. 
A) an increased number of banks. 
B) as few as ten banks. 
C) several thousand banks. 
D) a few hundred banks.

Question 4

Sweep accounts

Accepted Answer

A) have made reserve requirements nonbinding for many banks. 
B) sweep funds out of deposit accounts into long-term securities. 
C) enable banks to avoid paying interest to corporate customers. 
D) reduce banks' assets. 
A) have made reserve requirements nonbinding for many banks. 
B) sweep funds out of deposit accounts into long-term securities. 
C) enable banks to avoid paying interest to corporate customers. 
D) reduce banks' assets.

Question 5

What financial innovations helped banks to get around the bank branching restrictions of the McFadden Act?

Accepted Answer

The introduction of the automated teller

Question 6

The most important developments that have reduced banks' income advantages in the past thirty years include:

Accepted Answer

A) the increase in off-balance sheet activities. 
B) the growth of securitization. 
C) the elimination of Regulation Q ceilings. 
D) the competition from money market mutual funds. 
A) the increase in off-balance sheet activities. 
B) the growth of securitization. 
C) the elimination of Regulation Q ceilings. 
D) the competition from money market mutual funds.

Question 7

The McFadden Act of 1927

Accepted Answer

A) effectively prohibited banks from branching across state lines. 
B) required that banks maintain bank capital equal to at least 6 percent of their assets. 
C) effectively required that banks maintain a correspondent relationship with large money center banks. 
D) separated the commercial banks and investment banks. 
A) effectively prohibited banks from branching across state lines. 
B) required that banks maintain bank capital equal to at least 6 percent of their assets. 
C) effectively required that banks maintain a correspondent relationship with large money center banks. 
D) separated the commercial banks and investment banks.

Question 8

Reasons for holding Eurodollars include

Accepted Answer

A) the fact that Eurodollar deposits are insured by the FDIC. 
B) the fact that dollars are widely used to conduct international transactions. 
C) the fact that minimum transaction sizes are very low,making Eurodollars an attractive savings instrument for consumers. 
D) the fact that Eurodollar deposits are heavily regulated. 
A) the fact that Eurodollar deposits are insured by the FDIC. 
B) the fact that dollars are widely used to conduct international transactions. 
C) the fact that minimum transaction sizes are very low,making Eurodollars an attractive savings instrument for consumers. 
D) the fact that Eurodollar deposits are heavily regulated.

Question 9

Nationwide banking might reduce bank failures due to

Accepted Answer

A) reduced competition. 
B) reduced lending to small businesses. 
C) diversification of loan portfolios across state lines. 
D) elimination of community banks. 
A) reduced competition. 
B) reduced lending to small businesses. 
C) diversification of loan portfolios across state lines. 
D) elimination of community banks.

Question 10

Bank holding companies that rival money center banks in size,but are not located in money center cities are

Accepted Answer

A) superregional banks. 
B) bank clearing houses. 
C) international banks. 
D) local banks. 
A) superregional banks. 
B) bank clearing houses. 
C) international banks. 
D) local banks.

Question 11

Which of the following statements concerning bank regulation in the United States is true?

Accepted Answer

A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. 
B) The Federal Reserve and the state banking authorities jointly have responsibility for the 900 state banks that are members of the Federal Reserve System. 
C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. 
D) The state banking authorities have sole regulatory responsibility for all state banks. 
A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. 
B) The Federal Reserve and the state banking authorities jointly have responsibility for the 900 state banks that are members of the Federal Reserve System. 
C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. 
D) The state banking authorities have sole regulatory responsibility for all state banks.

Question 12

The most important source of the changes in supply conditions that stimulate financial innovation has been the

Accepted Answer

A) deregulation of financial institutions. 
B) dramatic increase in the volatility of interest rates. 
C) improvement in computer and telecommunications technology. 
D) dramatic increase in competition from foreign banks. 
A) deregulation of financial institutions. 
B) dramatic increase in the volatility of interest rates. 
C) improvement in computer and telecommunications technology. 
D) dramatic increase in competition from foreign banks.

Question 13

A ________ is a subsidiary of a U.S.bank that is engaged primarily in international banking.

Accepted Answer

A) Edge Act corporation 
B) Eurodollar agency 
C) universal bank 
D) McFadden corporation 
A) Edge Act corporation 
B) Eurodollar agency 
C) universal bank 
D) McFadden corporation

Question 14

Why did the interest rate volatility of the 1970s spur financial innovation?

Accepted Answer

Banks were very vulnerable to interest-r

Question 15

New computer technology has

Accepted Answer

A) increased the cost of financial innovation. 
B) increased the demand for financial innovation. 
C) reduced the cost of financial innovation. 
D) reduced the demand for financial innovation. 
A) increased the cost of financial innovation. 
B) increased the demand for financial innovation. 
C) reduced the cost of financial innovation. 
D) reduced the demand for financial innovation.

Question 16

A disadvantage of virtual banks (clicks)is that

Accepted Answer

A) their hours are more limited than physical banks. 
B) they are less convenient than physical banks. 
C) they are more costly to operate than physical banks. 
D) customers worry about the security of on-line transactions. 
A) their hours are more limited than physical banks. 
B) they are less convenient than physical banks. 
C) they are more costly to operate than physical banks. 
D) customers worry about the security of on-line transactions.

Question 17

________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans.

Accepted Answer

A) diversification. 
B) arbitrage. 
C) computerization. 
D) securitization. 
A) diversification. 
B) arbitrage. 
C) computerization. 
D) securitization.

Question 18

Financial innovation has caused

Accepted Answer

A) banks to suffer declines in their cost advantages in acquiring funds,although it has not caused a decline in income advantages. 
B) banks to suffer a simultaneous decline of cost and income advantages. 
C) banks to suffer declines in their income advantages in acquiring funds,although it has not caused a decline in cost advantages. 
D) banks to achieve competitive advantages in both costs and income. 
A) banks to suffer declines in their cost advantages in acquiring funds,although it has not caused a decline in income advantages. 
B) banks to suffer a simultaneous decline of cost and income advantages. 
C) banks to suffer declines in their income advantages in acquiring funds,although it has not caused a decline in cost advantages. 
D) banks to achieve competitive advantages in both costs and income.

Question 19

Before 1863,

Accepted Answer

A) federally-chartered banks had regulatory advantages not granted to state-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. 
C) banks acquired funds by issuing bank notes. 
D) banks were required to maintain 100% of their deposits as reserves. 
A) federally-chartered banks had regulatory advantages not granted to state-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. 
C) banks acquired funds by issuing bank notes. 
D) banks were required to maintain 100% of their deposits as reserves.

Question 20

Unlike banks,________ have been allowed to branch statewide since 1980.

Accepted Answer

A) federally-chartered S&Ls 
B) state-chartered S&Ls 
C) financially troubled S&Ls 
D) technically insolvent S&Ls 
A) federally-chartered S&Ls 
B) state-chartered S&Ls 
C) financially troubled S&Ls 
D) technically insolvent S&Ls

Exam 12: Banking Industry: Structure and Competition

Newly-issued high-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as

Financial innovations occur because of financial institutions search for

Experts predict that the future structure of the U.S.banking industry will have

Sweep accounts

What financial innovations helped banks to get around the bank branching restrictions of the McFadden Act?

The most important developments that have reduced banks' income advantages in the past thirty years include:

The McFadden Act of 1927

Reasons for holding Eurodollars include

Nationwide banking might reduce bank failures due to

Bank holding companies that rival money center banks in size,but are not located in money center cities are

Which of the following statements concerning bank regulation in the United States is true?

The most important source of the changes in supply conditions that stimulate financial innovation has been the

A ________ is a subsidiary of a U.S.bank that is engaged primarily in international banking.

Why did the interest rate volatility of the 1970s spur financial innovation?

New computer technology has

A disadvantage of virtual banks (clicks)is that

________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans.

Financial innovation has caused

Before 1863,

Unlike banks,________ have been allowed to branch statewide since 1980.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

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