Question 1

In order for insurance companies to generate predictable payouts, they need to:

Accepted Answer

A)  spread the risk across many policies. 
B)  accept policyholders from a very specific geographic area. 
C)  focus on insuring only specific events, for example only fire. 
D)  offer only life insurance. 
A)  spread the risk across many policies. 
B)  accept policyholders from a very specific geographic area. 
C)  focus on insuring only specific events, for example only fire. 
D)  offer only life insurance.

Question 2

With the U.S. Social Security System, the burden of funding the system rests on:

Accepted Answer

A)  the current workers. 
B)  the retirees. 
C)  the federal government. 
D)  the Social Security Administration. 
A)  the current workers. 
B)  the retirees. 
C)  the federal government. 
D)  the Social Security Administration.

Question 3

What does it mean to say the United States has a dual banking system?

Accepted Answer

This means that banks can decide to be s

Question 4

Which of the following is an accurate statement about universal banks?

Accepted Answer

A)  In Germany universal banks do everything under one roof, including direct investment in the shares of nonfinancial firms. 
B)  In Germany the provision of insurance, banking, and securities must be done by separate corporations. 
C)  As in Germany, universal banks in the United States do everything under one roof, including direct investment in the shares of nonfinancial firms. 
D)  Universal banks in the United States account for the largest share of financial intermediary assets. 
A)  In Germany universal banks do everything under one roof, including direct investment in the shares of nonfinancial firms. 
B)  In Germany the provision of insurance, banking, and securities must be done by separate corporations. 
C)  As in Germany, universal banks in the United States do everything under one roof, including direct investment in the shares of nonfinancial firms. 
D)  Universal banks in the United States account for the largest share of financial intermediary assets.

Question 5

The number of banks in the U.S. has fallen almost by half in the past twenty years or so. Was this the result of bank failures or were some due to another cause? Explain.

Accepted Answer

While some banks have certainly failed o

Question 6

The reinsurance market is characterized as having:

Accepted Answer

A)  a few buyers and many sellers. 
B)  many buyers and sellers. 
C)  few buyers and sellers. 
D)  many buyers and a few sellers. 
A)  a few buyers and many sellers. 
B)  many buyers and sellers. 
C)  few buyers and sellers. 
D)  many buyers and a few sellers.

Question 7

Over the last twenty years in the U.S., the number of banks has:

Accepted Answer

A)  steadily increased. 
B)  stayed about the same. 
C)  steadily decreased. 
D)  more than doubled. 
A)  steadily increased. 
B)  stayed about the same. 
C)  steadily decreased. 
D)  more than doubled.

Question 8

The dual banking system in the U.S. today refers to:

Accepted Answer

A)  a bank's ability to issue checking and saving accounts. 
B)  a bank's ability to own another financial institution. 
C)  the ability of banks to be either federally or state chartered. 
D)  a deposit institution's decision to be either a bank or a savings and loan. 
A)  a bank's ability to issue checking and saving accounts. 
B)  a bank's ability to own another financial institution. 
C)  the ability of banks to be either federally or state chartered. 
D)  a deposit institution's decision to be either a bank or a savings and loan.

Question 9

Many states prohibited bank branching because of all of the following except:

Accepted Answer

A)  they feared the concentration and monopoly power of large banks. 
B)  they generated significant revenue from issuing bank charters. 
C)  they wanted to protect the profits of banks since they generated tax revenue from these profits. 
D)  the McFadden Act of 1927. 
A)  they feared the concentration and monopoly power of large banks. 
B)  they generated significant revenue from issuing bank charters. 
C)  they wanted to protect the profits of banks since they generated tax revenue from these profits. 
D)  the McFadden Act of 1927.

Question 10

One of the results of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was:

Accepted Answer

A)  a reversal of the branching restrictions of the McFadden Act. 
B)  an increase in the number of banks in the U.S. 
C)  a decrease in the average size of banks. 
D)  a decrease in commercial banks but an increase in the number of savings and loans and savings banks. 
A)  a reversal of the branching restrictions of the McFadden Act. 
B)  an increase in the number of banks in the U.S. 
C)  a decrease in the average size of banks. 
D)  a decrease in commercial banks but an increase in the number of savings and loans and savings banks.

Question 11

The growth of internet banking seems to be on the rise. Discuss what the continued growth of internet banking should do to both the economies of scale and scope of banking.

Accepted Answer

Internet banking allows a bank to avoid

Question 12

What is the source of regulatory competition in banking? Discuss how the focus of this competition has changed over time.

Accepted Answer

Regulatory competition in banking is the

Question 13

Which of the following is an example that can help explain increased profits for large financial holding companies?

Accepted Answer

A)  Financial holding companies offer a wide array of services under many brand names. 
B)  Financial holding companies need only one CEO, one Board of Directors, and one computer system regardless of size. 
C)  Financial holding companies are not well diversified and receive a higher return for the higher risk. 
D)  Financial holding companies are exempt from having to pay for FDIC insurance. 
A)  Financial holding companies offer a wide array of services under many brand names. 
B)  Financial holding companies need only one CEO, one Board of Directors, and one computer system regardless of size. 
C)  Financial holding companies are not well diversified and receive a higher return for the higher risk. 
D)  Financial holding companies are exempt from having to pay for FDIC insurance.

Question 14

Which of the following is not a reason to create large financial holding companies?

Accepted Answer

A)  Financial holding companies offer a wide array of services under one brand name. 
B)  Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size. 
C)  Financial holding companies are well diversified so risk is reduced. 
D)  Financial holding companies are exempt from having to pay for FDIC insurance on deposits. 
A)  Financial holding companies offer a wide array of services under one brand name. 
B)  Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size. 
C)  Financial holding companies are well diversified so risk is reduced. 
D)  Financial holding companies are exempt from having to pay for FDIC insurance on deposits.

Question 15

The U.S. has many banks because:

Accepted Answer

A)  small banks are more profitable than large banks. 
B)  many states outlawed bank branching. 
C)  the Great Depression caused the failure of the large banks, leaving many small banks. 
D)  the Glass-Steagall Act forced the splitting up of large banks. 
A)  small banks are more profitable than large banks. 
B)  many states outlawed bank branching. 
C)  the Great Depression caused the failure of the large banks, leaving many small banks. 
D)  the Glass-Steagall Act forced the splitting up of large banks.

Question 16

In many cases, life insurance companies will require applicants to take a physical. This is done to avoid the problem of:

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  free riding. 
D)  transaction costs. 
A)  adverse selection. 
B)  moral hazard. 
C)  free riding. 
D)  transaction costs.

Question 17

Defined-benefit plans:

Accepted Answer

A)  are more common than defined contribution plans. 
B)  pay a pension based on the amount contributed into the plan by the employee and employer. 
C)  do not require any responsibility on the part of the employer for the employees' retirement income; it is based on employee contributions. 
D)  usually require an employee to work a very long time for the same employer in order to reap a large benefit. 
A)  are more common than defined contribution plans. 
B)  pay a pension based on the amount contributed into the plan by the employee and employer. 
C)  do not require any responsibility on the part of the employer for the employees' retirement income; it is based on employee contributions. 
D)  usually require an employee to work a very long time for the same employer in order to reap a large benefit.

Question 18

An insurance company provides liability insurance to a restaurant protecting the owner against claims from customers. One area of coverage is protections against food poisoning claims. The insurance company may periodically send an employee into the restaurant to observe food preparation and food storage processes. The insurance company is trying to avoid:

Accepted Answer

A)  free riding. 
B)  moral hazard. 
C)  adverse selection. 
D)  transaction costs. 
A)  free riding. 
B)  moral hazard. 
C)  adverse selection. 
D)  transaction costs.

Question 19

A business needs a loan to help keep its shelves stocked. This is an example of:

Accepted Answer

A)  an inventory loan. 
B)  sales finance. 
C)  equipment leasing. 
D)  consumer finance. 
A)  an inventory loan. 
B)  sales finance. 
C)  equipment leasing. 
D)  consumer finance.

Question 20

The sharp reduction in the number of banks that has occurred since the mid-1980s has been due primarily to:

Accepted Answer

A)  bank failures from increased competition. 
B)  bank mergers. 
C)  the closing of banks by federal regulators. 
D)  the revoking of state bank charters. 
A)  bank failures from increased competition. 
B)  bank mergers. 
C)  the closing of banks by federal regulators. 
D)  the revoking of state bank charters.

Exam 13:Financial Industry Structure

In order for insurance companies to generate predictable payouts, they need to:

With the U.S. Social Security System, the burden of funding the system rests on:

What does it mean to say the United States has a dual banking system?

Which of the following is an accurate statement about universal banks?

The number of banks in the U.S. has fallen almost by half in the past twenty years or so. Was this the result of bank failures or were some due to another cause? Explain.

The reinsurance market is characterized as having:

Over the last twenty years in the U.S., the number of banks has:

The dual banking system in the U.S. today refers to:

Many states prohibited bank branching because of all of the following except:

One of the results of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was:

The growth of internet banking seems to be on the rise. Discuss what the continued growth of internet banking should do to both the economies of scale and scope of banking.

What is the source of regulatory competition in banking? Discuss how the focus of this competition has changed over time.

Which of the following is an example that can help explain increased profits for large financial holding companies?

Which of the following is not a reason to create large financial holding companies?

The U.S. has many banks because:

In many cases, life insurance companies will require applicants to take a physical. This is done to avoid the problem of:

Defined-benefit plans:

A business needs a loan to help keep its shelves stocked. This is an example of:

The sharp reduction in the number of banks that has occurred since the mid-1980s has been due primarily to:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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