Question 1

All state banks are required to be members of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 2

Commercial banks are allowed to invest in junk bonds.

Accepted Answer

A) True 
 B)False

Question 3

A bank can increase its capital ratio by

Accepted Answer

A) buying back shares of its stock from shareholders. 
B) selling assets. 
C) increasing its dividend to encourage more investors to purchase its stock. 
D) increasing its off-balance sheet activities. 
A) buying back shares of its stock from shareholders. 
B) selling assets. 
C) increasing its dividend to encourage more investors to purchase its stock. 
D) increasing its off-balance sheet activities.

Question 4

Which of the following was NOT a provision of the Financial Reform Act of 2010?

Accepted Answer

A) established the Financial Stability Oversight Council 
B) put limits on banks' proprietary trading 
C) established the Consumer Financial Protection Bureau 
D) reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act 
E) required derivative securities to be traded through a clearinghouse or exchange 
A) established the Financial Stability Oversight Council 
B) put limits on banks' proprietary trading 
C) established the Consumer Financial Protection Bureau 
D) reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act 
E) required derivative securities to be traded through a clearinghouse or exchange

Question 5

The Volcker Rule, named for a former Fed chair

Accepted Answer

A) is intended to increase the powers of the Fed. 
B) states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system. 
C) sets limits on banks' proprietary trading. 
D) requires all banks to undergo annual stress tests. 
A) is intended to increase the powers of the Fed. 
B) states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system. 
C) sets limits on banks' proprietary trading. 
D) requires all banks to undergo annual stress tests.

Question 6

Regulators put much emphasis on a bank's sensitivity to interest rate movements, since many banks have liabilities that are repriced more frequently than their assets and are adversely affected by rising interest rates.

Accepted Answer

A) True 
 B)False

Question 7

A common argument in favor of government rescues of large banks is that rescues can

Accepted Answer

A) reduce systemic risk in the financial system. 
B) encourage banks to avoid risk. 
C) ensure that bank executives are properly compensated. 
D) prevent the moral hazard problem. 
A) reduce systemic risk in the financial system. 
B) encourage banks to avoid risk. 
C) ensure that bank executives are properly compensated. 
D) prevent the moral hazard problem.

Question 8

Which banking act allowed banks to cross state lines in order to acquire a failing institution?

Accepted Answer

A) McFadden Act 
B) Glass-Steagall Act 
C) DIDMCA 
D) Garn-St Germain Act 
A) McFadden Act 
B) Glass-Steagall Act 
C) DIDMCA 
D) Garn-St Germain Act

Question 9

The premiums banks pay to the FDIC for deposit insurance are

Accepted Answer

A) the same fixed dollar amount for all banks. 
B) the same fixed percentage of the bank's deposits for all banks. 
C) the same fixed percentage of the bank's loan volume for all banks. 
D) based on the risk of the bank. 
A) the same fixed dollar amount for all banks. 
B) the same fixed percentage of the bank's deposits for all banks. 
C) the same fixed percentage of the bank's loan volume for all banks. 
D) based on the risk of the bank.

Question 10

Banks that are insured by the Federal Deposit Insurance Corporation (FDIC)are also regulated by the FDIC.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is  NOT correct with respect to the Financial Services Modernization Act of 1999?

Accepted Answer

A) It expanded the Glass-Steagall Act. 
B) It enabled commercial banks to more easily pursue securities and insurance activities. 
C) It allowed securities firms and insurance companies to acquire banks. 
D) It required commercial banks to have a strong rating in community lending in order to pursue additional expansion in securities and other nonbank activities. 
E) All of these are correct. 
A) It expanded the Glass-Steagall Act. 
B) It enabled commercial banks to more easily pursue securities and insurance activities. 
C) It allowed securities firms and insurance companies to acquire banks. 
D) It required commercial banks to have a strong rating in community lending in order to pursue additional expansion in securities and other nonbank activities. 
E) All of these are correct.

Question 12

The key reason for regulatory examinations (such as CAMELS ratings)is to

Accepted Answer

A) rate past performance. 
B) detect problems of a bank in time to correct them. 
C) check for embezzlement. 
D) monitor reserve requirements. 
A) rate past performance. 
B) detect problems of a bank in time to correct them. 
C) check for embezzlement. 
D) monitor reserve requirements.

Question 13

During the credit crisis, all of the following occurred EXCEPT

Accepted Answer

A) some securities firms were allowed to become bank holding companies. 
B) the Federal Reserve rescued American International Group, an insurance company. 
C) the Treasury injected funds into financial institutions. 
D) the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank. 
A) some securities firms were allowed to become bank holding companies. 
B) the Federal Reserve rescued American International Group, an insurance company. 
C) the Treasury injected funds into financial institutions. 
D) the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.

Question 14

When a bank acts as an intermediary on an interest rate swap and guarantees payment in the event that one of the parties to the swap defaults, the bank is engaging in an off-balance sheet commitment.

Accepted Answer

A) True 
 B)False

Question 15

The liquidity component of the CAMELS rating refers to

Accepted Answer

A) how a bank's earnings would change if economic conditions change. 
B) how readily a bank's management would detect its financial problems. 
C) a bank's sensitivity to financial market conditions. 
D) the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. 
E) whether a bank frequently needs to borrow from outside sources, such as the federal funds market. 
A) how a bank's earnings would change if economic conditions change. 
B) how readily a bank's management would detect its financial problems. 
C) a bank's sensitivity to financial market conditions. 
D) the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. 
E) whether a bank frequently needs to borrow from outside sources, such as the federal funds market.

Question 16

Which banking act removed interest rate ceilings on deposits?

Accepted Answer

A) McFadden Act 
B) Glass-Steagall Act 
C) DIDMCA 
D) Garn-St Germain Act 
A) McFadden Act 
B) Glass-Steagall Act 
C) DIDMCA 
D) Garn-St Germain Act

Question 17

____ is NOT a characteristic used by bank regulators to rate banks.

Accepted Answer

A) Capital adequacy 
B) Current stock price 
C) Asset quality 
D) Management 
E) All of these are used to rate banks. 
A) Capital adequacy 
B) Current stock price 
C) Asset quality 
D) Management 
E) All of these are used to rate banks.

Question 18

Which of the following is NOT a specific criterion that regulators use to monitor banks?

Accepted Answer

A) capital adequacy 
B) dollar value of fixed assets 
C) asset quality 
D) earnings 
E) sensitivity to financial market conditions 
A) capital adequacy 
B) dollar value of fixed assets 
C) asset quality 
D) earnings 
E) sensitivity to financial market conditions

Question 19

The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund.

Accepted Answer

A) True 
 B)False

Question 20

____ is not a rating criterion used by bank regulators.

Accepted Answer

A) Capital adequacy 
B) Savings deposit volume 
C) Asset quality 
D) Management 
E) Liquidity 
A) Capital adequacy 
B) Savings deposit volume 
C) Asset quality 
D) Management 
E) Liquidity

Exam 18: Bank Regulation

All state banks are required to be members of the Federal Reserve System.

Commercial banks are allowed to invest in junk bonds.

A bank can increase its capital ratio by

Which of the following was NOT a provision of the Financial Reform Act of 2010?

The Volcker Rule, named for a former Fed chair

Regulators put much emphasis on a bank's sensitivity to interest rate movements, since many banks have liabilities that are repriced more frequently than their assets and are adversely affected by rising interest rates.

A common argument in favor of government rescues of large banks is that rescues can

Which banking act allowed banks to cross state lines in order to acquire a failing institution?

The premiums banks pay to the FDIC for deposit insurance are

Banks that are insured by the Federal Deposit Insurance Corporation (FDIC)are also regulated by the FDIC.

Which of the following statements is NOT correct with respect to the Financial Services Modernization Act of 1999?

The key reason for regulatory examinations (such as CAMELS ratings)is to

During the credit crisis, all of the following occurred EXCEPT

When a bank acts as an intermediary on an interest rate swap and guarantees payment in the event that one of the parties to the swap defaults, the bank is engaging in an off-balance sheet commitment.

The liquidity component of the CAMELS rating refers to

Which banking act removed interest rate ceilings on deposits?

____ is NOT a characteristic used by bank regulators to rate banks.

Which of the following is NOT a specific criterion that regulators use to monitor banks?

The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund.

____ is not a rating criterion used by bank regulators.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

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