Question 1

A major difference between the United States and Japanese banking systems is that

Accepted Answer

A) American banks are allowed to hold substantial equity stakes in commercial firms,whereas Japanese banks cannot. 
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms,whereas American banks cannot. 
C) bank holding companies are illegal in the United States. 
D) Japanese banks are usually organized as bank holding companies. 
A) American banks are allowed to hold substantial equity stakes in commercial firms,whereas Japanese banks cannot. 
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms,whereas American banks cannot. 
C) bank holding companies are illegal in the United States. 
D) Japanese banks are usually organized as bank holding companies. B

Question 2

Improved computer technology has made home banking a reality. Home banking has advantages for both the customer and the bank.

Accepted Answer

A) It is more heavily regulated by the government and banks can lower transactions costs. 
B) It is more convenient for the customer and banks can charge customers higher convenience fees. 
C) It is harder to monitor customers and customers are limited to making transactions at specific times. 
D) It is more convenient for the customer and lowers transactions costs for the bank. 
A) It is more heavily regulated by the government and banks can lower transactions costs. 
B) It is more convenient for the customer and banks can charge customers higher convenience fees. 
C) It is harder to monitor customers and customers are limited to making transactions at specific times. 
D) It is more convenient for the customer and lowers transactions costs for the bank. D

Question 3

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. A

Question 4

A firm issuing credit cards earns income from

Accepted Answer

A) loans it makes to credit card holders. 
B) subsidies from the local governments. 
C) payments made to it by manufacturers of the products sold in stores on credit card purchases. 
D) sales of the card in foreign countries. 
A) loans it makes to credit card holders. 
B) subsidies from the local governments. 
C) payments made to it by manufacturers of the products sold in stores on credit card purchases. 
D) sales of the card in foreign countries.

Question 5

Banks have attempted to maintain adequate profit levels by

Accepted Answer

A) making fewer riskier loans,such as commercial real estate loans. 
B) pursuing new off-balance-sheet activities. 
C) increasing reserve deposits at the Fed. 
D) decreasing capital accounts. 
A) making fewer riskier loans,such as commercial real estate loans. 
B) pursuing new off-balance-sheet activities. 
C) increasing reserve deposits at the Fed. 
D) decreasing capital accounts.

Question 6

Uncertainty about interest-rate movements and returns is called

Accepted Answer

A) market potential. 
B) interest-rate irregularities. 
C) interest-rate risk. 
D) financial creativity. 
A) market potential. 
B) interest-rate irregularities. 
C) interest-rate risk. 
D) financial creativity.

Question 7

The modern commercial banking system began in America when the

Accepted Answer

A) Bank of United States was chartered in New York in 1801. 
B) Bank of North America was chartered in Philadelphia in 1782. 
C) Bank of United States was chartered in Philadelphia in 1801. 
D) Bank of North America was chartered in New York in 1782. 
A) Bank of United States was chartered in New York in 1801. 
B) Bank of North America was chartered in Philadelphia in 1782. 
C) Bank of United States was chartered in Philadelphia in 1801. 
D) Bank of North America was chartered in New York in 1782.

Question 8

Adjustable rate mortgages

Accepted Answer

A) reduce the interest-rate risk for financial institutions. 
B) benefit homeowners when interest rates rise. 
C) generally have higher initial interest rates than conventional fixed-rate mortgages. 
D) allow borrowers to avoid paying interest on portions of their mortgage loans. 
A) reduce the interest-rate risk for financial institutions. 
B) benefit homeowners when interest rates rise. 
C) generally have higher initial interest rates than conventional fixed-rate mortgages. 
D) allow borrowers to avoid paying interest on portions of their mortgage loans.

Question 9

In this type of arrangement,any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as a

Accepted Answer

A) sweep account. 
B) share draft account. 
C) removed-repo account. 
D) stockman account. 
A) sweep account. 
B) share draft account. 
C) removed-repo account. 
D) stockman account.

Question 10

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 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 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 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 Federal Reserve Act of 1913 required that

Accepted Answer

A) state banks be subject to the same regulations as national banks. 
B) national banks establish branches in the cities containing Federal Reserve banks. 
C) national banks join the Federal Reserve System. 
D) state banks could not join the Federal Reserve System. 
A) state banks be subject to the same regulations as national banks. 
B) national banks establish branches in the cities containing Federal Reserve banks. 
C) national banks join the Federal Reserve System. 
D) state banks could not join the Federal Reserve System.

Question 13

The Glass-Steagall Act,before its repeal in 1999,prohibited commercial banks from

Accepted Answer

A) issuing equity to finance bank expansion. 
B) engaging in underwriting and dealing of corporate securities. 
C) selling new issues of government securities. 
D) purchasing any debt securities. 
A) issuing equity to finance bank expansion. 
B) engaging in underwriting and dealing of corporate securities. 
C) selling new issues of government securities. 
D) purchasing any debt securities.

Question 14

According to Edward Kane,because the banking industry is one of the most ________ industries in America,it is an industry in which ________ is especially likely to occur.

Accepted Answer

A) competitive;loophole mining 
B) competitive;innovation 
C) regulated;loophole mining 
D) regulated;innovation 
A) competitive;loophole mining 
B) competitive;innovation 
C) regulated;loophole mining 
D) regulated;innovation

Question 15

With the creation of the Federal Deposit Insurance Corporation

Accepted Answer

A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors,while non-member commercial banks were required to buy deposit insurance. 
B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors,while non-member commercial banks could choose to buy deposit insurance. 
C) both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. 
D) both member and non-member banks of the Federal Reserve System could choose,but were not required,to purchase FDIC insurance for their depositors. 
A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors,while non-member commercial banks were required to buy deposit insurance. 
B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors,while non-member commercial banks could choose to buy deposit insurance. 
C) both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. 
D) both member and non-member banks of the Federal Reserve System could choose,but were not required,to purchase FDIC insurance for their depositors.

Question 16

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

Accepted Answer

Banks were very vulnerable to interest-r

Question 17

Foreign banks may engage in banking activities in the United States by opening all of the following EXCEPT

Accepted Answer

A) an agency office of the foreign bank. 
B) a subsidiary U.S. bank. 
C) a branch of the foreign bank. 
D) a McFadden Corporation. 
A) an agency office of the foreign bank. 
B) a subsidiary U.S. bank. 
C) a branch of the foreign bank. 
D) a McFadden Corporation.

Question 18

In a ________ banking system,commercial banks provide a full range of banking,securities,and insurance services,all within a single legal entity.

Accepted Answer

A) universal 
B) severable 
C) barrier-free 
D) dividerless 
A) universal 
B) severable 
C) barrier-free 
D) dividerless

Question 19

A major controversy involving the banking industry in its early years was

Accepted Answer

A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. 
B) whether the federal government or the states should charter banks. 
C) what percent of deposits banks should hold as fractional reserves. 
D) whether banks should be allowed to issue their own bank notes. 
A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. 
B) whether the federal government or the states should charter banks. 
C) what percent of deposits banks should hold as fractional reserves. 
D) whether banks should be allowed to issue their own bank notes.

Question 20

State banking authorities have sole jurisdiction over state banks

Accepted Answer

A) without FDIC insurance. 
B) that are not members of the Federal Reserve System. 
C) operating as bank holding companies. 
D) chartered in the 21st century. 
A) without FDIC insurance. 
B) that are not members of the Federal Reserve System. 
C) operating as bank holding companies. 
D) chartered in the 21st century.

Exam 11: Banking Industry: Structure and Competition

A major difference between the United States and Japanese banking systems is that

Improved computer technology has made home banking a reality. Home banking has advantages for both the customer and the bank.

Sweep accounts

A firm issuing credit cards earns income from

Banks have attempted to maintain adequate profit levels by

Uncertainty about interest-rate movements and returns is called

The modern commercial banking system began in America when the

Adjustable rate mortgages

In this type of arrangement,any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as a

Nationwide banking might reduce bank failures due to

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

The Federal Reserve Act of 1913 required that

The Glass-Steagall Act,before its repeal in 1999,prohibited commercial banks from

According to Edward Kane,because the banking industry is one of the most ________ industries in America,it is an industry in which ________ is especially likely to occur.

With the creation of the Federal Deposit Insurance Corporation

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

Foreign banks may engage in banking activities in the United States by opening all of the following EXCEPT

In a ________ banking system,commercial banks provide a full range of banking,securities,and insurance services,all within a single legal entity.

A major controversy involving the banking industry in its early years was

State banking authorities have sole jurisdiction over state banks

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of 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

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Financial Crises

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

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

According to Edward Kane,because the banking industry is one of the most industries in America,it is an industry in which is especially likely to occur.