Question 1

The potential risk that financial problems can spread through financial institutions and the financial system is referred to as ________ risk.

Accepted Answer

A)  systemic 
B)  systematic 
C)  unsystematic 
D)  market 
A)  systemic 
B)  systematic 
C)  unsystematic 
D)  market

Question 2

Bank regulations typically:

Accepted Answer

A)  involve a trade-off between the safety of the banking system and the efficiency of bank operations. 
B)  impose restrictions on the types of assets in which banks can invest. 
C)  set requirements for the minimum amount of capital that banks must hold. 
D)  all of the above 
A)  involve a trade-off between the safety of the banking system and the efficiency of bank operations. 
B)  impose restrictions on the types of assets in which banks can invest. 
C)  set requirements for the minimum amount of capital that banks must hold. 
D)  all of the above

Question 3

Banks commonly use depositor funds to invest in stocks.

Accepted Answer

A) True 
 B)False

Question 4

The Basel III framework proposes:

Accepted Answer

A)  lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis. 
B)  relying on the rating agencies to assess the risk of bank assets. 
C)  increased capital requirements and liquidity requirements for banks. 
D)  using the gap ratio to set the capital ratio. 
A)  lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis. 
B)  relying on the rating agencies to assess the risk of bank assets. 
C)  increased capital requirements and liquidity requirements for banks. 
D)  using the gap ratio to set the capital ratio.

Question 5

Which of the following statements is incorrect 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 the above are true. 
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 the above are true.

Question 6

The Reigle-Neal Interstate Banking and Branching Efficiency Act allowed banks to achieve economies of scale through nationwide interstate banking.

Accepted Answer

A) True 
 B)False

Question 7

In general, a bank defines its value-at-risk as the estimated potential loss from its trading businesses that could result from adverse movements in market prices.

Accepted Answer

A) True 
 B)False

Question 8

The Basel framework recommends that banks maintain capital in proportion to their:

Accepted Answer

A)  mortgages 
B)  commercial paper 
C)  liabilities 
D)  risk-weighted assets 
A)  mortgages 
B)  commercial paper 
C)  liabilities 
D)  risk-weighted assets

Question 9

When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The liquidity coverage ratio, which is measured under the Basel III guidelines, is the ratio of a bank's _________ to its ___________.

Accepted Answer

A)  liquid assets; projected net cash outflow 
B)  liquid assets; retained earnings 
C)  Tier 1 capital; liquid assets 
D)  projected net cash outflow; Tier 1 capital 
A)  liquid assets; projected net cash outflow 
B)  liquid assets; retained earnings 
C)  Tier 1 capital; liquid assets 
D)  projected net cash outflow; Tier 1 capital

Question 12

The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk.

Accepted Answer

A) True 
 B)False

Question 13

Which banking act allowed for the creation of NOW accounts?

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 14

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 15

Commercial banks are allowed to invest in junk bonds.

Accepted Answer

A) True 
 B)False

Question 16

Which banking act removed deposit rate ceilings?

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

The Sarbanes-Oxley Act was enacted to make corporate managers, board members, and auditors more accountable for the accuracy of the financial statements that their respective firms provide.

Accepted Answer

A) True 
 B)False

Question 18

Federal deposit insurance

Accepted Answer

A)  has existed since the 1800s. 
B)  was created in 1933 
C)  was created after World War II. 
D)  was created in 1960. 
A)  has existed since the 1800s. 
B)  was created in 1933 
C)  was created after World War II. 
D)  was created in 1960.

Question 19

Generally, the failure of small banks

Accepted Answer

A)  causes more widespread concern about the safety of the banking system than the failure of large banks. 
B)  causes equal concern about the safety of the banking system as the failure of large banks. 
C)  causes less concern about the safety of the banking system than the failure of large banks. 
D)  Either A or B can be true, depending on the type of business cycle that exists while the failures occur. 
A)  causes more widespread concern about the safety of the banking system than the failure of large banks. 
B)  causes equal concern about the safety of the banking system as the failure of large banks. 
C)  causes less concern about the safety of the banking system than the failure of large banks. 
D)  Either A or B can be true, depending on the type of business cycle that exists while the failures occur.

Exam 18: Bank Regulation

The potential risk that financial problems can spread through financial institutions and the financial system is referred to as ________ risk.

Bank regulations typically:

Banks commonly use depositor funds to invest in stocks.

The Basel III framework proposes:

Which of the following statements is incorrect with respect to the Financial Services Modernization Act of 1999?

The Reigle-Neal Interstate Banking and Branching Efficiency Act allowed banks to achieve economies of scale through nationwide interstate banking.

In general, a bank defines its value-at-risk as the estimated potential loss from its trading businesses that could result from adverse movements in market prices.

The Basel framework recommends that banks maintain capital in proportion to their:

When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity.

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

The liquidity coverage ratio, which is measured under the Basel III guidelines, is the ratio of a bank's _________ to its ___________.

The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk.

Which banking act allowed for the creation of NOW accounts?

A bank can increase its capital ratio by:

Commercial banks are allowed to invest in junk bonds.

Which banking act removed deposit rate ceilings?

The Sarbanes-Oxley Act was enacted to make corporate managers, board members, and auditors more accountable for the accuracy of the financial statements that their respective firms provide.

Federal deposit insurance

Generally, the failure of small banks

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 Operations

Pension Fund Operations

Filters

The liquidity coverage ratio, which is measured under the Basel III guidelines, is the ratio of a bank's _ to its ___.