Question 1

The sharp reduction in the number of banks that has occurred since the mid 1990s 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 B

Question 2

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 C

Question 3

Reinsurance is used by insurance companies faced with:

Accepted Answer

A) The prospects of a large but diversified risk 
B) Inadequate capital to handle a potential loss 
C) Insolvency 
D) The problem of moral hazard 
A) The prospects of a large but diversified risk 
B) Inadequate capital to handle a potential loss 
C) Insolvency 
D) The problem of moral hazard B

Question 4

A very controversial issue in many states currently is whether or not insurance companies should be allowed to use a person's credit history as a tool in determining the individual's automobile and homeowner insurance premium.Without getting into the legal or ethical issues, what do you think the insurance companies' motives might be for wanting to use the credit report?

Accepted Answer

This could be an information issue.It is

Question 5

In 2008, as a result of a run on government-sponsored enterprise debt, the U.S.Treasury placed Fannie Mae and Freddie Mac in:

Accepted Answer

A) conservatorship 
B) receivership 
C) bankruptcy 
D) restriction 
A) conservatorship 
B) receivership 
C) bankruptcy 
D) restriction

Question 6

One of the results of the limit on bank branching was:

Accepted Answer

A) Increased diversification in the loan portfolio of small banks 
B) Curtailment of credit availability for borrowers in small towns 
C) Lower profits for banks 
D) Increased efficiency in the operations of banks 
A) Increased diversification in the loan portfolio of small banks 
B) Curtailment of credit availability for borrowers in small towns 
C) Lower profits for banks 
D) Increased efficiency in the operations of banks

Question 7

Catastrophe bonds or "cat bonds" were developed:

Accepted Answer

A) By reinsurance companies to finance their growth 
B) As an alternative to purchasing reinsurance 
C) Prior to the creation of reinsurance companies but are being phased out 
D) By the U.S.government to provide insurance against national disasters 
A) By reinsurance companies to finance their growth 
B) As an alternative to purchasing reinsurance 
C) Prior to the creation of reinsurance companies but are being phased out 
D) By the U.S.government to provide insurance against national disasters

Question 8

One way insurance companies deal with the problem of adverse selection is by:

Accepted Answer

A) Charging the same price to everyone 
B) Screening applicants 
C) Monitoring policyholders after they have purchased insurance 
D) Spreading the risk in the same geographic area 
A) Charging the same price to everyone 
B) Screening applicants 
C) Monitoring policyholders after they have purchased insurance 
D) Spreading the risk in the same geographic area

Question 9

The actual results of the McFadden Act included:

Accepted Answer

A) Increased efficiency of banking across the country 
B) A tight network of interconnected banks across the country 
C) A safety net that allowed small inefficient banks to continue to operate 
D) The elimination of banking monopolies 
A) Increased efficiency of banking across the country 
B) A tight network of interconnected banks across the country 
C) A safety net that allowed small inefficient banks to continue to operate 
D) The elimination of banking monopolies

Question 10

Prior to the Civil War most state banks issued their own banknotes.This resulted in all of the following problems except:

Accepted Answer

A) Their values decreased as the holder moved further from the bank 
B) They were worthless if the bank failed 
C) They were not efficient as a means of payment if the holder was far from the bank 
D) They were usually redeemable in gold 
A) Their values decreased as the holder moved further from the bank 
B) They were worthless if the bank failed 
C) They were not efficient as a means of payment if the holder was far from the bank 
D) They were usually redeemable in gold

Question 11

In most companies, an employee must work for a number of years before qualifying for pension benefits.This process is referred to as:

Accepted Answer

A) A defined-benefit period 
B) Vesting 
C) Regulated contribution period 
D) Mandatory benefit pending 
A) A defined-benefit period 
B) Vesting 
C) Regulated contribution period 
D) Mandatory benefit pending

Question 12

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 13

Evaluate the pros and cons of the repeal of the Glass-Steagall Act of 1933.

Accepted Answer

The Glass-Steagall Act by Congress in 19

Question 14

How might Freddie Mac and Fannie Mae have contributed to the financial crisis experienced in the United States in 2007-2009?

Accepted Answer

Prior to the financial crisis Federal Re

Question 15

Which of the following is an example of the economies of scale argument for increased profits for large financial holding companies?

Accepted Answer

A) Financial holding companies offer a wide array of services under one 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) The profitability of financial holding companies does not rely on one particular line of business 
A) Financial holding companies offer a wide array of services under one 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) The profitability of financial holding companies does not rely on one particular line of business

Question 16

Which of the following statements most accurately describes the state of banking in the U.S.?

Accepted Answer

A) A large number of large banks and a small number of small banks 
B) A large number of large and small banks 
C) A small number of large and small banks 
D) A large number of small banks and a small number of large banks 
A) A large number of large banks and a small number of small banks 
B) A large number of large and small banks 
C) A small number of large and small banks 
D) A large number of small banks and a small number of large banks

Question 17

Lloyd's of London is perhaps most known for:

Accepted Answer

A) Being the largest insurance company in the world 
B) Going out of business when it insured too many odd risks 
C) Being the best-known insurance company in the world 
D) Being the oldest insurance company in the world 
A) Being the largest insurance company in the world 
B) Going out of business when it insured too many odd risks 
C) Being the best-known insurance company in the world 
D) Being the oldest insurance company in the world

Question 18

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 19

Often Eurodollar deposits earn higher returns than U.S.bank deposits for all of the following reasons except:

Accepted Answer

A) Eurodollar deposits are not subject to U.S.reserve requirements 
B) The bank does not have to pay deposit insurance premiums on these deposits 
C) Regulatory compliance may be more costly for a foreign bank than a U.S.bank 
D) Taxes on the profits at foreign banks may be lower than those for U.S.banks, allowing for higher returns 
A) Eurodollar deposits are not subject to U.S.reserve requirements 
B) The bank does not have to pay deposit insurance premiums on these deposits 
C) Regulatory compliance may be more costly for a foreign bank than a U.S.bank 
D) Taxes on the profits at foreign banks may be lower than those for U.S.banks, allowing for higher returns

Question 20

The Reigle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to diversify themselves geographically.Has this geographical expansion resulted in the harm to consumers that early supporters of anti-branching laws feared? Explain.

Accepted Answer

As the text points out, the results have

Exam 13: Financial Industry Structure

The sharp reduction in the number of banks that has occurred since the mid 1990s has been due primarily to:

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

Reinsurance is used by insurance companies faced with:

In 2008, as a result of a run on government-sponsored enterprise debt, the U.S.Treasury placed Fannie Mae and Freddie Mac in:

One of the results of the limit on bank branching was:

Catastrophe bonds or "cat bonds" were developed:

One way insurance companies deal with the problem of adverse selection is by:

The actual results of the McFadden Act included:

Prior to the Civil War most state banks issued their own banknotes.This resulted in all of the following problems except:

In most companies, an employee must work for a number of years before qualifying for pension benefits.This process is referred to as:

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

Evaluate the pros and cons of the repeal of the Glass-Steagall Act of 1933.

How might Freddie Mac and Fannie Mae have contributed to the financial crisis experienced in the United States in 2007-2009?

Which of the following is an example of the economies of scale argument for increased profits for large financial holding companies?

Which of the following statements most accurately describes the state of banking in the U.S.?

Lloyd's of London is perhaps most known for:

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

Often Eurodollar deposits earn higher returns than U.S.bank deposits for all of the following reasons except:

The Reigle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to diversify themselves geographically.Has this geographical expansion resulted in the harm to consumers that early supporters of anti-branching laws feared? Explain.

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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