Question 1

For the following problems, choose among the following major banking laws.
-Provided for state regulation of insurance.

Accepted Answer

A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999 
A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999

Question 2

Which of the following FIs does not provide a business lending function?

Accepted Answer

A) Depository institutions. 
B) Insurance companies. 
C) Finance companies. 
D) Pension funds. 
E) Mutual funds. 
A) Depository institutions. 
B) Insurance companies. 
C) Finance companies. 
D) Pension funds. 
E) Mutual funds.

Question 3

Regulatory forbearance refers to a policy of

Accepted Answer

A) allowing insolvent banks to continue to operate. 
B) foreclosing real estate properties in the event on non-payments of mortgages. 
C) strict regulation of banks,closing them down as soon as they are insolvent. 
D) rescheduling of all loans of a client in the event of non-payment. 
A) allowing insolvent banks to continue to operate. 
B) foreclosing real estate properties in the event on non-payments of mortgages. 
C) strict regulation of banks,closing them down as soon as they are insolvent. 
D) rescheduling of all loans of a client in the event of non-payment.

Question 4

For the following problems, choose among the following major banking laws.
-This legislation separated commercial and investment banking.

Accepted Answer

A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999 
A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999

Question 5

Time intermediation involves the investment of small amounts by investors into mutual funds that invest in long-term securities such as stocks and bonds.

Accepted Answer

A) True 
 B)False

Question 6

The reason FIs can offer highly liquid,low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is

Accepted Answer

A) because diversification allows an FI to predict more accurately the expected returns on its asset portfolio. 
B) significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive. 
C) because individual savers cannot benefit from risk diversification. 
D) because FIs have a cost advantage in monitoring their portfolios. 
E) All of the options. 
A) because diversification allows an FI to predict more accurately the expected returns on its asset portfolio. 
B) significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive. 
C) because individual savers cannot benefit from risk diversification. 
D) because FIs have a cost advantage in monitoring their portfolios. 
E) All of the options.

Question 7

Savings institutions enjoyed record profitability during the late 1990s and early 2000s.

Accepted Answer

A) True 
 B)False

Question 8

For the following problems, choose among the following major banking laws.
-This legislation introduced money market deposit accounts.

Accepted Answer

A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999 
A) The McFadden Act of 1927 
B) The Glass-Steagall Act of 1933 
C) The Depository Institutions Deregulation and Monetary Control Act (DIDMC
A)  of 1980 
D) The Garn-St Germain Depository Institutions Act (DI
A)  of 1982 
E) The Competitive Equality in Banking Act (CEB
A)  of 1987
F)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRRE
A)  of 1989
G)The Federal Deposit Insurance Corporation Improvement Act (FDICI
A)  of 1991
H)The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
I)Financial Services Modernization Act of 1999

Question 9

Economic collapse during the 1930s,the banking system in the U.S.performed directly or indirectly all financial services.Those functions included all of the following EXCEPT

Accepted Answer

A) commercial banking. 
B) money market funds. 
C) investment banking. 
D) stock investing. 
A) commercial banking. 
B) money market funds. 
C) investment banking. 
D) stock investing.

Question 10

An FI acting as an agent in matching savers and borrowers of funds can attain economies of scale and provide this service more efficiently than either the saver or borrower could on their own.

Accepted Answer

A) True 
 B)False

Question 11

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Accepted Answer

A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible,they are more easily reallocated than the intangible bank assets. 
A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible,they are more easily reallocated than the intangible bank assets.

Question 12

Which of the following FIs does not currently provide a payment function for their customers?

Accepted Answer

A) Depository institutions. 
B) Insurance companies. 
C) Finance companies. 
D) Pension funds. 
A) Depository institutions. 
B) Insurance companies. 
C) Finance companies. 
D) Pension funds.

Question 13

FIs are independent market entities that create financial assets whose value is the transformation of financial risk.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following observations is true?

Accepted Answer

A) Central bank directly controls both inside and outside money. 
B) Outside money is that part of the money supply produced by the private banking system. 
C) Inside money refers to the quantity of notes and coin in the economy. 
D) Bulk of the money supply consists of inside money. 
A) Central bank directly controls both inside and outside money. 
B) Outside money is that part of the money supply produced by the private banking system. 
C) Inside money refers to the quantity of notes and coin in the economy. 
D) Bulk of the money supply consists of inside money.

Question 15

When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model,the change is likely to result in

Accepted Answer

A) increased operating costs. 
B) increased interest rate risk. 
C) increased liquidity risk. 
D) decreased monitoring costs. 
A) increased operating costs. 
B) increased interest rate risk. 
C) increased liquidity risk. 
D) decreased monitoring costs.

Question 16

National-chartered commercial banks are most likely to be regulated by

Accepted Answer

A) the FDIC only. 
B) the FDIC and the Federal Reserve System. 
C) the Federal Reserve System only. 
D) the FDIC,the Federal Reserve System,and the Comptroller of the Currency. 
E)  the Federal Reserve System and the Comptroller of the Currency. 
A) the FDIC only. 
B) the FDIC and the Federal Reserve System. 
C) the Federal Reserve System only. 
D) the FDIC,the Federal Reserve System,and the Comptroller of the Currency. 
E)  the Federal Reserve System and the Comptroller of the Currency.

Question 17

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

Accepted Answer

A) True 
 B)False

Question 18

Credit unions operate on a common bond principle which emphasizes the depository and lending needs of credit union members.

Accepted Answer

A) True 
 B)False

Question 19

In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime mortgage markets and the onset of the recent financial crisis?

Accepted Answer

A) 2001. 
B) 2003. 
C) 2006. 
D) 2008. 
A) 2001. 
B) 2003. 
C) 2006. 
D) 2008.

Question 20

Because of changes in regulatory barriers,technology,and financial innovation,a single financial service firm may now be able to offer a full set of financial services.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Services: Depository Institutions

For the following problems, choose among the following major banking laws. -Provided for state regulation of insurance.

Which of the following FIs does not provide a business lending function?

Regulatory forbearance refers to a policy of

For the following problems, choose among the following major banking laws. -This legislation separated commercial and investment banking.

Time intermediation involves the investment of small amounts by investors into mutual funds that invest in long-term securities such as stocks and bonds.

The reason FIs can offer highly liquid,low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is

Savings institutions enjoyed record profitability during the late 1990s and early 2000s.

For the following problems, choose among the following major banking laws. -This legislation introduced money market deposit accounts.

Economic collapse during the 1930s,the banking system in the U.S.performed directly or indirectly all financial services.Those functions included all of the following EXCEPT

An FI acting as an agent in matching savers and borrowers of funds can attain economies of scale and provide this service more efficiently than either the saver or borrower could on their own.

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Which of the following FIs does not currently provide a payment function for their customers?

FIs are independent market entities that create financial assets whose value is the transformation of financial risk.

Which of the following observations is true?

When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model,the change is likely to result in

National-chartered commercial banks are most likely to be regulated by

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

Credit unions operate on a common bond principle which emphasizes the depository and lending needs of credit union members.

In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime mortgage markets and the onset of the recent financial crisis?

Because of changes in regulatory barriers,technology,and financial innovation,a single financial service firm may now be able to offer a full set of financial services.

Why Are Financial Institutions Special

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters