Question 1

Because FIs remove imperfections between households and corporations,households tend to save more than they would if FIs did not exist.

Accepted Answer

A) True 
 B)False

Question 2

In its role as a delegated monitor,an FI

Accepted Answer

A) keeps track of required interest and principal payments on loans it originates. 
B) works with financially distressed borrowers in danger of defaulting on their loans. 
C) holds portfolios of loans that they continue to service. 
D) maintains contact with borrowers to ensure that loan proceeds are utilized for intended purposes. 
E) All of the options. 
A) keeps track of required interest and principal payments on loans it originates. 
B) works with financially distressed borrowers in danger of defaulting on their loans. 
C) holds portfolios of loans that they continue to service. 
D) maintains contact with borrowers to ensure that loan proceeds are utilized for intended purposes. 
E) All of the options.

Question 3

The Internet has allowed individual investors to purchase securities while benefiting from decreased transactions costs.

Accepted Answer

A) True 
 B)False

Question 4

A major difference between banks and other nonfinancial firms is the low amount of leverage in commercial banks.

Accepted Answer

A) True 
 B)False

Question 5

For the following problems, choose among the following major banking laws.
-Eliminated restrictions on banks,insurance companies,and securities firms from entering into each other's areas of business.

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 6

Traditionally,regulation of FIs in the U.S.has been

Accepted Answer

A) minimal,as evidenced by the recent financial crisis. 
B) extensive,as a result of the importance of FI to the economy. 
C) minimal,because the free market is allowed to allocate financial resources. 
D) extensive,because banks have monopoly power. 
A) minimal,as evidenced by the recent financial crisis. 
B) extensive,as a result of the importance of FI to the economy. 
C) minimal,because the free market is allowed to allocate financial resources. 
D) extensive,because banks have monopoly power.

Question 7

State-chartered commercial banks may 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 FDIC,the Federal Reserve System,the Comptroller of the Currency,and state banking commissions. 
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 FDIC,the Federal Reserve System,the Comptroller of the Currency,and state banking commissions.

Question 8

As a delegated monitor,an FI's actions reduce agency costs.

Accepted Answer

A) True 
 B)False

Question 9

Net regulatory burden for FIs is higher because regulators may require the FI to

Accepted Answer

A) hold more capital than what would be held without regulation. 
B) produce less information than would be produced without regulation. 
C) hold more debt than what would be held without regulation. 
D) hold fewer reserves than they would without regulation. 
A) hold more capital than what would be held without regulation. 
B) produce less information than would be produced without regulation. 
C) hold more debt than what would be held without regulation. 
D) hold fewer reserves than they would without regulation.

Question 10

For the following problems, choose among the following major banking laws.
-This legislation phased out Regulation Q ceilings on deposit interest rates.

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 11

These organizations were originated to avoid the legal definition of a bank.

Accepted Answer

A) Money center banks. 
B) Savings associations. 
C) Nonbank banks. 
D) Financial services holding companies. 
A) Money center banks. 
B) Savings associations. 
C) Nonbank banks. 
D) Financial services holding companies.

Question 12

The largest asset class on U.S.commercial banks' combined balance sheet as of June 30,2015 was

Accepted Answer

A) investment securities. 
B) commercial and industrial loans. 
C) real estate loans. 
D) cash. 
E)  deposits. 
A) investment securities. 
B) commercial and industrial loans. 
C) real estate loans. 
D) cash. 
E)  deposits.

Question 13

Large money center banks finance most of their activities by using retail consumer deposits as the primary source of funds.

Accepted Answer

A) True 
 B)False

Question 14

In recent years,the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

Accepted Answer

A) True 
 B)False

Question 15

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation?

Accepted Answer

A) Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. 
B) Financial intermediation has become more costly because it is necessary to invest in high cost technology. 
C) Financial intermediation has been unaffected. 
D) Financial intermediation has become more costly as global firms exploit economies of scale and scope. 
A) Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. 
B) Financial intermediation has become more costly because it is necessary to invest in high cost technology. 
C) Financial intermediation has been unaffected. 
D) Financial intermediation has become more costly as global firms exploit economies of scale and scope.

Question 16

The part of the money supply produced by depository institutions is referred to outside money because it is produced outside of the government.

Accepted Answer

A) True 
 B)False

Question 17

Large money center banks are often primary dealers in the U.S.Treasury markets.

Accepted Answer

A) True 
 B)False

Question 18

Holdings of U.S.Treasury securities are classified on a DI's balance sheet as

Accepted Answer

A) assets,because U.S.Treasury securities are default risk-free. 
B) liabilities,because the DI must pay cash in order to acquire the securities. 
C) assets,because securities holdings represent a use of funds for investment. 
D) liabilities,because the Treasury securities must be pledged as collateral against discount window borrowing. 
A) assets,because U.S.Treasury securities are default risk-free. 
B) liabilities,because the DI must pay cash in order to acquire the securities. 
C) assets,because securities holdings represent a use of funds for investment. 
D) liabilities,because the Treasury securities must be pledged as collateral against discount window borrowing.

Question 19

A primary advantage for a depository institution of belonging to the Federal Reserve System is

Accepted Answer

A) direct access to correspondent banking services. 
B) the lower deposit reserves required under the Federal Reserve System. 
C) direct access to the discount window of the Fed. 
D) commission less trading of U.S.government securities. 
A) direct access to correspondent banking services. 
B) the lower deposit reserves required under the Federal Reserve System. 
C) direct access to the discount window of the Fed. 
D) commission less trading of U.S.government securities.

Question 20

The use of off-balance-sheet activities and instruments will always reduce the risk to a bank.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Services: Depository Institutions

Because FIs remove imperfections between households and corporations,households tend to save more than they would if FIs did not exist.

In its role as a delegated monitor,an FI

The Internet has allowed individual investors to purchase securities while benefiting from decreased transactions costs.

A major difference between banks and other nonfinancial firms is the low amount of leverage in commercial banks.

For the following problems, choose among the following major banking laws. -Eliminated restrictions on banks,insurance companies,and securities firms from entering into each other's areas of business.

Traditionally,regulation of FIs in the U.S.has been

State-chartered commercial banks may be regulated by

As a delegated monitor,an FI's actions reduce agency costs.

Net regulatory burden for FIs is higher because regulators may require the FI to

For the following problems, choose among the following major banking laws. -This legislation phased out Regulation Q ceilings on deposit interest rates.

These organizations were originated to avoid the legal definition of a bank.

The largest asset class on U.S.commercial banks' combined balance sheet as of June 30,2015 was

Large money center banks finance most of their activities by using retail consumer deposits as the primary source of funds.

In recent years,the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation?

The part of the money supply produced by depository institutions is referred to outside money because it is produced outside of the government.

Large money center banks are often primary dealers in the U.S.Treasury markets.

Holdings of U.S.Treasury securities are classified on a DI's balance sheet as

A primary advantage for a depository institution of belonging to the Federal Reserve System is

The use of off-balance-sheet activities and instruments will always reduce the risk to a bank.

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