Question 1

The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated.

Accepted Answer

A) True 
 B)False

Question 2

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)  British-style universal 
C)  barrier-free 
D)  seamless 
A)  universal 
B)  British-style universal 
C)  barrier-free 
D)  seamless

Question 3

Securitization is the process of transforming illiquid financial assets such as residential mortgages into marketable securities.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following are true statements concerning bank holding companies?

Accepted Answer

A)  Bank holding companies own almost all large banks. 
B)  Bank holding companies have experienced dramatic growth in the past twenty-five years. 
C)  Through a loophole in the McFadden Act, bank holding companies have successfully evaded interstate branching restrictions. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  Bank holding companies own almost all large banks. 
B)  Bank holding companies have experienced dramatic growth in the past twenty-five years. 
C)  Through a loophole in the McFadden Act, bank holding companies have successfully evaded interstate branching restrictions. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 5

Restrictions on commercial banks' securities and insurance activities put American banks at a competitive disadvantage relative to foreign banks.

Accepted Answer

A) True 
 B)False

Question 6

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)  both A and C of the above 
E)  both B and C of the above 
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)  both A and C of the above 
E)  both B and C of the above

Question 7

The most important developments that have reduced banks' cost advantages in the past twenty years include

Accepted Answer

A)  the elimination of Regulation Q ceilings. 
B)  the competition from money market mutual funds. 
C)  the growth of securitization. 
D)  all of the above. 
E)  only A and B of the above. 
A)  the elimination of Regulation Q ceilings. 
B)  the competition from money market mutual funds. 
C)  the growth of securitization. 
D)  all of the above. 
E)  only A and B of the above.

Question 8

When and why was the Glass-Steagall Act passed? When and why was it repealed?

Accepted Answer

In 1933, in the wake of the 1929 stock m

Question 9

One factor contributing to the decline in income advantages that banks once had is the increased competition from the commercial paper market,which has grown in size to over ________ percent of commercial and industrial bank loans today.

Accepted Answer

A)  20 
B)  30 
C)  40 
D)  50 
A)  20 
B)  30 
C)  40 
D)  50

Question 10

The legislation that separated investment banking from commercial banking was the

Accepted Answer

A)  National Bank Act. 
B)  Federal Reserve Act. 
C)  Glass-Steagall Act. 
D)  McFadden Act. 
A)  National Bank Act. 
B)  Federal Reserve Act. 
C)  Glass-Steagall Act. 
D)  McFadden Act.

Question 11

"Stripping" a Treasury bond

Accepted Answer

A)  means selling each of its future payments as a separate zero-coupon bond. 
B)  decreases the total present discounted value of future payments. 
C)  both A and B. 
D)  none of the above. 
A)  means selling each of its future payments as a separate zero-coupon bond. 
B)  decreases the total present discounted value of future payments. 
C)  both A and B. 
D)  none of the above.

Question 12

In a ________ banking system,commercial banks engage in securities underwriting,but separate subsidiaries conduct the different activities.Also,banking and insurance are not typically undertaken together in this system.

Accepted Answer

A)  universal 
B)  British-style universal 
C)  divided 
D)  compartmentalized 
E)  severable 
A)  universal 
B)  British-style universal 
C)  divided 
D)  compartmentalized 
E)  severable

Question 13

Since the passage of the International Banking Act of 1978,the competitive advantage enjoyed by foreign banks has been ________.

Accepted Answer

A)  reduced 
B)  mildly expanded 
C)  completely eliminated 
D)  greatly expanded 
A)  reduced 
B)  mildly expanded 
C)  completely eliminated 
D)  greatly expanded

Question 14

Which of the following is not expected to result from bank consolidation in the U.S.?

Accepted Answer

A)  The disappearance of small community banks. 
B)  The acceleration of the decline in the number of banks. 
C)  Banks will be more efficient. 
D)  Banks will be less likely to fail. 
A)  The disappearance of small community banks. 
B)  The acceleration of the decline in the number of banks. 
C)  Banks will be more efficient. 
D)  Banks will be less likely to fail.

Question 15

As a result of shared electronic banking facilities,

Accepted Answer

A)  barriers to branching have become less burdensome. 
B)  banking has become less competitive. 
C)  both of the above have occurred. 
D)  neither of the above has occurred. 
A)  barriers to branching have become less burdensome. 
B)  banking has become less competitive. 
C)  both of the above have occurred. 
D)  neither of the above has occurred.

Question 16

An electronic machine that allows customers to make deposits,get cash,transfer funds from one account to another,and check balances is

Accepted Answer

A)  an automated banking machine. 
B)  the virtual bank. 
C)  an automated teller machine. 
D)  a smart card. 
A)  an automated banking machine. 
B)  the virtual bank. 
C)  an automated teller machine. 
D)  a smart card.

Question 17

The National Banking Act of 1863,and subsequent amendments to it,

Accepted Answer

A)  created a banking system of federally chartered banks. 
B)  established the Office of the Comptroller of the Currency. 
C)  broadened the regulatory powers of the Federal Reserve. 
D)  did all of the above. 
E)  did only A and B of the above. 
A)  created a banking system of federally chartered banks. 
B)  established the Office of the Comptroller of the Currency. 
C)  broadened the regulatory powers of the Federal Reserve. 
D)  did all of the above. 
E)  did only A and B of the above.

Question 18

The growing use and proliferation of ATMs has been stimulated by

Accepted Answer

A)  lower transaction costs. 
B)  greater customer convenience. 
C)  declining cost of the ATM equipment. 
D)  all of the above. 
A)  lower transaction costs. 
B)  greater customer convenience. 
C)  declining cost of the ATM equipment. 
D)  all of the above.

Question 19

So-called fallen angels differ from junk bonds in that

Accepted Answer

A)  junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa. 
B)  fallen angels refer to newly issued bonds with low credit ratings. 
C)  junk bonds refer to newly issued bonds with low credit ratings. 
D)  they are both A and B of the above. 
A)  junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa. 
B)  fallen angels refer to newly issued bonds with low credit ratings. 
C)  junk bonds refer to newly issued bonds with low credit ratings. 
D)  they are both A and B of the above.

Question 20

Reserve requirements that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest rates that can be paid on deposits have been the major forces behind financial innovation.

Accepted Answer

A) True 
 B)False

Exam 19: Banking Industry: Structure and Competition

The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated.

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

Securitization is the process of transforming illiquid financial assets such as residential mortgages into marketable securities.

Which of the following are true statements concerning bank holding companies?

Restrictions on commercial banks' securities and insurance activities put American banks at a competitive disadvantage relative to foreign banks.

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

The most important developments that have reduced banks' cost advantages in the past twenty years include

When and why was the Glass-Steagall Act passed? When and why was it repealed?

One factor contributing to the decline in income advantages that banks once had is the increased competition from the commercial paper market,which has grown in size to over ________ percent of commercial and industrial bank loans today.

The legislation that separated investment banking from commercial banking was the

"Stripping" a Treasury bond

In a ________ banking system,commercial banks engage in securities underwriting,but separate subsidiaries conduct the different activities.Also,banking and insurance are not typically undertaken together in this system.

Since the passage of the International Banking Act of 1978,the competitive advantage enjoyed by foreign banks has been ________.

Which of the following is not expected to result from bank consolidation in the U.S.?

As a result of shared electronic banking facilities,

An electronic machine that allows customers to make deposits,get cash,transfer funds from one account to another,and check balances is

The National Banking Act of 1863,and subsequent amendments to it,

The growing use and proliferation of ATMs has been stimulated by

So-called fallen angels differ from junk bonds in that

Reserve requirements that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest rates that can be paid on deposits have been the major forces behind financial innovation.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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