Question 1

U.S. banks have most of their foreign branches in

Accepted Answer

A) Latin America, the Far East, the Caribbean, and London. 
B) Latin America, the Middle East, the Caribbean, and London. 
C) Mexico, the Middle East, the Caribbean, and London. 
D) South America, the Middle East, the Caribbean, and Canada. 
A) Latin America, the Far East, the Caribbean, and London. 
B) Latin America, the Middle East, the Caribbean, and London. 
C) Mexico, the Middle East, the Caribbean, and London. 
D) South America, the Middle East, the Caribbean, and Canada.

Question 2

The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the

Accepted Answer

A) central bank. 
B) commercial bank. 
C) bank of settlement. 
D) Treasury Department. 
A) central bank. 
B) commercial bank. 
C) bank of settlement. 
D) Treasury Department.

Question 3

"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 4

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

Accepted Answer

A) the growth of the commercial paper market. 
B) the growth of the junk bond market. 
C) the growth of securitization. 
D) all of the above. 
E) only A and B of the above. 
A) the growth of the commercial paper market. 
B) the growth of the junk bond market. 
C) the growth of securitization. 
D) all of the above. 
E) only A and B of the above.

Question 5

Which of the following statements concerning bank regulation in the United States is true?

Accepted Answer

A) The Office of the Comptroller of the Currency has the primary responsibility for national banks. 
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System. 
C) The Fed has sole regulatory responsibility over bank holding companies. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The Office of the Comptroller of the Currency has the primary responsibility for national banks. 
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System. 
C) The Fed has sole regulatory responsibility over bank holding companies. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 6

In September of 2008, the money market mutual fund Reserve Primary Fund had a price of less than $1.00 for a dollar invested. How did this happen?

Accepted Answer

A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went broke. 
B) The fund invested in high-yield junk bonds, which defaulted. 
C) The fund invested in Treasuries, which yielded less than 0% returns. 
D) This actually didn't happen. It cannot happen since the fund only invested in low-risk debt. 
A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went broke. 
B) The fund invested in high-yield junk bonds, which defaulted. 
C) The fund invested in Treasuries, which yielded less than 0% returns. 
D) This actually didn't happen. It cannot happen since the fund only invested in low-risk debt.

Question 7

In 1975, financial institutions developed financial derivatives that included ________.

Accepted Answer

A) adjustable-rate mortgages 
B) futures contracts 
C) financial engineering 
D) virtual banks 
A) adjustable-rate mortgages 
B) futures contracts 
C) financial engineering 
D) virtual banks

Question 8

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

Question 9

Bank managers look on reserve requirements as a

Accepted Answer

A) tax on deposits. 
B) subsidy on deposits. 
C) subsidy on loans. 
D) tax on loans. 
A) tax on deposits. 
B) subsidy on deposits. 
C) subsidy on loans. 
D) tax on loans.

Question 10

Eurodollars are

Accepted Answer

A) dollar-denominated deposits held in banks outside the United States. 
B) deposits held by U.S. banks in Europe. 
C) deposits held by U.S. banks in foreign countries. 
D) dollar-denominated deposits held in U.S. banks by Europeans. 
A) dollar-denominated deposits held in banks outside the United States. 
B) deposits held by U.S. banks in Europe. 
C) deposits held by U.S. banks in foreign countries. 
D) dollar-denominated deposits held in U.S. banks by Europeans.

Question 11

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 12

What are Treasury strips? What roles have reinvestment risk and information technology played in the development of this financial product?

Accepted Answer

Treasury strips, also known as Separate

Question 13

Which regulatory body charters national banks?

Accepted Answer

A) the Federal Reserve 
B) the Federal Deposit Insurance Corporation 
C) the Comptroller of the Currency 
D) none of the above 
A) the Federal Reserve 
B) the Federal Deposit Insurance Corporation 
C) the Comptroller of the Currency 
D) none of the above

Question 14

New computer technology has

Accepted Answer

A) increased the cost of financial innovation. 
B) increased the demand for financial innovation. 
C) reduced the cost of financial innovation. 
D) reduced the demand for financial innovation. 
A) increased the cost of financial innovation. 
B) increased the demand for financial innovation. 
C) reduced the cost of financial innovation. 
D) reduced the demand for financial innovation.

Question 15

In the 1950s, the interest rate on three-month Treasury bills fluctuated between 1.0% and 3.5%. In the 1980s, the three-month Treasury bill rate ranged from 5% to over 15%. From this, one could predict that in the 1980s interest-rate risk was ________ and the demand for financial innovation was ________.

Accepted Answer

A) greater; lower 
B) greater; greater 
C) lower; lower 
D) lower; greater 
A) greater; lower 
B) greater; greater 
C) lower; lower 
D) lower; greater

Question 16

Thrift institutions' importance as a source of funds for borrowers

Accepted Answer

A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent today. 
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today. 
C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent today. 
D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent today. 
A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent today. 
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today. 
C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent today. 
D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent today.

Question 17

The McFadden Act's prohibition against interstate branching

Accepted Answer

A) was weakened by the introduction of shared electronic banking facilities that provide banking services nationwide. 
B) was weakened by regional compacts that allowed banks to own banks in other states in their region. 
C) impeded banks' ability to diversify their loans and take advantage of economies of scale. 
D) did all of the above. 
A) was weakened by the introduction of shared electronic banking facilities that provide banking services nationwide. 
B) was weakened by regional compacts that allowed banks to own banks in other states in their region. 
C) impeded banks' ability to diversify their loans and take advantage of economies of scale. 
D) did all of the above.

Question 18

What new forms of making payments have been spawned by the advances in information technology of the past two decades? Is it likely that ours will become a cashless society anytime soon as a result of these innovations? Why?

Accepted Answer

The advances in information technology o

Question 19

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 20

Which bank regulatory agency has the sole regulatory authority over bank holding companies?

Accepted Answer

A) the Federal Deposit Insurance Corporation 
B) the Comptroller of the Currency 
C) the Federal Bank Holding Company Agency 
D) the Federal Reserve System 
A) the Federal Deposit Insurance Corporation 
B) the Comptroller of the Currency 
C) the Federal Bank Holding Company Agency 
D) the Federal Reserve System

Exam 19: Banking Industry: Structure and Competition

U.S. banks have most of their foreign branches in

The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the

"Stripping" a Treasury bond

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

Which of the following statements concerning bank regulation in the United States is true?

In September of 2008, the money market mutual fund Reserve Primary Fund had a price of less than $1.00 for a dollar invested. How did this happen?

In 1975, financial institutions developed financial derivatives that included ________.

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.

Bank managers look on reserve requirements as a

Eurodollars are

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

What are Treasury strips? What roles have reinvestment risk and information technology played in the development of this financial product?

Which regulatory body charters national banks?

New computer technology has

Thrift institutions' importance as a source of funds for borrowers

The McFadden Act's prohibition against interstate branching

What new forms of making payments have been spawned by the advances in information technology of the past two decades? Is it likely that ours will become a cashless society anytime soon as a result of these innovations? Why?

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

Which bank regulatory agency has the sole regulatory authority over bank holding companies?

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

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