Question 1

Disintermediation resulted from

Accepted Answer

A) interest rate ceilings combined with inflation-driven increases in interest rates. 
B) elimination of Regulation Q (the regulation imposing interest rate ceilings on bank deposits). 
C) increases in federal income taxes. 
D) reserve requirements.

Question 2

The Federal Reserve makes discount loans to banks,and similarly,the FHLBS makes loans to savings and loan institutions. The Fed loans are expected to be repaid ________ while the FHLBS loans are ________.

Accepted Answer

A) quickly;for longer periods of time 
B) when the bank becomes solvent;to be repaid quickly 
C) quickly;to be repaid when the S&L becomes solvent 
D) when the market rebounds;of short duration

Question 3

As a result of the global financial crisis several of the large,free-standing investment banking firms chose to become bank holding companies. This means that they will now be regulated by

Accepted Answer

A) the Federal Reserve. 
B) the FDIC. 
C) the state banking authorities. 
D) the Treasury.

Question 4

What country is given credit for the birth of the Eurodollar market?

Accepted Answer

A) the United States 
B) England 
C) the Soviet Union 
D) Japan

Question 5

An advantage to American banks from operating foreign branches is that Eurodollar deposits in offshore branches are

Accepted Answer

A) not subject to reserve requirements. 
B) insured by the FDIC. 
C) subject to extensive regulatory supervision. 
D) all demand deposits that pay no interest.

Question 6

The legislation that overturned the prohibition on interstate banking is

Accepted Answer

A) the McFadden Act. 
B) the Gramm-Leach-Bliley Act. 
C) the Glass-Steagall Act. 
D) the Riegle-Neal Act.

Question 7

The FHLBS gives loans to S&Ls and thus performs a function similar to the ________ for commercial banks.

Accepted Answer

A) Federal Reserve 
B) U)S. Treasury 
C) Office of the Comptroller of the Currency 
D) U)S. Mint

Question 8

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

Accepted Answer

A) created a banking system of state-chartered banks. 
B) established the Office of the Comptroller of the Currency. 
C) broadened the regulatory powers of the Federal Reserve. 
D) created insurance on deposit accounts.

Question 9

Which of the following is NOT part of the shadow banking system?

Accepted Answer

A) the transformer 
B) the servicer 
C) the bundler 
D) the distributor

Question 10

In September 2008,the Reserve Primary Fund,a money market mutual fund,found itself in the situation know as "breaking the buck." This means that

Accepted Answer

A) they could no longer afford to redeem shares at the par value of $1. 
B) they required shareholders to contribute a dollar more in fees each month. 
C) shareholders were able to redeem shares for more than a $1. 
D) shares earned more than a dollar in interest.

Question 11

The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains,in part,the passage of

Accepted Answer

A) the National Bank Charter Amendments of 1918. 
B) the Garn-St. Germain Act of 1982. 
C) the National Bank Act of 1863. 
D) Federal Reserve Act of 1913.

Question 12

Financial innovations occur because of financial institutions search for

Accepted Answer

A) profits. 
B) fame. 
C) stability. 
D) recognition.

Question 13

The presence of so many commercial banks in the United States is most likely the result of

Accepted Answer

A) consumers' strong desire for dealing with only local banks. 
B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks. 
C) prior regulations that restricted the ability of these financial institutions to open branches. 
D) consumers' preference for state banks.

Question 14

Because of securitization,a new class of residential mortgages offered to borrowers with less-than-stellar credit records developed. These mortgages are known as

Accepted Answer

A) risk-enhanced mortgages. 
B) subprime mortgages. 
C) bundled mortgages. 
D) adjustable-rate mortgages.

Question 15

The process in which people seeking higher yielding securities take their funds out of the banking system thus restricting the amount of funds banks can lend is called

Accepted Answer

A) capital mobility. 
B) loophole mining. 
C) disintermediation. 
D) deposit jumping.

Question 16

Mutual savings banks are owned by

Accepted Answer

A) shareholders. 
B) partners. 
C) depositors. 
D) foreign investors.

Question 17

In a ________ banking system,commercial banks engage in securities underwriting,but legal 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) short-fence 
D) compartmentalized

Question 18

Money market mutual funds

Accepted Answer

A) function as interest-earning checking accounts. 
B) are legally deposits. 
C) are subject to reserve requirements. 
D) have an interest-rate ceiling.

Question 19

A financial innovation that developed as a result of banks avoidance of bank branching restrictions was

Accepted Answer

A) money market mutual funds. 
B) commercial paper. 
C) junk bonds. 
D) bank holding companies.

Question 20

Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes,state banks were able to stay in business by

Accepted Answer

A) issuing credit cards. 
B) ignoring the regulations. 
C) acquiring funds through deposits. 
D) branching into other states.

Exam 11: Banking Industry: Structure and Competition