Question 1

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 2

Financial instruments whose payoffs are linked to previously issued securities are called

Accepted Answer

A) grandfathered bonds. 
B) financial derivatives. 
C) hedge securities. 
D) reversible bonds.

Question 3

Adjustable rate mortgages

Accepted Answer

A) reduce the interest-rate risk for financial institutions. 
B) benefit homeowners when interest rates rise. 
C) generally have higher initial interest rates than conventional fixed-rate mortgages. 
D) allow borrowers to avoid paying interest on portions of their mortgage loans.

Question 4

Uncertainty about interest-rate movements and returns is called

Accepted Answer

A) market potential. 
B) interest-rate irregularities. 
C) interest-rate risk. 
D) financial creativity.

Question 5

Currency circulated by banks that could be redeemed for gold was called

Accepted Answer

A) junk bonds. 
B) banknotes. 
C) gold bills. 
D) state money.

Question 6

Sweep accounts which were created to avoid reserve requirements became possible because of a change in

Accepted Answer

A) deposit ceilings. 
B) technology. 
C) government rules. 
D) bank mergers.

Question 7

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 8

In 1977,he pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status.

Accepted Answer

A) Michael Milken 
B) Roger Milliken 
C) Ivan Boesky 
D) Carl Icahn

Question 9

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 10

Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been

Accepted Answer

A) the creation of the FDIC. 
B) rapid economic growth since 1941. 
C) the employment of new procedures by the Federal Reserve. 
D) better bank management.

Question 11

The business term for economies of scope is

Accepted Answer

A) economies of scale. 
B) diversification. 
C) cooperation. 
D) synergies.

Question 12

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) Japanese banks are usually organized as bank holding companies.

Question 13

Before 1863

Accepted Answer

A) federally-chartered banks had regulatory advantages not granted to state-chartered banks. 
B) the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War. 
C) banks acquired funds by issuing banknotes. 
D) banks were required to maintain 100% of their deposits as reserves.

Question 14

Automated teller machines

Accepted Answer

A) are more costly to use than human tellers,so banks discourage their use by charging more for use of ATMs. 
B) cost about the same to use as human tellers in banks,so banks discourage their use by charging more for use of ATMs. 
C) cost less than human tellers,so banks may encourage their use by charging less for using ATMs. 
D) cost nothing to use,so banks provide their services free of charge.

Question 15

A(n)________ is a subsidiary of a U.S.bank that is engaged primarily in international banking.

Accepted Answer

A) Edge Act corporation 
B) Eurodollar agency 
C) universal bank 
D) McFadden corporation

Question 16

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 17

In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and 3.5 percent;in the 1980s it fluctuated between ________ percent and ________ percent.

Accepted Answer

A) 5;15 
B) 4;11.5 
C) 4;18 
D) 5;10

Question 18

________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans.

Accepted Answer

A) Diversification 
B) Arbitrage 
C) Computerization 
D) Securitization

Question 19

One factor contributing to the decline in cost advantages that banks once had is the

Accepted Answer

A) decline in the importance of checkable deposits from over 60 percent of banks' liabilities to 2 percent today. 
B) decline in the importance of savings deposits from over 60 percent of banks' liabilities to under 15 percent today. 
C) decline in the importance of checkable deposits from over 40 percent of banks' liabilities to 15 percent today. 
D) decline in the importance of savings deposits from over 40 percent of banks' liabilities to under 20 percent today.

Question 20

The decline in traditional banking internationally can be attributed to

Accepted Answer

A) increased regulation. 
B) improved information technology. 
C) increasing monopoly power of banks over depositors. 
D) increased protection from competition.

Exam 11: Banking Industry: Structure and Competition