Question 1

Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits.What is the total reserve requirement for a bank with total deposits equal to $800 million, if $600 million of these deposits are classified as transaction deposits?

Accepted Answer

A)   $80 million
B)   $60 million
C)   $70 million
D)   $100 million
E)   None of the above. C

Question 2

An increase in depository institutions' reserves will cause

Accepted Answer

A)   the Fed Funds rate to rise.
B)   planned inventory investment to fall.
C)   depository institutions to lend more freely.
D)   foreign investors to buy more T-Bills.
E)   None of the above. C

Question 3

Historically, credit unions were

Accepted Answer

A)   organized during World War I to provide savings institutions to service personnel overseas.
B)   organized with humanitarian goals.
C)   founded to provide consumers with low-cost loans and encourage thrift for members.
D)   first organized in the United States.
E)   All of the above. C

Question 4

Until the passage of the International Bank Act of 1978, foreign banks enjoyed substantial operating advantages over domestic banks.

Accepted Answer

A) True 
 B)False

Question 5

Federal deposit insurance has prevented the failure of depository institutions.

Accepted Answer

A) True 
 B)False

Question 6

All but which of the following financial institutions would you expect to be able to get federal deposit insurance for their customers?

Accepted Answer

A)   bank holding companies
B)   credit unions
C)   commercial banks
D)   savings and loan associations
E)   None of the above.

Question 7

Life insurance protects

Accepted Answer

A)   the insured from premature death.
B)   the beneficiaries of the insured from the economic consequences of death.
C)   beneficiaries from premature death.
D)   the insured from fatal risks faced by the insured.
E)   None of the above.

Question 8

The Federal Reserve System established

Accepted Answer

A)   a system for federal chartering of banks.
B)   a system for controlling bank note issuance.
C)   a source of liquidity for the banking system.
D)   the beginning of demand deposit accounts.
E)   None of the above.

Question 9

Banks are regulated because they provide several important services to their local and national economies.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve System controls the money supply and is not a bank regulator.

Accepted Answer

A) True 
 B)False

Question 11

Demand deposits represent the largest asset category for commercial banks.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a benefit associated with financial intermediaries?

Accepted Answer

A)   reduced costs
B)   fund indivisibility
C)   financial flexibility
D)   diversification of risk

Question 13

Which of the following is not a major provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010?

Accepted Answer

A)   New organizations to protect and inform consumers will be created
B)   greater transparency for trading exotic securities will be required
C)   stockholders will be permitted to have a say on corporate governance, including executive compensation, through nonbinding votes
D)   Fannie Mae and Freddie Mac will be liquidated

Question 14

Which of the following financial institutions is most likely to be the cheapest source of funds for individual borrowers?

Accepted Answer

A)   credit unions
B)   savings and loans
C)   commercial bank
D)   insurance company
E)   finance company

Question 15

A fractional reserve banking system might be in trouble if

Accepted Answer

A)   one depositor wanted his (her)  money returned.
B)   one borrowing customer paid off the loan.
C)   all borrowing customers paid off their loans.
D)   all deposit customers wanted to withdraw their money.
E)   None of the above.

Question 16

A small state bank currently has reserves equal to $300,000.If the state reserve requirement is 20%, but the bank currently maintains a 30% reserve, how much are the excess reserves the bank currently has?

Accepted Answer

A)   $200,000
B)   $100,000
C)   $300,000
D)   $500,000
E)   None of the above.

Question 17

Individuals have greater expertise than financial intermediaries when it comes to gathering, verifying, and evaluating information concerning borrowers.

Accepted Answer

A) True 
 B)False

Question 18

Social Security is a fully funded insurance program.

Accepted Answer

A) True 
 B)False

Question 19

Savings and loan associations were established to provide commercial real estate financing.

Accepted Answer

A) True 
 B)False

Question 20

All else equal, the nation's money supply increases when the Federal Reserve purchases U.S.Treasury securities.

Accepted Answer

A) True 
 B)False

Exam 4: Financial Intermediaries and the Banking System

Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits.What is the total reserve requirement for a bank with total deposits equal to $800 million, if $600 million of these deposits are classified as transaction deposits?

An increase in depository institutions' reserves will cause

Historically, credit unions were

Until the passage of the International Bank Act of 1978, foreign banks enjoyed substantial operating advantages over domestic banks.

Federal deposit insurance has prevented the failure of depository institutions.

All but which of the following financial institutions would you expect to be able to get federal deposit insurance for their customers?

Life insurance protects

The Federal Reserve System established

Banks are regulated because they provide several important services to their local and national economies.

The Federal Reserve System controls the money supply and is not a bank regulator.

Demand deposits represent the largest asset category for commercial banks.

Which of the following is not a benefit associated with financial intermediaries?

Which of the following is not a major provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010?

Which of the following financial institutions is most likely to be the cheapest source of funds for individual borrowers?

A fractional reserve banking system might be in trouble if

A small state bank currently has reserves equal to $300,000.If the state reserve requirement is 20%, but the bank currently maintains a 30% reserve, how much are the excess reserves the bank currently has?

Individuals have greater expertise than financial intermediaries when it comes to gathering, verifying, and evaluating information concerning borrowers.

Social Security is a fully funded insurance program.

Savings and loan associations were established to provide commercial real estate financing.

All else equal, the nation's money supply increases when the Federal Reserve purchases U.S.Treasury securities.