Question 1

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. C

Question 2

Even when an ATM is owned by a bank, states typically have special provisions that allow wider establishment of ATMs than is permissible for traditional "brick and mortar" branches.

Accepted Answer

A) True 
 B)False  True

Question 3

Financial innovation has widened the cost advantages that banks have in acquiring funds, helping to explain why bank profitability has soared in recent years.

Accepted Answer

A) True 
 B)False  False

Question 4

In recent years, commercial banks have been allowed to

Accepted Answer

A) invest in real estate. 
B) enter certain insurance markets. 
C) underwrite stocks. 
D) do all of the above. 
E) do only A and B of the above. 
A) invest in real estate. 
B) enter certain insurance markets. 
C) underwrite stocks. 
D) do all of the above. 
E) do only A and B of the above.

Question 5

The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as ________.

Accepted Answer

A) standardization 
B) homogenization 
C) securitization 
D) adverse selection 
A) standardization 
B) homogenization 
C) securitization 
D) adverse selection

Question 6

Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around ________ percent of total credit advanced to near ________ percent by 2009.

Accepted Answer

A) 60; 30 
B) 40; 25 
C) 25; 20 
D) 30; 15 
A) 60; 30 
B) 40; 25 
C) 25; 20 
D) 30; 15

Question 7

Investment banking activities of the commercial banks were blamed for many bank failures. This led to

Accepted Answer

A) the passage of the National Bank Charter Amendments Act of 1918. 
B) the passage of the Garn-St. Germain Act of 1982. 
C) the passage of the National Bank Act of 1863. 
D) the passage of the Glass-Steagall Act of 1933. 
E) the establishment of the Federal Deposit Insurance Corporation in 1933. 
A) the passage of the National Bank Charter Amendments Act of 1918. 
B) the passage of the Garn-St. Germain Act of 1982. 
C) the passage of the National Bank Act of 1863. 
D) the passage of the Glass-Steagall Act of 1933. 
E) the establishment of the Federal Deposit Insurance Corporation in 1933.

Question 8

One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over ________ percent of banks' source of funds to ________ percent today.

Accepted Answer

A) 70; 30 
B) 60; 5 
C) 50; 20 
D) 40; 15 
A) 70; 30 
B) 60; 5 
C) 50; 20 
D) 40; 15

Question 9

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

Accepted Answer

A) the growth of the junk bond market. 
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 growth of the junk bond market. 
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 10

As a result of restrictive banking regulations, the United States

Accepted Answer

A) has too few banks when compared to other industrialized countries. 
B) has banks that are quite large relative to those in other countries. 
C) has too many banks when compared to other industrialized countries. 
D) has both A and B of the above. 
A) has too few banks when compared to other industrialized countries. 
B) has banks that are quite large relative to those in other countries. 
C) has too many banks when compared to other industrialized countries. 
D) has both A and B of the above.

Question 11

A special subsidiary of a U.S. bank that is engaged in international banking is called

Accepted Answer

A) an international banking facility. 
B) an agency office. 
C) an Edge Act corporation. 
D) a foreign bank subsidiary. 
A) an international banking facility. 
B) an agency office. 
C) an Edge Act corporation. 
D) a foreign bank subsidiary.

Question 12

A smart card is a form of

Accepted Answer

A) stored-value card. 
B) credit card. 
C) debit card. 
D) e-cash card. 
A) stored-value card. 
B) credit card. 
C) debit card. 
D) e-cash card.

Question 13

What financial innovations are best explained as attempts to avoid regulations?

Accepted Answer

The answer of What financial innovations are best explained as...

Question 14

In 1977, ________ 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 Ichan 
A) Michael Milken 
B) Roger Milliken 
C) Ivan Boesky 
D) Carl Ichan

Question 15

High-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as ________.

Accepted Answer

A) municipal bonds 
B) Yankee bonds 
C) "fallen angels" 
D) junk bonds 
A) municipal bonds 
B) Yankee bonds 
C) "fallen angels" 
D) junk bonds

Question 16

The Riegle-Neal Act of 1994

Accepted Answer

A) required all banks to become universal banks. 
B) removed ceilings on bank deposit interest rates. 
C) allowed banks to underwrite insurance and securities and engage in real estate activities. 
D) overturned prohibitions on interstate banking and branching. 
A) required all banks to become universal banks. 
B) removed ceilings on bank deposit interest rates. 
C) allowed banks to underwrite insurance and securities and engage in real estate activities. 
D) overturned prohibitions on interstate banking and branching.

Question 17

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 18

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 19

Large fluctuations in interest rates lead to

Accepted Answer

A) substantial capital gains and losses to owners of securities. 
B) greater uncertainty about returns on investments. 
C) greater interest-rate risk. 
D) all of the above. 
A) substantial capital gains and losses to owners of securities. 
B) greater uncertainty about returns on investments. 
C) greater interest-rate risk. 
D) all of the above.

Question 20

Checkable deposits, a traditional source of low-cost funds for banks, have declined dramatically in importance, falling from over 60 percent of bank liabilities to less than 10 percent today.

Accepted Answer

A) True 
 B)False

Exam 19: Banking Industry: Structure and Competition

The legislation that separated investment banking from commercial banking was the

Even when an ATM is owned by a bank, states typically have special provisions that allow wider establishment of ATMs than is permissible for traditional "brick and mortar" branches.

Financial innovation has widened the cost advantages that banks have in acquiring funds, helping to explain why bank profitability has soared in recent years.

In recent years, commercial banks have been allowed to

The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as ________.

Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around ________ percent of total credit advanced to near ________ percent by 2009.

Investment banking activities of the commercial banks were blamed for many bank failures. This led to

One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over ________ percent of banks' source of funds to ________ percent today.

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

As a result of restrictive banking regulations, the United States

A special subsidiary of a U.S. bank that is engaged in international banking is called

A smart card is a form of

What financial innovations are best explained as attempts to avoid regulations?

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

High-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as ________.

The Riegle-Neal Act of 1994

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

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

Large fluctuations in interest rates lead to

Checkable deposits, a traditional source of low-cost funds for banks, have declined dramatically in importance, falling from over 60 percent of bank liabilities to less than 10 percent today.

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

Filters

Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around percent of total credit advanced to near percent by 2009.

One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over percent of banks' source of funds to percent today.