Deck 4: Establishing New Banks, Branches, ATMs, Telephone Services, and Websites

Question 1

Banks which offer services with in the grocery stores and other retail outlets are offering services from a(n)______________________ branch.

Answer 1

in-store

Question 2

A(n)______________________ combines a computer terminal,record keeping system,and vault cash in one unit allowing customers to withdraw money,check deposit balances,and other limited services 24 hours a day.

Answer 2

automated teller machine (ATM

Question 3

The ____________________ issues charters for new state banks.

Answer 3

state banking commission

Question 4

A(n)______________________ terminal in a retail store allows a customer to pay for goods and services by instantly debiting his or her checking account.

Question 5

______________________ is demonstrated by organizers of new banks by showing that local banks are not conveniently located or fail to offer some key services.

Question 6

A(n)______________________ bank is one that offers its services only through the Internet.It does not have any brick-and-mortar offices.

Question 7

The state banking commissions (at the state level)and the Office of the Comptroller of the Currency (at the federal level)are the only ones able to issue a(n)______________________ for a new U.S.bank.

Question 8

The ______________________ issues charters for new national banks.

Question 9

____________________________________________ allows customers to carry pocket-sized terminals with them and pay for goods and services and transfer funds as needed.These are already popular in Europe.

Question 10

"Virtual" banks are found on the ____________________,and more and more banks are using this medium to deliver selected services.

Question 11

____________________ reduces a bank's overall risk exposure by establishing service facilities in different market areas.

Question 12

For most of the history of financial service providers,'convenience' has meant ____________.

Question 13

The acronym ACH stands for _____________.

Question 14

The ______________________ can be calculated when the present value of the future net cash flows are set equal to the initial cash outflow.It is the interest rate that is actually earned on a new project.

Question 15

The most effective delivery channel of financial services appears to be ____________.It combines full-service branches and electronic limited service facilities within the same firm.

Question 16

A(n)______________________ is a full service facility which offers many of the same services as the home or main office of a bank.

Question 17

The FDIC Improvement Act requires that all depository institutions must have FDIC insurance.

Question 18

Depository institutions are required to get their deposits insured from the ____________.

Question 19

Fees for ATMs are larger and more common if a customer uses another financial institution's ATM because most institutions charge each other _____________ fees.

Question 20

The _____________ of setting up a new ATM is the present value of the future stream of cash savings discounted at the firm's required rate of return less the total cash outlay for the ATM.

Question 21

Bank branch offices are often specially configured today to maximize sales opportunities.

Question 22

A customer can use a POS terminal at a store to pay for his purchases through a debit or a credit card.

Question 23

The total number of full-service branch offices has declined in the United States in recent years.

Question 24

Society pays a price if it restricts the number of bank charters below the number that the private sector normally would generate due to lessened competition.

Question 25

Higher levels of savings deposits are usually found in those bank branch office locations where there is a higher proportion of residents with above-average age and residents who own their own homes.

Question 26

More desirable office sites for new bank branches normally have residents who are above-average in age.

Question 27

One of the benefits of applying for a federal banking charter is that banks need not join the Federal Reserve System.

Question 28

One of the keys to branch office profitability is to apply the latest information technology and thereby lower personnel costs.

Question 29

ATMs are profitable for all banks since they can eliminate tellers at branches that have ATMs.

Question 30

The optimal choice for a new branch site must be one that offers the bank the highest expected rate of return on the capital invested in the project.

Question 31

Most U.S.banks are chartered in urban areas.

Question 32

To close a bank branch office in the United States,a bank must give its customers 30 days advance notice.

Question 33

One argument frequently presented for regulation and control over bank chartering activity is that banks can create money and chartering too many might result in excessive money creation and inflation in the economy.

Question 34

Newly designed bank branch offices in recent years have emphasized more heavily on effective communication of service options to the customers in an effort to promote service sales.

Question 35

State banking commissions,on average,impose tougher standards for chartering new banks than the federal chartering agency,the Comptroller of the Currency.

Question 36

Most new banks are situated along major routes of travel for commuters going to work,shopping areas,and schools.

Question 37

"Public need" is usually established with federal or state chartering authorities by showing that existing banks in the area are adequately profitable and have satisfactory amounts of capital.

Question 38

Applying for a bank charter from the Comptroller of the Currency is simultaneously followed by an application for FDIC insurance,to expedite the formation process and save duplication of efforts.

Question 39

Half of all transactions made through an ATM machine are deposits.

Question 40

The first ATM machine could only handle cash withdrawals.

Question 41

Most new U.S.banks are chartered in:

A)small communities where there is very little existing competition.
B)relatively large urban areas where organizers can earn higher expected rates of return on their investment.
C)rural areas where they will be more convenient for customers.
D)All of the options are correct
E)small communities where there is very little existing competition and provides more convenience for the customers.

Question 42

Research suggests that in the short-term,newly chartered banks fail at a higher rate than established banks.

Question 43

Payments made by electronic direct deposit now comprise over 50 percent of all transactions in the U.S.

Question 44

The Office of the Comptroller of the Currency does not charter internet-only banks.

Question 45

Research indicates that states with more liberal chartering standards experience a higher rate of bank failures.

Question 46

When considering possible location for new branches,expected rate of return is the only criteria that a management should consider.

Question 47

The number of bank charters issued annually in the United States averages about:

A)1,000
B)2,000
C)10
D)100
E)None of the options are correct

Question 48

One of the benefits of securing a state charter instead of a federal charter for a bank is that:

A)it brings added prestige.
B)it results in the automatic receipt of federal deposit insurance.
C)it is often able to lend a higher percentage of its capital to a single borrower.
D)state laws can pre-empt federal laws.
E)None of the options are correct.

Question 49

Which of the following factor(s)does OCC assess during the application process for a national bank charter?

A)Market demand
B)Probable customer base
C)Competition and economic conditions
D)Inherent risks in the services to be offered to the public
E)All of the options are correct

Question 50

According to the textbook,the disadvantages of a federal charter include:

A)closer supervision of banking activities.
B)stricter standards for capital.
C)more stringent limits on the offering of new services.
D)All of the options are correct
E)stricter capital standards and more stringent limit on new offerings.

Question 51

One of the benefits for a bank securing a federal (national)charter instead of a state charter is that:

A)federal rules can pre-empt state laws.
B)a federal charter is generally easier and less costly to secure.
C)a federal charter often allows to lend a higher percentage of capital to a single borrower.
D)a federal charter usually entails lower supervisory fees.
E)None of the options are correct.

Question 52

U.S.banking laws require the organizers of a proposed new bank to demonstrate:

A)adequate future earnings prospects.
B)adequate owners' capital availability.
C)evidence of a public need for a new bank.
D)existing banks will not be endangered.
E)All of the options are correct.

Question 53

Which of the following is a key factor that organizers of a proposed new bank use in evaluating their investment opportunity?

A)The level and growth of economic activity
B)The need for a new financial firm
C)Management quality
D)Pledging of capital required to cover all costs of getting started
E)All of the options are correct.

Question 54

A charter of incorporation to start a new U.S.bank can be issued by:

A)the Office of the Comptroller of the Currency.
B)the state banking commissions of each state.
C)the Federal Deposit Insurance Corporation (FDIC).
D)All of the options are correct
E)both the Office of the Comptroller of the Currency and the state banking commissions.

Question 55

Most new banks:

A)become profitable in the first 3 years of their operation.
B)have pro-competitive effects on the markets they enter.
C)are more closely supervised by regulators than established institutions.
D)All of the options are correct
E)None of the options are correct.

Question 56

Recently,the issue of public need has become an increasingly important factor in the granting of bank charters.

Question 57

One of the benefits of applying for a federal (national)bank charter over a state charter is that:

A)it brings added prestige.
B)it results in the automatic receipt of federal deposit insurance.
C)there is better technical support in times of trouble.
D)it brings added prestige and better technical support in times of trouble.
E)All of the options are correct

Question 58

A majority of new banks do not become profitable for at least a decade.

Question 59

Negative correlation of returns of a proposed new branch with returns of the existing branch offices and other assets can serve to lower the overall bank's riskiness and is an important justification for branch establishment.This is referred to as geographic diversification effect.

Question 60

The existence of branch banking in a given state:

A)encourages new banks to be chartered.
B)discourages new banks from being chartered.
C)results in more bank failures than normal.
D)results in lower operating cost per unit of service.
E)None of the options are correct

Question 61

Second National Bank is considering adding 5 new ATM machines.Each machine costs $25,000 and installation costs are $15,000 per machine.Second National Bank expects the new machines to save $0.33 per transaction on 250,000 transactions per year on the new machines.It also expects the new machines to last for 15 years.If the bank needs to earn 14 percent return on this investment,what is the net present value of this investment?

A)$506,729
B)$306,729
C)$272,269
D)$381,729
E)$424,228

Question 62

Which of the following is one of the common services provided by banks on the internet today?

A)Applying for a loan
B)Applying for a new savings account
C)Making payments (especially recurring utility bills)
D)All the options are correct
E)None of the options are correct

Question 63

The Clearwater National Bank is planning to set up a new branch.This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened.The bank also expects the returns on this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent.The correlation between the bank's current return and returns on the new branch is expected to be -0.3.What is the bank's total expected return after adding this branch?

A)15 percent
B)10 percent
C)15.25 percent
D)10.25 percent
E)11.5 percent

Question 64

Murphy National Bank is thinking about adding a new branch in a very different market area.It estimates that the new office will have an expected return of 16% with a standard deviation of 8%.Currently,it has an expected return of 12% with a standard deviation of 4%.The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20.The bank estimates that the new branch will represent 15 percent of the revenues of the bank.What is the expected return of the bank with the new branch?

A)12.6 percent
B)15.4 percent
C)4.6 percent
D)7.4 percent
E)8.2 percent

Question 65

The FDIC requires the insured banks to maintain Tier 1 capital of at least __________ for at least the first three years of their operations.

A)10 percent
B)8 percent
C)$12 million
D)15 percent
E)$10 million

Question 66

Third State Bank wants to add a new branch office.It has determined that the cost of construction of the new facility will be $1.5 million with another $500,000 in organizational costs.The bank has estimated that it will generate $319,522 per year in net revenues for 20 years.If Third State requires a 17% return on its money,what is this project's net present value?

A)$201,805
B)-$201,805
C)$1,798,195
D)-$1,798,195
E)$298,195

Question 67

Which of the following is true concerning branch offices?

A)The number of full-service branch offices in the U.S.has shrunk in recent years.
B)An ideal location for a new branch bank is one with below average population density.
C)Branch offices are generally cheaper to establish than chartering a whole new banking corporation.
D)The decision about whether to establish a new branch is the sole prerogative of the CFO.
E)All of the options are correct

Question 68

A personal identification number (PIN)gives a bank customer access to his or her account through a(n):

A)ACH.
B)bank-by-mail service.
C)ATM.
D)electronic calculator.
E)None of the options are correct.

Question 69

Third State Bank wants to add a new branch office.It has determined that the cost of construction of the new facility will be $1.5 million with another $500,000 in organizational costs.The bank has estimated that it will generate $319,522 per year in net revenues.If the new branch is expected to last 20 years,what is the expected rate or return on this investment? (Round to the nearest whole percent)

A)6 percent
B)21 percent
C)15 percent
D)32 percent
E)25 percent

Question 70

The FDIC Improvement Act of 1991 requires a bank closing one of its branches to give its customers a minimum notice of:

A)90 days.
B)60 days.
C)30 days.
D)10 days.
E)None of the options are correct.

Question 71

The most desirable sites for full-service branch bank offices usually have which of the following characteristics?

A)Heavy traffic volume
B)Large numbers of retail shops and stores
C)Above-average age populations
D)All of the options are correct
E)None of the options are correct

Question 72

The Clearwater National Bank is planning to set up a new branch.This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened.The bank also expects the return for this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent.The correlation between the bank's current return and returns on the new branch is expected to be -0.3.In this problem,the proposed new branch _______ overall risk exposure due to ______ effect.

A)increases;economies of scale
B)increases;economies of scope
C)reduces;convergence
D)reduces;geographical diversification
E)none of the options are correct

Question 73

Computer facilities in retail shops and stores that permit a customer to instantly pay for goods and services electronically by deducting the cost of each purchase directly from his or her deposit account are known as:

A)ATMs.
B)POS terminals.
C)ACHs.
D)In-store branches.
E)ALMs.

Question 74

Ratio of population per branch is calculated as:

A)total population in the area to be served divided by number of branch offices present in the area.
B)total population in the state divided by number of branch offices present in the area.
C)total population in the state divided by number of branch expected to be opened in next one year.
D)total population in the area to be served divided by number of employees hired for the new branch office.
E)None of the options are correct

Question 75

____________ are much less costly to build and maintain,typically costing as little as one-fourth the expense incurred in constructing and operating a stand-alone bank branch,and experiencing more traffic flow than conventional branches.

A)ATMs
B)POS terminals
C)ACHs
D)In-store branches
E)ALMs

Question 76

The Clearwater National Bank is planning to set up a new branch.This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened.The bank also expects the return for this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent.The correlation between the bank's current return and returns on the new branch is expected to be -0.3.What is this bank's expected risk (measured by the standard deviation)after adding this branch?

A)21.91 percent
B)12.84 percent
C)4.68 percent
D)3.02 percent
E)8.2 percent

Question 77

A bank is planning to set up a new branch.It expects the new branch to generate 20 percent of the total business of the bank after it is opened.The bank expects the returns on this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 12 percent rate of return with a standard deviation of 4 percent.The correlation between the bank's current returns and the returns on the new branch is expected to be 0.25.What is the bank's total expected return after adding this branch?

A)15 percent
B)12.6 percent
C)12 percent
D)14.4 percent
E)15.5 percent

Question 78

Murphy National Bank is thinking about adding a new branch in a very different market area.It estimates that the new office will have an expected return of 16% with a standard deviation of 8%.Currently,it has an expected return of 12% with a standard deviation of 4%.The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20.The bank estimates that the new branch will represent 15 percent of the revenues of the bank.What is the bank's expected risk (measured by the standard deviation)with the new branch? Round to the nearest 0.1 percent.

A)14.6 percent
B)3.8 percent
C)4.6 percent
D)7.4 percent
E)5.8 percent

Question 79

Computer terminals which allow customers to make cash withdrawals,check deposit balances,and make deposits without dealing with a teller are known as:

A)ATMs.
B)POS terminals.
C)ACHs.
D)in-store branches.
E)ALMs.

Question 80

A bank is planning to set up a new branch.It expects the new branch to generate 20 percent of the total business of the bank after it is opened.The bank expects the returns on this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 12 percent rate of return with a standard deviation of 4 percent.The correlation between the returns on the new branch and the bank's current returns is expected to be 0.25.What is the bank's expected standard deviation after adding this branch?

A)12.84 percent
B)3.35 percent
C)4.36 percent
D)3.58 percent
E)6.8 percent