Deck 3: Banks and Other Financial Institutions

Question 1

The structure of the modern banking system includes commercial banks, savings and loans, mutual savings banks, and credit unions.

Answer 1

True

Question 2

The Glass-Steagall Act was repealed with the passage of the Gramm-Leach-Bliley Act of 1999.

Answer 2

True

Question 3

Nonbank financial conglomerates are large corporations that offer various financial services, such as mortgage insurance, real estate management, and consumer finance.

Answer 3

True

Question 4

Branch banks are those banking offices that are controlled by a single parent bank.

Question 5

The Federal Reserve Act of 1913 created a system of central banks in the United States.

Question 6

Branch banking is permitted on an interstate basis by all state banks.

Question 7

Part of the reason that the Banking Act of 1933 was passed was in response to the large numbers of bank failures.

Question 8

Today, reserve requirements imposed by the Federal Reserve apply only to member banks.

Question 9

Savings and loans were first known as building societies.

Question 10

Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Question 11

The National Banking Act of 1864 made it possible for banks to receive federal charters.

Question 12

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees.

Question 13

The Monetary Control Act prohibited the Federal Reserve from controlling thrift institutions.

Question 14

Primary capital consists of owners' capital, preferred stock, debt convertible into common stock, and loan loss reserves.

Question 15

The bank holding company may not engage in direct banking activities.

Question 16

The main provisions of the Monetary Control Act of 1980 are deregulation and monetary control.

Question 17

Commercial banks are aggressive and often assume large amounts of risk.

Question 18

The principal assets of all depository institutions are cash, securities, and loans.

Question 19

An investment bank accepts deposits, makes loans, and issues checking accounts.

Question 20

The prime rate of interest has been relatively stable during the past twenty-five years.

Question 21

Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

Question 22

Investment banks accept deposits and makes loans to individuals and businesses.

Question 23

Major types of financial institutions in the U.S.include commercial banks, mutual funds, insurance companies, and pension funds.

Question 24

Commercial banks provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.

Question 25

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

Question 26

International banking exists when banks operate in more than one country.

Question 27

Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Question 28

Savings and loan associations are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Question 29

Mutual funds are open-end investment companies that can issue an unlimited number of shares to its investors and use the pooled proceeds to purchase corporate and government securities.

Question 30

Investment banking firms sell or market new securities issued by businesses to individual and institutional investors.

Question 31

The primary types of assets on a bank's balance sheet include cash and deposits.

Question 32

The primary types of assets on a bank's balance sheet include cash, securities, and loans.

Question 33

Mortgage banking firms provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.

Question 34

Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

Question 35

The U.S.banking system as it exists today is relatively unchanged since just before the Civil War.

Question 36

Investment banking firms sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

Question 37

Insurance companies receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

Question 38

The primary type of liability on a bank's balance sheet is deposits.

Question 39

Investment banking firms assist individuals to purchase new or existing securities issues or to sell previously purchased securities.

Question 40

Commercial banks accept deposits and makes loans to individuals and businesses.

Question 41

Which of the following institutions is not part of the modern banking system?

A)credit unions
B)savings and loan associations
C)mutual funds
D)mutual savings banks

Question 42

Bank solvency reflects the ability to meet depositor withdrawals and to pay off other liabilities when due.

Question 43

Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates.

Question 44

Credit risk is the chance of nonpayment or delayed payment of interest or principal.

Question 45

The Federal Deposit Insurance Corporation Improvement Act of 1991:

A)transferred the reserves and functions of the Federal Savings and Loan Insurance Corporation to the FDIC
B)required that failed banks be handled in such a way as to provide the lowest cost to the FDIC
C)increased federal deposit insurance from $40,000 to $100,000 for each account
D)extended federal deposit insurance to S&L depositors

Question 46

The National Banking Act of 1864 provided for:

A)federally chartered banks
B)the establishment of a system of central banks
C)deregulation and monetary control
D)the establishment of deposit insurance

Question 47

The total capital ratio (TCR) can be computed as total capital divided by total assets times 100.

Question 48

Bank solvency reflects the ability to keep the value of a bank's assets greater than its liabilities.

Question 49

Secondary reserves are vault cash and deposits held at other depository institutions and at Federal Reserve Banks.

Question 50

The effective rate of interest is generally lower on a standard loan than an otherwise equivalent discount loan.

Question 51

The Bank of North America:

A)was the first incorporated bank in the United States
B)was patterned after the Central Bank of England
C)was established to assist in financing the Civil War
D)all the above
E)none of the above

Question 52

The notes of the Bank of North America

A)served as a circulating medium of exchange
B)loaned liberally to the government
C)were redeemed in metallic coins upon demand
D)all the above
E)none of the above

Question 53

The Bretton Woods Agreement was an agreement between major central banks to adopt capital adequacy requirements for internationally involved banks.

Question 54

Credit risk is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.

Question 55

Which of the following is not an asset of depository institutions?

A)cash
B)unsecured loans
C)time deposits
D)U.S.government securities

Question 56

The most basic functions of depository institutions are:

A)safekeeping for depositors
B)record keeping for depositors
C)efficient and economical transfer of payments
D)accepting deposits and granting loans

Question 57

Bank solvency is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.

Question 58

The Depository Institutions Deregulation and Monetary Control Act:

A)established a system of central banks
B)has resulted in more competition among depository institutions
C)increased federal deposit insurance from $40,000 to $80,000 for each account
D)established minimum capital requirements for banks with federal charters

Question 59

Which of the following are not thrift institutions?

A)credit unions
B)savings and loan institutions
C)commercial banks
D)all the above

Question 60

Early chartered banks included:

A)the Bank of North America
B)the Bank of Massachusetts
C)the Bank of New York
D)All the above

Question 61

There is more of a need for international banking because of:

A)decreased international trade
B)a stable exchange of goods and services among nations
C)the large international trade deficit of the United States
D)national savings and investment rates that dictate small flows of capital among nations

Question 62

The Second Bank of the United States was created to:

A)replace the First Bank of the United States
B)appease political interests
C)restore order to chaotic banking conditions
D)all the above

Question 63

Which of the following statements is most correct?

A)FDIC membership is required only for banks having national charter.
B)The First Bank of the United States was the first incorporated bank created along modern banking lines.
C)Secured loans represent the single most important activity of the commercial bank.
D)All the above statements are false.

Question 64

During the colonial period in the nation's history, banks depended on:

A)their own issue of paper money
B)foreign sources for their loanable funds
C)deposits of foreign currency such as the Spanish dollar
D)the investment of their own stockholders

Question 65

The Garn-St.Germain Depository Institutions Act, among other things:

A)extended the Fed's control to thrift institutions and to commercial banks that are not members of the Fed
B)enabled depository institutions to issue money market accounts with no regulated interest rate ceiling
C)was designed to assist the investment banking industry
D)all the above

Question 66

The First Bank of the United States:

A)is still in operation in Massachusetts
B)transferred funds from region to region
C)was unchartered
D)all the above

Question 67

The first thrift institutions were:

A)The First and Second Banks of the United States
B)savings banks and Savings and Loans
C)credit unions
D)all the above

Question 68

The principal liabilities of all depository institutions are:

A)certificates of deposits
B)deposits
C)loans
D)all the above

Question 69

The Bank Holding Company Act of 1956:

A)established uniform standards to evaluate the legality of bank holding company acquisitions
B)allowed bank holding companies to acquire credit card companies
C)defined a bank holding company as one which owns 25% or more of the voting shares of each of two or more banks
D)included all the above

Question 70

Credit unions are:

A)for profit organizations
B)made up of individuals who possess common bonds of association
C)institutions that derive funds from investment activities
D)all the above

Question 71

The Federal Savings and Loan Insurance Corporation:

A)has ceased operations and has been replaced by the FDIC in its insuring operations
B)protects credit unions
C)insures money market accounts
D)is responsible for insuring deposits at savings banks

Question 72

The adequacy of capital for commercial banks as measured by regulatory authorities is:

A)a composite of various asset risk categories
B)a measure of investment success
C)based on the total amount of deposits of a bank
D)based on the ratio of federal government obligations to deposits

Question 73

The Resolution Trust Corporation was brought into existence to:

A)help savings and loan institutions invest funds in a wide range of higher yielding instruments
B)authorize savings and loan institutions to issue a new money market account with no regulated interest rate ceiling
C)take over and liquidate the assets of failed savings and loan institutions
D)all the above

Question 74

The principal assets of savings banks are:

A)securities
B)vault cash and deposits at other banks
C)real estate mortgages
D)all the above

Question 75

NOW accounts:

A)are not subject to ceiling rates under Regulation Q
B)enable depository institutions to compete effectively for funds that were flowing in large amounts to nonblank money market funds
C)typically pay interest rates equal to that paid by money market funds
D)all the above

Question 76

Which of the following statements is false?

A)It is not possible for a bank to invest all of its funds in profitable loans or securities.
B)All states now permit statewide branch banking.
C)Regulation Q established interest rate ceilings on time and savings deposits.
D)The depositors of a bank are creditors and hence have a claim that is superior to that of stockholders in the event of liquidation.

Question 77

Which of the following statements is false?

A)Thrift institutions are like commercial banks in that retained earnings and certificates of deposits add to fund sources.
B)The larger the volume of assets and deposits in relation to the capital contribution of the stockholders, the larger the margin of safety for depositors.
C)Capital funds include capital stock, surplus, and undivided profits.
D)All the above statements are correct.

Question 78

The First Bank of the United States ceased operations because:

A)it was superseded by the Second Bank of the United States
B)of the opposition of state banking interests
C)its charter had expired and there was no provision for its renewal
D)the need to provide financing for the Civil War was not supported by Congress

Question 79

The interest rate charged by banks for short-term unsecured loans to their highest quality business customers is referred to as the:

A)discount rate
B)federal fund rate
C)prime rate
D)all the above

Question 80

Savings banks have nearly three quarters of their assets in the form of:

A)securities
B)cash
C)unsecured loans
D)real estate mortgages and mortgage-backed securities