商业银行管理彼得S.罗斯第八版课后答案chapter_01

Chapter 10The Investment Function in Banking and Financial-Services ManagementFill in the Blank Questions1. A(n) _________________________ is a security issued by the federal government which has lessthan one year to maturity when it is issued.Answer: Treasury bill2. Debt instruments issued by cities, states and other political entities and which are exempt fromfederal taxes are collectively known as _________________________ .Answer: municipal securities3. The investment maturity strategy which calls for the bank to have one half of its investmentportfolio in very short term assets and one half of its investment portfolio in long term assets isknown as the _________________________ .Answer: barbell strategy4. A(n) _________________________ is a security where the interest portion of the security is soldseparately from the principal portion of the security.Answer: stripped security5. _________________________ are the way the federal, state and local governments guarantee thesafety of their deposits with banks.Answer: Pledging requirements6. The most aggressive investment maturity strategy calls for the bank to continually shift thematurities of its securities in responses to changes in interest rates and is called the__________________.Answer: rate expectation strategy7. _________________________ is the risk that the bank will have to sell part of its investmentportfolio before their maturity for a capital loss.Answer: Liquidity risk8. _________________________ is the risk that the economy of the market area they service maytake a down turn in the future.Answer: Business risk9. __________________ is the risk that the company whose bonds the financial institution owns mayretire the entire issue of corporate bonds in advance of their maturity leaving the bank with the risk of earnings losses resulting from reinvesting the cash at lower interest rates.Answer: Call risk10. A security issued by the federal government with 1 to 10 years to maturity when it is issued is calleda(n) _________________________ .Answer: Treasury note11. A short term debt security issued by major corporations is known as __________________.Answer: commercial paper12. The investment maturity strategy which calls for the bank to have all of their investment assets invery short term maturities is called the _________________________.Answer: front-end-loaded policy13. A money market security which represents a bank's commitment to pay a stipulated amount ofmoney on a specific future date under specific conditions and which is often used in international trade is known as a(n) _________________________.Answer: bankers' acceptance14. A(n) _________________________ is an interest-bearing receipt for the deposit of funds in a bankfor a stipulated time period. Ones that are oriented towards business customers or institutions are known as jumbos.Answer: certificate of deposit15. _________________________ are any securities which reach maturity in under one year.Answer: Money market securities16. _________________________ are any securities whose original maturity exceeds one year.Answer: Capital market securities17. Securities sold by Fannie Mae, Freddie Mac and others are known as_________________________.Answer: federal agency securities18. Claims against the expected income and principal generated by a pool of similar-type loans areknown as _________________________.Answer: securitized assets19. The long term debt obligations of major corporations are known as ________________________.Answer: corporate bonds20. The investment maturity strategy which calls for the bank to have all of their investment assets invery long term maturities is known as the _________________________.Answer: back-end-loaded policy21. Financial Institutions may invest in municipal bonds issued by smaller local governments. Thesebonds are known as ____________ bonds.Answer: bank qualified22.Marketable notes and bonds sold by agencies owned by the government or sponsored by thegovernment are known as .Answer: government agency securities23. A security issued by the federal government with greater than 10 years to maturity when it is issuedis called a(n) .Answer: Treasury Bond24.are time deposits of fixed maturity issued by the world’s larges banksheadquartered in financial centers around the globe. The heart of this market is centered in London.Answer: Eurocurrency deposits25. are a type of municipal bond that are backed by the full faith andcredit of the issuing government.Answer: General obligation bonds26. are a type of municipal bond that are paid only from certainstipulated source of funds.Answer: Revenue bonds27. are closely related to CMOs and partition the cash flow from a poolof mortgage loans or mortgage backed securities into multiple maturity classes in order to reduce the cash-flow uncertainty of investors.Answer: Real Estate Mortgage Investment Conduits (REMICs)28. is the risk that loans will be terminated or paid off ahead of schedule.This is a particular problem with residential home mortgages and other consumer loans that are pooled and used as collateral in securitized assets.Answer: Prepayment risk29. A lending institution that sells lower-yielding securities at a loss in order to reduce current taxableincome while simultaneously purchasing higher-yielding new securities in order to boost futurereturns is doing a(n) .Answer: tax swap30.A(n) is a picture of how market interest rates differ across loans securitiesof varying times to maturity.Answer: yield curveTrue/False QuestionsT F 31. Investments in securities provide diversification for a bank's assets because most loans come from the local areas served by a bank's offices.Answer: TrueT F 32. Bank income from loans is fully taxable.Answer: TrueT F 33. Investment securities are expected to "dress up" a bank's balance sheet, according to the textbook.Answer: TrueT F 34. Investment securities are expected to help stabilize a financial institutions's income.Answer: TrueT F 35. A short-term IOU offered by major corporations that is of short maturity (most of these lOUs mature in 90 days or less) is known as a CMO.Answer: FalseT F 36. Prepayment risk on securitized assets generally increases when interest rates rise.Answer: FalseT F 37. Stripping a security eliminates prepayment risk.Answer: FalseT F 38. According to the textbook the dominant security held in U.S. bank investment portfolios is state and local government bonds.Answer: FalseT F 39. Interest income and capital gains from a bank's portfolio of investment securities is taxed in the United States as ordinary income.Answer: TrueT F 40. Eurocurrency deposits that some banks purchase as investments generally carry higher market yields than domestic time deposits issued by comparable-size U.S. banks.Answer: TrueT F 41. Bankers' acceptances are considered to be among the safest of all money market instruments.Answer: TrueT F 42. An eligible acceptance is one that can be used as collateral for borrowing from a Federal Reserve bank.Answer: TrueT F 43. When a bank irrevocably guarantees a commercial paper issue, the bank's credit rating substitutes for the borrower's credit rating.Answer: TrueT F 44. The principal risk banks face from investing in structured notes is credit (default) risk.Answer: FalseT F 45. The principal risk to a financial institution buying CMOs is market risk.Answer: FalseT F 46. Stripped mortgage-backed securities fully protect investors from having to reinvest their income at lower and lower interest rates.Answer: FalseT F 47. Stripped mortgage-backed securities make maturity matching of bank assets and liabilities easier to accomplish than do most other investment securities that banks buy.Answer: FalseT F 48. Lower interest rates increase the present value of all projected cash flows from a loan-backed security so that its market value could rise.Answer: TrueT F 49. Treasury bills are the long term debt obligations issued by the federal government.Answer: FalseT F 50. Commercial paper is the short term debt instrument issued by major banks.Answer: FalseT F 51. Treasury notes and bonds are issued by the federal government and are coupon instruments.Answer: TrueT F 52. Interest rate risk is the risk financial institutions face due to changes in market interest rates.Answer: TrueT F 53. One investment maturity strategy popular among smaller institutions is the ladder or spaced maturity policy. It is popular because it does not take much expertise to implement.Answer: TrueT F 54. One investment maturity strategy, called the front end loaded policy, requires that the bank put all of its investment portfolio in long term securities.Answer: FalseT F 55. Business risk is the risk that the bank will experience a cash shortage and will have to sell some of its investments securities.Answer: FalseT F 56. Inflation risk is the possibility that the purchasing power of interest income and repaid principal from a security or loan will be eroded by rising prices for goods and services.Answer: TrueT F 57. Call risk refers to the right of debt collectors to call in the loans in advance of maturity and get an early repayment.Answer: FalseT F 58. If interest rates fall, a callable bond at par has the potential for large increases in price.Answer: FalseT F 59. The yield to maturity is the discount rate that equates a security’s purchase price with the stream of income expected until it is sold to another investor.Answer: FalseMultiple Choice Questions60.An important investment security popular with banks that must by law mature within one year fromthe date of issue and which has a high degree of safety and marketability is the:A) Treasury billB) Treasury noteC) FNMA noteD) Bankers' acceptanceE) Eurodollar CDAnswer: A61.A bank's promise to pay the holder a designated amount of money on a designated future date and isoften used in international trade is known as a (or an):A) Promissory guaranteeB) Discount securityC) Bankers' acceptanceD) In the money optionE) Accretion noteAnswer: C62.Pools of mortgages put together either by a government agency or by a private investment bankingcorporation to raise more loanable funds for the issuer are known as a (or an):A) Accretion bondB) Participation certificateC) CMOD) Stripped securityE) Commercial paperAnswer: C63.Fluctuations in the timing of cash payments flowing from an underlying pool of securitized assetsis referred to as:A) Income riskB) Prepayment riskC) Liquidity riskD) Capital riskE) None of the aboveAnswer: B64.Principal roles that a financial institution's investment portfolio play include which of thefollowing?A) Income stabilityB) Geographic diversificationC) Hedging interest rate riskD) Backup liquidityE) All of the aboveAnswer: E65._____________ is the method by which banks can provide a safeguard for the deposits ofgovernmental units.A) HedgingB) CollateralizationC) PledgingD) SecuritizationE) Window dressingAnswer: C66.The most aggressive investment maturity strategy that calls for the bank to continually shift thematurities of its securities in response to changes in interest rates and other economic conditions is theA) Barbell strategyB) Rate expectations approachC) Front-end-loaded policyD) Ladder approachE) None of the aboveAnswer: B67.Which of the following statements is (are) correct regarding duration?A) In comparing two bonds with the same yield to maturity and the same maturity, a bond with ahigher coupon rate will have a longer duration.B) In comparing two loans with the same maturity and the same interest rate, a fully amortizedloan will have a shorter duration than a loan with a balloon payment.C) The duration will always be shorter than the maturity for all debt instruments.D) All of the aboveE) B and CAnswer: B68.Which of the following is not one of the Capital Market instruments in which banks invest?A) U.S. Treasury notesB) Corporate notes and bondsC) U.S. Treasury bondsD) Municipal bondsE) Commercial paperAnswer: E69.Which of the following is true of Treasury bills?A)Interest on Treasury bills is exempt from state income taxes.B)Interest on Treasury bills is exempt from federal income taxes.C)Treasury bills pay a lower pretax yield than comparable corporate securities.D)All of the above are true.E) A and C onlyAnswer: E70.In recent years security dealers have assembled pools of federal agency securities whose principalinterest yield may be periodically reset based on what happens to a stated interest rate or may carry multiple coupon rates that are periodically adjusted; the foregoing describes a:A) Financial futures contractB) Revenue-anticipation noteC) Zero coupon instrumentD) Structured noteE) None of the aboveAnswer: D71.Banks are generally not allowed to invest in speculative grade bonds. What kind of risk is thisdesigned to limit?A) Liquidity riskB) Business riskC) Credit riskD) Tax exposureE) Interest rate riskAnswer: C72. A security where the interest payments and the principal payments are sold separately is called:A) A Treasury noteB) An accretionC) A structured noteD) A stripped securityE) None of the aboveAnswer: D73.Which of the following is true? Mortgage prepayment risk:A) Is higher on high interest rate mortgagesB) Is felt most dramatically when interest rates riseC) Is eliminated by the use of mortgage backed securitiesD) Is eliminated by the purchase of a stripped mortgage obligationE) All of the above are trueAnswer: A74. A bank replaces 5-year corporate bonds with a yield to maturity of 9.75 percent with 5-yearmunicipal bonds with a yield to maturity of 7 percent. This bank is in the 35 percent tax bracket and these bonds have the same default risk. What is the most likely reason this bank changed from the corporate to the municipal bonds?A) Liquidity riskB) Business riskC) Credit riskD) Tax exposureE) Interest rate riskAnswer: D75.Suppose a bank has found bank qualified municipal bonds which have a nominal gross rate ofreturn of 8 percent and that it can borrow funds needed for this purchase at a rate of 6.25 percent.This bond is in the 35 percent tax bracket. What is the net after-tax return on this bond?A) 5.20 percentB) 3.5 percentC) 1.75 percentD) 0 percentE) None of the aboveAnswer: B76.An investor can invest in either a tax-exempt security that pays 5% or a taxable corporate securityof comparable risk and maturity that pays 8%. At what marginal tax rate will the investor beindifferent between these two securities?A)25.0%B)32.5%C)37.5%D)57.5%E)62.5%Answer: C77.Which of the following would not be considered a bank qualified municipal security?A) A Columbia County general obligation bond to modernize the county fire department.B) A Bucks County general obligation bond to build a new sewer plant.C) A City of San Marcos general obligation bond to pay for street repairs.D) A City of Chicopee general obligation bond to pay for a new city jail.E) A Treasury bond to finance government debt.Answer: E78. A bond has three years to maturity and has a coupon rate of 15 percent. This bond is selling in themarket for $1072 and has a yield to maturity of 12%. What is the duration of this bond?A) 3 yearsB) 1 yearC) 1.92 yearsD) 2.45 yearsE) 2.64 yearsAnswer: E79. A bond has six years to maturity and has a coupon rate of 7.5 percent. Coupon payments are madeannually and this bond has a face value of $1000. This bond is selling in the market for $1127.What is the yield to maturity on this bond?A) 7.5 percentB) 5 percentC) 11.5 percentD) 2.5 percentE) None of the aboveAnswer: B80. A bond has eight years to maturity and a coupon rate of 6.5 percent. Coupon payments are madeannually and this bond has a face value of $1000. This bond is selling in the market for $862. What is the yield to maturity on this bond?A) 6.5 percentB) 10 percentC) 8.5 percentD) 9 percentE) None of the aboveAnswer: D81. A bond has eight years to maturity and a coupon rate of 6.5 percent. Coupon payments are madeannually and this bond has a face value of $1000. This bond is selling in the market for $862. If this bond is sold at the end of four years for $1046, what is the holding period return on this bond?A) 6.5 percentB) 12 percentC) 9 percentD) 6 percentE) None of the aboveAnswer: B82. A security which was created by the Treasury to protect against inflation risk is called a(n):A) CMOB) FNMAC) GNMAD) TIPSE) CDAnswer: D83. A financial institution that is concerned about the possibility that the purchasing power of both theinterest income and principal income will decline on a loan is concerned about which of thefollowing things?A) Business riskB) Liquidity riskC) Tax exposureD) Credit riskE) Inflation riskAnswer: E84. A bank that is concerned that the economic conditions of the market area they serve may take adownturn with falling demand for loans and higher bankruptcies in the areas is concerned about which of the following things?A) Business riskB) Liquidity riskC) Tax exposureD) Credit riskE) Inflation riskAnswer: A85.Which of the following is a characteristic of Treasury bills?A) They are coupon instrumentsB) They are the short term debt instruments issued by major corporationsC) They are discount securitiesD) They have more risk than other money market securitiesE) All of the above are characteristics of Treasury billsAnswer: C86.The investment maturity strategy which calls for the bank to put all of their investment assets intovery long term securities is called the:A) Front-end-loaded maturity policyB) Back-end-loaded maturity policyC) Ladder or spaced maturity policyD) Barbell investment portfolio strategyE) Rate expectation approachAnswer: B87. The Lancaster State Bank is thinking about purchasing a corporate bond that has a yield of 8.5%.This bank has a marginal tax rate of 25%. What is the after-tax yield on this bond?A) 11.33%B) 8.5%C) 6.375%D) 2.125%E) None of the aboveAnswer: C88.The Ferson National Bank is thinking about purchasing a municipal bond that has a yield of 5.5%.This bank has a marginal tax rate of 30%. What is the after-tax yield on this bond?A) 7.86%B) 5.5%C) 3.85%D) 1.65%E) None of the aboveAnswer: B89.The Stumbaugh State Bank is thinking about purchasing a corporate bond that has a yield of 9%.This bank has a marginal tax rate of 40%. What is the after-tax yield on this bond?A) 15%B) 9%C) 5.4%D) 3.6%E) None of the above90.The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of$1000. It has 11 years to maturity and is selling in the market for $887.52. The bond makes annual coupon payments. What is the yield to maturity on this bond?A) 7%B) 5.5%C) 11%D) 4.70%E) None of the aboveAnswer: A91.The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of$1000. It has 11 years to maturity and is selling in the market for $887.52. The bond makes annual coupon payments. The Price Perpetual Bank is planning on selling this bond at the end of 5 years for $1036.50. What is the holding period return on this bond?A) 5.5%B) 7%C) 11%D) 9%E) None of the aboveAnswer: D92.The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a face valueof $1000. It has 16 years to maturity and is selling in the market for $1309.80. The bond makes annual coupon payments. What is the yield to maturity on this bond?A) 11.5%B) 16%C) 8%D) 12.21%E) None of the aboveAnswer: C93.The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a face valueof $1000. It has 16 years to maturity and is selling in the market for $1309.80. The bond makes annual coupon payments. The Farmer National Bank plans on selling this bond at the end of 8 years for $1071. What is the holding period return on this bond?A) 7%B) 8%C) 11.5%D) 16%E) None of the aboveAnswer: A94.The Johnson National Bank has purchased a bond that has a coupon rate of 5.5% and a face value of$1000. It has 4 years to maturity and is selling in the market for $917. The bond makes annual coupon payments. What is the yield to maturity on this bond?A) 5.5%B) 4.0%C) 1.5%D) 8%E) None of the above95.The Johnson National Bank has purchased a bond that has a coupon rate of 5.5% and a face value of$1000. It has 4 years to maturity and is selling in the market for $917. The bond makes annual coupon payments. What is the duration of this bond?A) 3.38 yearsB) 3.68 yearsC) 4.00 yearsD) 5.50 yearsE) None of the aboveAnswer: B96.The Sheets Savings and Loan Association has purchased a bond that has a coupon rate of 7.5% anda face value of $1000. It has 5 years to maturity and is selling in the market for $1063. The bondmakes annual coupon payments. What is the duration of this bond?A) 7.50 yearsB) 5.00 yearsC) 4.65 yearsD) 4.37 yearsE) None of the aboveAnswer: D97.The Dillinger State Bank has purchased a bond from the Interstate Manufacturing Company thathas 15 years to maturity and has a coupon rate of 12.5%. Market interest rates have recentlydeclined to 8% and the Dillinger State Bank is worried that the Interstate Manufacturing Company will retire the bond and issue new ones with a lower coupon rate. What type of risk is the Dillinger State Bank worried about?A) Credit riskB) Interest-rate riskC) Business- riskD) Call riskE) Prepayment riskAnswer: E98.The Terrell State Bank is a small bank located in Guyman, Oklahoma. All of their loans areagriculture and small business loans in Guyman. They want to buy a municipal bond from the state of South Carolina. What type of risk are they likely trying to reduce with this purchase?A) Credit riskB) Interest-rate riskC) Business riskD) Call riskE) Prepayment riskAnswer: C99.The Caldwell National Bank has purchased a bond that pays a coupon rate of 10.5%. They are alittle concerned because they believe rates will decrease in the future and they will not be able to reinvest the coupon payments at the same rate. What type of risk are they concerned about?A) Credit riskB) Interest rate riskC) Business riskD) Call riskE) Prepayment riskAnswer: B100.Moody’s Investor Service has added the numbers 1, 2 and 3 to some of their ratings. What type of risk are these ratings attempting to measure?A) Credit riskB) Interest rate riskC) Business riskD) Call riskE) Prepayment riskAnswer: A101.The Roy State Bank has just purchase a portfolio of asset backed securities. What type of risk do these securities have that other securities do not have?A) Credit riskB) Interest rate riskC) Business riskD) Call riskE) Prepayment riskAnswer: E102.The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.25%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond?A) 6.00%B) .75%C) 2.85%D) 2.43%E) None of the aboveAnswer: D103.The Wesson Wisconsin State Bank has purchased a bank-qualified municipal bond with a yield of7.5%. This bank had to borrow funds to make this purchase at a cost of 6%. This bank is in the 25%tax bracket. What is the net after-tax return on this bank-qualified municipal bond?A) 7.5%B) 2.7%C) 3.0%D) 1.5%E) None of the aboveAnswer: B104.The Goodknight Company has issued securities with 45 days to maturity. What type of security have they issued?A) Commercial PaperB) Banker’s AcceptanceC) Corporate BondD) Certificate of DepositE) Municipal BondAnswer: A105.The Dakota National Bank has purchased a security issued by the state of Tennessee that has 20 years to maturity. What type of security have they purchased?A) Commercial PaperB) Banker’s AcceptanceC) Corporate BondD) Certificate of DepositE) Municipal BondAnswer: E。

Chapter 15The Management of CapitalFill in the Blank Questions1.The risk that has to do with banks trading in foreign currencies is called_________________________.Answer: exchange risk2.The risk that has to do with fraud, embezzlement and bank robberies is called__________________.Answer: crime risk3._________________________ is measured by the par value of the shares of commonequity outstanding.Answer: Common stock4.__________________ is the amount in excess of par value paid by the bank'sshareholders.Answer: Surplus5._________________________ are the net earnings of the bank which have been keptby the bank rather than distributed as dividends to stockholders.Answer: Undivided Profits (or retained earnings)6. Core capital such as common stock, surplus, undivided profits, qualifyingnoncumulative preferred stock, etc. is referred to as __________________ capital as defined by the Basel agreement.Answer: Tier 17.The international treaty involving the U.S. and 11 other leading industrializedcountries to impose common capital requirements on all banks is known as the_________________________.Answer: Basel Agreement8.Supplemental capital such as the allowance for loan losses, subordinated debt,mandatory convertible debt, intermediate-term preferred stock, cumulativepreferred perpetual stock and equity notes is more commonly known as_________________________.Answer: Tier 2 capital9.When items on a bank's balance sheet are multiplied by the appropriaterisk-weighting factor they are often called _________________________.Answer: risk-weighted assets10.The fact that a bank may suffer deficiencies in quality control, inefficiencies inproducing and delivering of services, weather damage, aging or faulty computersystems, errors in judgment by management and fluctuations in economy thatcould adversely affect the bank's performance is known as _________________________ risk.Answer: operational11.One defense against risk for the bank is to spread out a bank's credit accountsand deposits among a wide variety of customers, including large and smallaccounts different industries, etc. This defense is known as_________________________. Answer: portfolio diversification12.One defense against risk is for the bank to seek out customers located indifferent communities or in different countries. This defense is known as_________________________.Answer: geographic diversification13.When all else fails, the ultimate defense against risk in banking is_________________________.Answer: owners' capital (net worth)14.The largest component of capital among thrift institutions is _____________.Answer: retained earnings.15.The largest component of capital among banks is ____________.Answer: surplus16.____________ models attempt to measure price or market risk of a portfolio of assetsand attempt to determine the maximum loss they might sustain over a designatedperiod of time.Answer: Value at risk (VaR)17.The latest revision to the Basel accord is known as __________ and will affect onlyabout 20 of the largest U.S. banks and a handful of leading foreign banks. Answer:Basel II18.____________ models measure lender exposure to defaults or credit downgrades.Answer: Credit Risk19.Credit risk models will be ________ widely used when Basel II takes effect.Answer: more20. At the center of the debate of the Basel Agreement is the,headquartered in Basel Switzerland , which assists central banks in theirtransactions with each other and serves as a forum for international financialissues.Answer: Bank for International Settlements (BIS)21.represents funds set aside for contingencies such as legal.action against the institution as well as providing a reserve for dividendsexpected to be paid but not yet declared and a sinking fund to retire stock or debtin the future.Answer: Equity reserves22.are debt securities repayable from the saleof stock.Answer: Equity commitment notes23. is a hybrid form of equity capital issued to investors through a trust company, Thefunds raise are loaned to the financial firm.Dividends paid to stockholders on this time of capital are tax deductible.Answer: Trust preferred stock24.is long-term debt capital whose claims legallyfollow claims of depositors.Answer: Subordinated notes and debentures25.for banks include mortgage servicingrights and purchased credit card relationships and can be counted as part ofbank capital.Answer: Identifiable intangible assetsTrue/False QuestionsT F 26. In the field of banking, capital refers principally to those funds contributedby a bank's owners.Answer: True.T F 27. According to the textbook capital and risk are intimately related to eachother.Answer: TrueT F 28. One fundamental purpose for regulating capital is to limit losses to thefederal government arising from deposit insurance claims.Answer: TrueT F 29. Deposit insurance subsidized by government encourages banks to increasetheir ratios of capital to deposits.Answer: FalseT F 30. Tier 2 includes undivided profits.Answer: FalseT F 31. Core capital includes the surplus account for stock.Answer: TrueT F 32. Under the international capital (Basel) agreement Tier 2 capital must beraised to a minimum of 4 percent of risk-weighted assets.Answer: FalseT F 33. Off-balance-sheet commitments of banks carry capital requirements under.the international (Basel) capital requirements.Answer: TrueT F 34. Portfolio diversification refers to seeking out customers located in differentcommunities or countries, which presumably will experience different economicconditions.Answer: FalseT F 35. Geographic diversification refers to the spreading out credit accounts anddeposits among a wide variety of customers, including large and smallbusiness accounts, different industries, and households with a variety ofsources of income and collateral.Answer: FalseT F 36. The last line of defense against bank failure is owner's capital, according tothe textbook.Answer: TrueT F 37. Under the FDIC Improvement Act of 1991 a U.S. bank possessing a leverageratio greater than 4 percent would be considered well capitalized.Answer: FalseT F 38. Under the FDIC Improvement Act of 1991 a bank whose leverage ratiodrops to 2 percent or less is considered to be critically undercapitalized.Answer: True.T F 39. Recent research suggests that interest-rate contracts display considerablyless risk exposure than do foreign-currency contracts.Answer: TrueT F 40. The Basel Agreement on capital as drafted in the 1980s failed to deal withmarket risk.Answer: TrueT F 41. If a bank benefits when the value of a foreign currency rises, the bank is said to be in a short position.Answer: FalseT F 42. If a bank benefits when a foreign currency declines in value, then the bank is ina long position.Answer: FalseT F 43. If the ratio of tangible equity capital to total assets is 2 percent or less it issubject to being placed in conservatorship or receivership if its capital ratios are notincreased within a prescribed period of time even if its net worth is still positive.Answer: TrueT F 44. According to recent research, bank stock prices usually drop within a weekafter a dividend cut is announced.Answer: True.T F 45. Equity notes are considered to be part of Tier 1 capital.Answer: FalseT F 46. The most important source of thrift capital in terms of dollar volume iscommon stock (par value).Answer: FalseT F 47. The daily rate at which robberies have occurred in the U.S. has continued toclimb in the 1990s.Answer: FalseT F 48. One of the reasons to regulate the capital position of banks is to limit therisk of bank failures, especially large bank failures.Answer: TrueT F 49. Deposits with the Federal Reserve banks are considered to have moderatecredit risk and are therefore placed in the 50 percent risk weight category.Answer: FalseT F 50. The largest component of capital among banks is retained earnings.Answer: FalseT F 51. VaR models provide a single number which indicates the potential forlosses on a portfolio of assets.Answer: True.T F 52. VaR models are most successful in assessing potential risk when the assetsare non-traded.Answer: FalseT F 53. Credit risk models will probably not be needed when Basel II takes effect.Answer: FalseT F 54. One of the key innovations which have been proposed in Basel II is torequire banks to hold capital against operational risk.Answer: TrueT F 55. Basel II will require each bank to determine its own capital requirementsbased on its own calculated risk exposure.Answer: TrueT F 56. It is anticipated that Basel II may lower capital requirements for the largestbanks.Answer: TrueT F 57.The global financial crisis of 2007-2009 highlighted the importance oftaking into consideration a bank’ s exposure to market risk that arise fromchanges in interest rates, security prices, and currency.Answer: TrueT F 58. Smaller banks rely more heavily on internally generated capital than largerbanks.T F 59. A well-capitalized institution has a ratio of capital to risk-weighted assets of at least 10 percent and faces no significant regulatory restrictions on itsexpansion.Answer: TrueT F 60. Regulatory capital focus on the market value of equity.Answer: FalseMultiple Choice Questions61.According to the textbook the role of capital is to:A)Provide a cushion against failure risk.B)Provide funds needed to organize, open, and operate a bank.C)Promote public confidenceD)Support growth and the development of new servicesE)All of the above.Answer: E62.The textbook discusses several alternative defenses banks have against risk. Thesedefenses include:A)Quality managementB)Portfolio diversificationC)Geographic diversificationD)Deposit insuranceE)All of the above.63.Measured by dollar volume the largest category of capital at U.S. banks is:A)Par value of common stockB)Subordinated notes and debenturesC)SurplusD)Undivided profits and capital reservesE)None of the above.Answer: C64.The fundamental purposes of regulating bank capital cited in the textbook includewhich of the following?A)To limit the risk of bank failures.B)To preserve public confidence in banks.C)To limit losses to the federal government arising from insurance claims.D)All of the above.E) A and B only.Answer: D65.The Internal Capital Growth Rate for a bank is a function of which of the followingfactors?A)Profit margin.B)Asset utilization.C)Equity multiplier.D)Earnings retention ratio.E)All of the above.Answer: E66.Second National Bank is forecasting a return on equity of 15 percent for this year..The board of directors wants to maintain its current policy of paying the bank'sstockholders 40 percent of any net earnings the bank will earn. How fast can thebank's assets grow this year without jeopardizing its ratio of capital to assets?A)15 percent.B)9 percent.C)8 percent.D) 6 percent.E)None of the aboveAnswer: B67.Possible breakdowns in quality control, inefficiencies in producing anddelivering financial services, weather damage, aging or faulty computersystems and simple errors in judgment by bank management illustrate whatform of risk faced by banks?A)Credit riskB)Liquidity riskC)Interest-rate riskD)Operational riskE)None of the aboveAnswer: D68.The ratio of core capital to average assets is called the:A)Supplemental Capital ratioB)Leverage ratioC)Long-term capital ratioD)GAAP capital ratioE)None of the above.Answer: B69.The risk that a customer the bank has entered into a contract with will fail to payor to perform, forcing the bank to find a replacement contract that may be lesssatisfactory is what form of risk listed below?A)Counterparty riskB)Interest-rate riskC)Operating riskD)Credit riskE)Liquidityrisk Answer: A70.If a bank benefits when a foreign currency declines in value, then the bank mustbe in a __________ position. The term below that correctly fills in the blank in the preceding sentence is:A)LongB)ShortC)NegativeD)Credit riskE)None of the aboveAnswer: B71.In the United States a 'well capitalized' bank must have a ratio of capital torisk-weighted assets of at least:A) 6 percentB)8 percentC)10 percent.D) 5 percent.E)None of the aboveAnswer: C72.In the United States a bank to be considered 'adequately capitalized' must havea ratio of Tier 1 (or core) capital to risk-weighted assets of at least:A)8 percentB) 6 percentC)10 percentD) 4 percentE)None of the aboveAnswer: D73. A "well capitalized" bank in the United States must have a leverage ratio of at least:A) 5 percentB) 4 percentC) 6 percentD)8 percentE)None of the aboveAnswer: B74. A bank has $100 million in assets in the 0 percent risk weight category, $200million in assets in the 20 percent risk weight category, $500 million in assets in the50 percent risk weight category and $750 million in assets in the 100 percent riskweight category. This bank has $57 million in core (Tier 1) capital. What is thisbank's ratio of Tier 1 capital to risk-weighted assets?A) 3.68 percentB)7.6 percentC)18.25 percentD) 5.48 percentE)None of the aboveAnswer: D75. A bank has a profit margin of 5 percent, an asset utilization ratio of 11 percent , anequity multiplier of 12 and a retention ratio of 60 percent. What is this bank'sICGR?A) 6.6 percentB) 3.96 percentC)7.2 percentD).33 percentE)None of the aboveAnswer: B76.Which of the following would be an example of Tier 1 capital?A)Subordinated debt capital instruments with an original maturity of at least5 yearsB)Allowance for loan and lease lossesC)Minority interest in the equity accounts of consolidated subsidiariesD)Intermediate term preferred stockE)All of the aboveAnswer: C77.Which of the following would be an example of Tier 2 capital?A)Subordinated debt capital instruments with an original maturity of at least5 yearsB)Undivided profitsC)Minority interest in the equity accounts of consolidated subsidiariesD)Qualifying noncumulative preferred stockE)All of the aboveAnswer: A78.Which of the following would be an example of crime risk?A) A bank manager that embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest and principal has beencollected in 2 yearsD) A bank manager predicts that interest rates will rise. However interest rates fallcausing the bank 's net income to fall by $250,000E)All of the above are examples of crime riskAnswer: A.79.Which of the following assets fits into the 0 percent risk weight category?A)CashB)Deposits at the Federal ReserveC)Treasury BillsD)GNMA mortgage-backed securitiesE)All of the above fit into the 0 percent risk weight categoryAnswer: E80. A bank that is 'well-capitalized':A)Faces no significant regulatory restrictionsB)Cannot accept broker placed deposits without regulatory approvalC)Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD)Will be placed into conservatorship or receivership if it its capital level is notincreased within a certain time limit.E)None of the aboveAnswer: A81. A bank that is 'critically undercapitalized':A)Faces no significant regulatory restrictionsB)Cannot accept broker-placed deposits without regulatory approvalC)Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD)Will be placed into conservatorship or receivership if it its capital level is notincreased within a certain time limit.E)None of the aboveAnswer: D82. A bank that is adequately capitalized:A)Faces no significant regulatory restrictions.B)Cannot accept broker-placed deposits without regulatory approvalC)Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD)Will be placed into conservatorship or receivership if it its capital level is notincreased within a certain time limit.E)None of the aboveAnswer: B83.Which of the following is in the 100 percent risk-weight category?A)CashB)General obligation municipal bondsC)Residential mortgage loansD)Credit card loansE)None of the aboveAnswer: D84.Which of the following is in the 50 percent risk-weight (moderate) category?A)CashB)General Obligation Municipal BondsC)Residential Mortgage LoansD)Credit Card LoansE)None of the aboveAnswer: C85.Which of the following is in the 20 percent risk-weight (low) category?A)CashB)General obligation municipal bondsC)Residential mortgage loansD)Credit card loansE)None of the aboveAnswer: B.86. A bank has a ROE of 14 percent and a ROA of 2 percent. What is this bank's equitycapital to total assets ratio?A)7.00 percentB)14.29 percentC)28.00 percentD)16 percentE)None of the aboveAnswer: B87. A bank has $200 million in assets in the 0 percent risk-weight category. It has $400million in assets in the 20 percent risk-weight category. It has $1000 million inassets in the 50 percent risk-weight category and has $1000 million in assets in the100 percent risk-weight category. This bank has $96 million in Tier 1 capital and$48 million in Tier 2 capital. What is this bank's ratio of Tier 1 capital to risk assets?A) 6.08 percentB) 3.04 percentC)9.11 percentD) 5.54 percentE)None of the aboveAnswer: A88. A bank has $200 million in assets in the 0 percent risk-weight category. It has $400million in assets in the 20 percent risk-weight category. It has $1000 million inassets in the 50 percent risk-weight category and has $1000 million in assets in the100 percent risk-weight category. This bank has $96 million in Tier 1 capital and$48 million in Tier 2 capital. What is this bank's ratio of Tier 2 capital to risk assets?A) 6.08 percentB) 3.04 percentC)9.11 percentD) 5.54 percent.E)None of the aboveAnswer: B89. A bank has $200 million in assets in the 0 percent risk-weight category. It has $400million in assets in the 20 percent risk-weight category. It has $1000 million inassets in the 50 percent risk-weight category and has $1000 million in assets in the100 percent risk-weight category. This bank has $96 million in Tier 1 capital and$48 million in Tier 2 capital. What is this bank's ratio of total capital to risk assets?A) 6.08 percentB) 3.04 percentC)9.11 percentD) 5.54 percentE)None of the aboveAnswer: C90. A bank has a net profit margin of 5.25 percent. It has an asset utilization ratio of 45percent and has an equity multiplier of 12. It retains 40 percent of its earnings eachyear. What is this bank's internal capital growth rate?A)28.35 percentB) 2.36 percentC)11.34 percentD) 4.8 percentE)None of the aboveAnswer: C91.The revised Basel I rules impose capital requirements for market risk on:A)Only the largest banksB)Only the smallest banksC)Only moderate size banksD)All banksE)No banksAnswer: A92.Bank debt which appears to be highly sensitive to the market perception ofthe bank's risk is which of the following?A)DepositsB)Fed fundsC)ReposD)Subordinated debt capitalE)Preferred stockAnswer: D93.Bank operational risk includes:A)Employee fraudB)Account errorsC)Computer breakdownsD)Natural disastersE)All of the aboveAnswer: E94.The issue of correctly adding up all of the different types of bank risk exposureis known as:A)Risk tallyingB)Summing riskC)Risk aggregationD)Risk accumulationE)Risk totalityAnswer: C95. For a bank with deficient capital ratios, which of the following actions could berequired by regulators to increase the capital ratios, all else constant?A)Cut the bank's dividend paymentB)Increase the bank's leverageC)Reduce the bank ’ s holdings of cashD)Increase the bank's growth rate by making additional commercial loans.E)Reduce the bank's holdings of Treasury securities.Answer: A96.Basel II has a different set of rules for different bank size categories andthe number of categories is:A)twoB)threeC)fourD)fiveE)tenAnswer: A97.Which of the following would be an example of exchange risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal hasbeen collected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank ’ s net income to fall by $250,000E)All of the above are examples of exchange riskAnswer: B98.Which of the following would be an example of credit risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal has beencollected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank ’ s net income to fall by $250,000E)All of the above are examples of credit riskAnswer: C99.Which of the following would be an example of interest rate risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal hasbeen collected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank ’ s net income to fall by $250,000E)All of the above are examples of interest rate risk?Answer: D100.Which of the following would be an example of operational risk?A) A bank teller manages to steal $250,000 over a period of several monthsB)An out of date computer system causes the bank to lose $750,000C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet theneeds of depositorsD)A $500,000 loan the bank has made has been deemed uncollectableE)None of the above are examples of operational riskAnswer: B101.Which of the following would be an example of liquidity risk?A) A bank teller manages to steal $250,000 over a period of several monthsB)An out of date computer system causes the bank to lose $750,000C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet theneeds of depositorsD)A $500,000 loan the bank has made has been deemed uncollectableE)None of the above are examples of liquidityrisk Answer: C102. Which of the following would not be an example of operational risk?A) A bank on the coast of Louisiana is hit by a hurricane and is flooded for 6 weeksB) A bank employee acting as a derivatives trader is also the one who writes thereports on profits and losses in derivatives trading at the end of each dayC)The banks older computer system breaks down causing a loss of serviceto customers for 2 weeksD) A bank robber robs a teller at gun point and gets away before police can get tothe bankE)All of the above are examples of operational riskAnswer: D103.The Jennings Bank of Texas wants to protect itself from credit risk by making large loans to corporate customers, by making residential mortgages to families,by making agriculture loans to farmers and ranchers in the area, by making smallbusiness loans to business along main street and by making automobile loans forthe car dealership across the street from the bank. What defense against risk isthis bank making?A)Portfolio diversificationB)Geographic diversificationC)Quality managementE)All of theabove Answer: A104.The Michelson Bank of Stetson wants to protect itself from risk. It decides to make loans in Florida, Georgia, Texas and Oklahoma as well as invest in municipalbonds from California and Oregon. What defense against risk is this bank making?A)Portfolio diversificationB)Geographic diversificationC)Quality managementD) Increasing owners’ capitalE) All of the above105.The Perdue Bank of Houston has just hired a new manager who has a reputation of anticipating potential problems and acting quickly to prevent those problems so that the bank stays healthy and profitable. What defense against risk is this bank making?A)Portfolio diversificationB)Geographic diversificationC)Quality managementE)All of theabove Answer: C106.The Norton Bank of Illinois has just issued trust preferred stock. What defense against risk is this bank making?A)Portfolio diversificationB)Geographic diversificationC)Quality managementE)All of theabove Answer: D107.What type of preferred stock has become popular among large banks in recent years, partly because dividends paid are tax deductible for the issuing institution?A)Cumulative preferred stockB)Noncumulative preferred stockC)Convertible preferred stockD)Trust preferred stockE)All of the aboveAnswer: D108. Even if individual banks are good at forecasting risk using VAR models there may still be problems because losses may occur at several banks at the same time dueto the interdependency of the financial system, magnifying each bank ’ s risk exposure and possibly causing a major problem for regulators. The book calls this:A)Systematic riskB)Operational riskC)Credit riskD)Market riskE)Liquidity riskAnswer: A109.There are three pillars of Basel II. One of them wants to make market discipline a powerful force compelling risky banks to lower their risk exposure. What doesBasel II want to do to make this happen?A) Require minimum capital requirement based on the bank’s own evaluation ofits riskB) Require greater public disclosure of each bank’ s true financial conditionC)Expand the risks to be evaluated to include credit risk, market riskand operational riskD) Require supervisory review of each bank’ s risk evaluation proceduresE) All of the aboveAnswer: B110. A bank has capital to risk weighted assets of 11.5%, Tier 1 capital to risk weighted assets of 7.2% and a leverage ratio of 5.8%. What type of bank is this?A)Well capitalizedB)Adequately capitalizedC)UndercapitalizedD)Significantly undercapitalizedE)Criticallyundercapitalized Answer: A111. A bank has capital to risk weighted assets of 9.2%, Tier 1 capital to risk weighted assets of 5% and a leverage ratio of 4.8%. What type of bank is this?A)Well capitalizedB)Adequately capitalizedC)UndercapitalizedD)Significantly undercapitalizedE)Critically undercapitalizedAnswer: B112. A bank has capital to risk weighted assets of 9.2%, Tier 1 capital to risk weighted assets of 4.5% and a leverage ratio of 3.7%. What type of bank is this?A)Well capitalizedB)Adequately capitalizedC)UndercapitalizedD)Significantly undercapitalizedE)Critically undercapitalizedAnswer: C113.A bank has capital to risk weighted assets of 5.5%, Tier 1 capital to risk weighted assets of 2.8% and a leverage ratio of 2.6%. What type of bank is this?A)Well capitalizedB)Adequately capitalizedC)UndercapitalizedD)Significantly undercapitalized。

Chapter 12Managing and Pricing Deposit ServicesFill in the Blank Questions1. A(n) _________________________ requires the bank to honor withdrawals immediately uponrequest.Answer: demand deposit2. A(n) _________________________ is an interest bearing checking account and gives the bank theright to insist on prior notice before customer withdrawals can be honored.Answer: Negotiable order of withdrawal (NOW)3. A(n) _________________________ is a short-maturity deposit which pays a competitive interestrate. Only 6 preauthorized drafts per month are allowed and only 3 of these can be by check.Answer: money market deposit account4. _________________________ are designed to attract funds from customers who wish to set asidemoney in anticipation of future expenditures or financial emergencies.Answer: Thrift deposits5. _________________________ are the stable base of deposited funds that are not highly sensitiveto movements in market interest rates and tend to remain with a depository institution.Answer: Core deposits6. Some people feel that everyone is entitled access to a minimum level of financial service no mattertheir income level. This issue is called the issue of _________________________.Answer: basic (lifeline) banking7. _________________________ is a way of pricing deposit services in which the rate or return orfees charged on the deposit account are based on the cost of offering the service plus a profitmargin.Answer: Cost plus pricing8. When financial institutions tempt customers by paying postage both ways in bank-by-mail servicesor by offering free gifts such as teddy bears, they are practicing ___________.Answer: nonprice competition9. The _________________________is the added cost of bringing in new funds.Answer: marginal cost10. _________________________ pricing is where the financial institution sets up a schedule of feesin which the customer pays a low or no fee if the deposit balance stays above some minimum level and pays a higher fee if the balance declines below that minimum level.Answer: Conditional11. When a customer is charged a fixed charge per check this is called __________________ pricing.Answer: flat rate12. When a customer is charged based on the number and kinds of services used, with the customersthat use a number of services being charged less or having some fees waived, this is called__________________ pricing.Answer: relationship13. _________________________ is part of the new technology for processing checks where the banktakes a picture of the back and the front of the original check and which can now be processed as if they were the original.Answer: Check imaging14. A(n) _________________________ is a thrift account which carries a fixed maturity date andgenerally carries a fixed interest rate for that time period.Answer: time deposit15. A(n) _________________________ is a conditional method of pricing deposit services in whichthe fees paid by the customer depend mainly on the account balance and volume of activity.Answer: deposit fee schedule16. The _________________________ was passed in 1991 and specifies the information thatinstitutions must disclose to their customers about deposit accounts.Answer: Truth in Savings Act17. The _________________________ must be disclosed to customers based on the formula of oneplus the interest earned divided by the average account balance adjusted for an annual 365 day year.It is the interest rate the customer has actually earned on the account.Answer: annual percentage yield (APY)18. A(n) _________________________ is a retirement plan that institutions can sell which is designedfor self-employed individuals.Answer: Keogh plan19. Deposit institution location is most important to ______-income consumers.Answer: low20. _____-income consumers appear to be more influenced by the size of the financial institution.Answer: high21.For decades depository institutions offered one type of savings plan. could be opened withas little as $5 and withdrawal privileges were unlimited.Answer: Passbook savings deposits22.CD’s allow depositors to switch to a higher interest rate if market ratesrise.Answer: Bump-up23.CD’s permit periodic adjustm ents in promised interest rates.Answer: Step-up24.CD’s allow the depositor t o withdraw some of his or her funds without awithdrawal penalty.Answer: Liquid25.A(n) , which was authorized by Congress in 1997, allows individuals to makenon-tax-deductible contributions to a retirement fund that can grow tax free and also pay no taxes on their investment earnings when withdrawn.Answer: Roth IRA26.Due to the fact that they may be perceived as more risky, banks generally offer higherdeposit rates than traditional banks.Answer: virtual27. are accounts in domestic banking institutions where the U.S.Treasury keeps most of their operating funds.Answer: Treasury Tax and Loan Accounts (TT&L accounts)28. is a process where merchants and utility companies take theinformation from a check an individual has just written and electronically debits the individual’s account instead of sending the check through the regular check clearing process.Answer: electronic check conversion29.On October 28, 2004, became the law, permitting depository institutions toelectronically transfer check images instead of the checks themselves.Answer: Check 2130.The to the cost plus pricing derives the weighted average cost of all fundsraised and is based on the assumption that it is not the cost of each type of deposit that matters but rather the weighted average cost of all funds that matters.Answer: pooled-funds cost approachTrue/False QuestionsT F 31. The volume of core deposits at U.S. banks has been growing in recent years relative to other categories of deposits.Answer: FalseT F 32. The U.S. Treasury keeps most of its operating funds in TT&L deposits, according to the textbook.Answer: TrueT F 33. Deposits owned by commercial banks and held with other banks are called correspondent deposits.Answer: TrueT F 34. The implicit interest rate on checkable deposits equals the difference between the cost of supplying deposit services to a customer and the amount of the service charge actuallyassessed that customer.Answer: TrueT F 35. Legally imposed interest-rate ceilings on deposits were first set in place in the United States after passage of the Bank Holding Company Act.Answer: FalseT F 36. Gradual phase-out of legal interest-rate ceilings on deposits offered by U.S. banks was first authorized by the Glass-Steagall Act.Answer: FalseT F 37. The contention that there are certain banking services (such as small loans or savings and checking accounts) that every citizen should have access to is usually called socializedbanking.Answer: FalseT F 38. Domestic deposits generate legal reserves.Answer: TrueT F 39. Excess legal reserves are the source out of which new bank loans are created.Answer: TrueT F 40. Demand deposits are among the most volatile and least predictable of a bank's sources of funds with the shortest potential maturity.Answer: TrueT F 41. IRA and Keogh deposits have great appeal for bankers principally because they can be sold bearing relatively low (often below-market) interest rates.Answer: FalseT F 42. In general, the longer the maturity of a deposit, the lower the yield a financial institution must offer to its depositors because of the greater interest-rate risk the bank faces withlonger-term deposits.Answer: FalseT F 43. The availability of a large block of core deposits decreases the duration of a bank's liabilities.Answer: FalseT F 44. Interest-bearing checking accounts, on average, tend to generate lower net returns than regular (noninterest-bearing) checking accounts.Answer: FalseT F 45. Personal checking accounts tend to be more profitable than commercial checking accounts.Answer: FalseT F 46. NOW accouts can be held by businesses and individuals and are interest bearing checking accounts.Answer: FalseT F 47. A MMDA is a short term deposit where the bank can offer a competitive interest rate and which allows up to 6 preauthorized drafts per month.Answer: TrueT F 48. A Roth IRA allows an individual to accumulate investment earnings tax free and also pay no tax on their investment earnings when withdrawn provided the taxpayer follows therules on this new account.Answer: TrueT F 49. Competition tends to raise deposit interest costs.Answer: TrueT F 50. Competition lowers the expected return to a bank from putting its deposits to work.Answer: TrueT F 51. A bank has full control of its deposit prices in the long run.Answer: FalseT F 52. Nonprice competition for deposits has tended to distort the allocation of scarce resources in the banking sector.Answer: TrueT F 53. Deposits are usually priced separately from loans and other bank services.Answer: TrueT F 54. According to recent Federal Reserve data no-fee savings accounts are on the decline.Answer: TrueT F 55. According to recent survey information provided by the staff of the Federal Reserve Board the average level of fees on most types of checking and NOW accounts appear to haverisen.Answer: TrueT F 56. The Truth in Savings Act requires a bank to disclose to its deposit customer the frequency with which interest is compounded on all interest-bearing accounts.Answer: TrueT F 57. Under the Truth in Savings Act customers must be informed of the impact of any early deposit withdrawals on the annual percentage yield they expect to receive from aninterest-bearing deposit.Answer: TrueT F 58. The number one factor households consider in selecting a bank to hold their checkingaccount is, according to recent studies cited in this chapter, low fees and low minimumbalance.Answer: FalseT F 59. The number one factor households consider in choosing a bank to hold their savings deposits, according to recent studies cited in this chapter, is location.Answer: FalseT F 60. Conditionally free deposits for customers mean that as long as the customers do not go above a certain level of deposits there are no monthly fees or per transaction charges.Answer: FalseT F 61. When a bank temporarily offers higher than average interest rates or lower than average customer fees in order to attract new business they are practicing conditional pricing.Answer: FalseT F 62. Web-centered banks with little or no physical facilities are known as ________ banks Answer: TrueT F 63. The total dollar value of checks paid in the United States has grown modestly in recent years.Answer: FalseT F 64. There are still a number of existing problems with online bill-paying services which has limited the growth.Answer: TrueT F 65. The depository institutions which tend to have the highest deposit yields are credit unions.Answer: FalseT F 66. Urban markets are more responsive to deposit interest rates and fees than rural markets.Answer: FalseT F 67. Research indicates that at least half of all households and small businesses hold their primary checking account at a depository institution situated within 3 miles of theirlocation.Answer: TrueMultiple Choice Questions68. Deposit accounts whose principal function is to make payments for purchases of goods andservices are called:A) DraftsB) Second-party payments accountsC) Thrift depositsD) Transaction accountsE) None of the aboveAnswer: D69. Interest payments on regular checking accounts were prohibited in the United States under terms ofthe:A) Glass-Steagall ActB) McFadden-Pepper ActC) National Bank ActD) Garn-St. Germain Depository Institutions ActE) None of the aboveAnswer: A70. Money-market deposit accounts (MMDAs), offering flexible interest rates, accessible forpayments purposes, and designed to compete with share accounts offered by money market mutual funds, were authorized by the:A) Glass-Steagall ActB) Depository Institutions Deregulation and Monetary Control Act (DIDMCA)C) Bank Holding Company ActD) Garn-St.Germain Depository Institutions ActE) None of the aboveAnswer: D71. The stable and predictable base of deposited funds that are not highly sensitive to movements inmarket interest rates but tend to remain with the bank are called:A) Time depositsB) Core depositsC) Consumer CDsD) Nontransaction depositsE) None of the aboveAnswer: B72. Noegotiable Orders of Withdrawal (NOW) accounts, interest-bearing savings accounts that can beused essentially the same as checking accounts, were authorized by:A) Glass-Steagall ActB) Depository Institutions Deregulation and Monetary Control Act (DIDMCA)C) Bank Holding Company ActD) Garn-St. Germain Depository Institutions ActE) None of the aboveAnswer: B74. A deposit which offers flexible money market interest rates but is accessible for spending bywriting a limited number of checks or executing preauthorized drafts is known as a:A) Demand depositB) NOW accountC) MMDAsD) Time depositE) None of the aboveAnswer: C75. The types of deposits that will be created by the banking system depend predominantly upon:A) The level of interest ratesB) The state of the economyC) The monetary policies of the central bankD) Public preferenceE) None of the above.Answer: D76. The most profitable deposit for a bank is a:A) Time depositB) Commercial checking accountC) Personal checking accountD) Passbook savings depositE) Special checking accountAnswer: B77. Some people feel that individuals are entitled to some minimum level of financial services nomatter what their income level. This issue is often called:A) Lifeline bankingB) Preference bankingC) Nondiscriminatory bankingD) Lifeboat bankingE) None of the aboveAnswer: A78. The formula Operating Expense per unit of deposit service + Estimated overhead expense +Planned profit from each deposit service unit sold reflects what deposit pricing method listedbelow?A) Marginal cost pricingB) Cost plus pricingC) Conditional pricingD) Upscale target pricingE) None of the above.Answer: B79. Using deposit fee schedules that vary deposit prices according to the number of transactions, theaverage balance in the deposit account, and the maturity of the deposit represents what deposit pricing method listed below?A) Marginal cost pricingB) Cost plus pricingC) Conditional pricingD) Upscale target pricingE) None of the above.Answer: C80. The deposit pricing method that favors large-denomination deposits because services are free if thedeposit account balance stays above some minimum figure is called:A) Free pricingB) Conditionally free pricingC) Flat-rate pricingD) Upscale target pricingE) Marginal cost pricingAnswer: B81. The federal law that requires U.S. depository institutions to make greater disclosure of the fees,interest rates, and other terms attached to the deposits they sell to the public is called the:A) Consumer Credit Protection ActB) Fair Pricing ActC) Consumer Full Disclosure ActD) Truth in Savings ActE) None of the above.Answer: D82. Depository institutions selling deposits to the public in the United States must quote the rate ofreturn pledged to the owner of the deposit which reflects the customer's average daily balance kept in the deposit. This quoted rate of return is known as the:A) Annual percentage rate (APR)B) Annual percentage yield (APY)C) Daily deposit yield (DDY)D) Daily average return (DAR)E) None of the above.Answer: B83. According to recent studies cited in this book, in selecting a bank to hold their checking accountshousehold customers rank first which of the following factors?A) SafetyB) High deposit interest ratesC) Convenient locationD) Availability of other servicesE) Low fees and low minimum balance.Answer: C84. According to recent studies cited in this chapter, in choosing a bank to hold their savings depositshousehold customers rank first which of the following factors?A) FamiliarityB) Interest rate paidC) Transactional convenienceD) LocationE) Fees charged.Answer: A85. According to recent studies cited in this chapter, in choosing a bank to supply their deposits andother services business firms rank first which of the following factors?A) Quality of financial advice givenB) Financial health of lending institutionC) Whether loans are competitively pricedD) Whether cash management and operations services are provided.E) Quality of bank officers.Answer: B86. A financial institution that charges customers based on the number of services they use and giveslower deposit fees or waives some fees for a customer that purchases two or more services ispracticing:A) Marginal cost pricingB) Conditional pricingC) Relationship pricingD) Upscale target pricingE) None of the aboveAnswer: C87. A bank determines from an analysis on its deposits that account processing and other operatingexpenses cost the bank $3.95 per month. It has also determined that its non operating expenses on its deposits are $1.35 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should this bank charge on its deposit accounts?A) $5.30 per monthB) $3.95 per monthC) $5.83 per monthD) $5.70 per monthE) None of the aboveAnswer: C88. A bank determines from an analysis on its deposits that account processing and other operatingexpenses cost the bank $4.45 per month. The bank has also determined that nonoperating expenses on deposits are $1.15 per month. It has also decided that it wants a profit of $.45 on its deposits.What monthly fee should this bank charge on its deposit accounts?A) $6.05B) $5.60C) $5.15D) $4.45E) None of the aboveAnswer: A89. A customer has a savings deposit for 45 days. During that time they earn $5 in interest and have anaverage daily balance of $1000. What is the annual percentage yield on this savings account?A) 0.5%B) 4.13%C) 4.07%D) 4.5%E) None of the aboveAnswer: B90. A customer has a savings account for one year. During that year they earn $65.50 in interest. For180 days they have $2000 in the account for the other 180 days they have $1000 in the account.What is the annual percentage yield on this savings account.A) 6.55%B) 3.28%C) 4.37%D) 8.73%E) None of the aboveAnswer: C91.If you deposit $1,000 into a certificate of deposit that quotes you a 5.5% APY, how much will youhave at the end of 1 year?A)$1,050.00B)$1,055.00C)$1,550.00D)$1,005.50E)None of the above.Answer: B92. A bank quotes an APY of 8%. A small business that has an account with this bank had $2,500 intheir account for half the year and $5,000 in their account for the other half of the year. How much in total interest earnings did this bank make during the year?A) $300B) $200C) $400D) $150E) None of the aboveAnswer: A93. Conditional deposit pricing may involve all of the following factors except:A) The level of interest ratesB) The number of transactions passing through the accountC) The average balance in the accountD) The maturity of the accountE) All of the above are usedAnswer: A94.Customers who wish to set aside money in anticipation of future expenditures or financialemergencies put their money inA) DraftsB) Second-party payment accountsC) Thrift DepositsD) Transaction accountsE) None of the aboveAnswer: C95. A savings account evidenced only by computer entry for which the customer gets a monthlyprintout is called:A) Passbook savings accountB) Statement savings planC) Negotiable order of withdrawalD) Money market mutual fundE) None of the aboveAnswer: B96. A traditional savings account where evidenced by the entries recorded in a booklet kept by thecustomer is called:A) Passbook savings accountB) Statement savings planC) Negotiable order of withdrawalD) Money market mutual fundE) None of the aboveAnswer: A97.An account at a bank that carries a fixed maturity date with a fixed interest rate and which oftencarries a penalty for early withdrawal of money is called:A) Demand depositB) Transaction depositC) Time depositD) Money market mutual depositE) None of the aboveAnswer: C98. A time deposit that has a denominations greater than $100,000 and are generally for wealthyindividuals and corporations is known as a:A) Negotiable CDB) Bump-up CDC) Step-up CDD) Liquid CDE) None of the aboveAnswer: A99. A time deposit that is non-negotiable but where the promised interest rate can rise with marketinterest rates is called a:A) Negotiable CDB) Bump-up CDC) Step-up CDD) Liquid CDE) None of the aboveAnswer: B100.A time deposit that allows for a periodic upward adjustment to the promised rate is called a:A) Negotiable CDB) Bump-up CDC) Step-up CDD) Liquid CDE) None of the aboveAnswer: C101.A time deposit that allows the depositor to withdraw some of his or her funds without a withdrawalpenalty is called a:A) Negotiable CDB) Bump-up CDC) Step-up CDD) Liquid CDE) None of the aboveAnswer: D102.What has made IRA and Keogh accounts more attractive to depositors recently?A) Allowing the bank to have FDIC insurance on these accountsB) Allowing the fund to grow tax free over the life of the fundC) Allowing the depositor to pay no taxes on investment earnings when withdrawnD) Requiring banks to pay at least 6% on these accounts to depositorsE) Increasing FDIC insurance coverage to $250,000 on these accountsAnswer: E103.The dominant holder of bank deposits in the U.S. is:A) The private sectorB) State and local governmentsC) Foreign governmentsD) Deposits of other banksE) None of the aboveAnswer: A104.The deposit pricing method absent of any monthly account maintenance fee or per-transaction fee is called:A) Free pricingB) Conditionally free pricingC) Flat-rate pricingD) Marginal cost pricingE) Nonprice competitionAnswer: A105.The deposit pricing method that charges a fixed charge per check or per period or both is called:A) Free pricingB) Conditionally free pricingC) Flat-rate pricingD) Marginal cost pricingE) Nonprice competitionAnswer: C106.The deposit pricing method that focuses on the added cost of bringing in new funds is called:A) Free pricingB) Conditionally free pricingC) Flat-rate pricingD) Marginal cost pricingE) Nonprice competitionAnswer: D107.Prior to Depository Institution Deregulation and Control Act (DIDMCA), banks used . This tended to distort the allocation of scarce resources.A) Free pricingB) Conditionally free pricingC) Flat-rate pricingD) Marginal cost pricingE) Nonprice competitionAnswer: E108.A customer has a savings deposit for 60 days. During that time they earn $11 and have an average daily balance of $1500. What is the annual percentage yield on this savings account?A) .73%B) 4.3%C) 4.5%D) 4.7%E) None of the aboveAnswer: C109.A customer has a savings deposit for 15 days. During that time they earn $15 and have an average daily balance of $2200. What is the annual percentage yield on this savings account?A) .68%B) 16.36%C) 16.59%D) 17.98%E) None of the aboveAnswer: D110.A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $4.15 per month. It has also determined that its none operating expenses on its deposits are $1.65 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should this bank charge on its deposit accounts?A) $6.38 per monthB) $5.80 per monthC) $4.57 per monthD) $4.15 per monthE) None of the aboveAnswer: A111.A bank has $200 in checking deposits. Interest and noninterest costs on these accounts are 4%.This bank has $400 in savings and time deposits with interest and noninterest costs of 8%. This bank has $200 in equity capital with a cost of 24%. This bank as estimated that reserverequirements, deposit insurance fees and uncollected balances reduce the amount of moneyavailable on checking deposits by 10% and on savings and time deposits by 5%. What is thisbank’s before-tax cost of funds?A) 11.00%B) 11.32%C) 11.50%D) 12.00%E) None of the aboveAnswer: B112.A bank has $100 in checking deposits. Interest and noninterest costs on these accounts are 8%.This bank has $600 in savings and time deposits with interest and noninterest costs of 12%. This bank has $100 in equity capital with a cost of 26%. This bank has estimated that reserverequirements, deposit insurance fees and uncollected balances reduce the amount of moneyavailable on checking deposits by 20% and on savings and time deposits by 5%. What is the bank’s before-tax cost of funds?A) 13.05%B) 13.25%C) 15.33%D) 19.17%E) None of the aboveAnswer: A113.A bank has $500 in checking deposits. Interest and noninterest costs on these accounts are 6%.This bank has $250 in savings and time deposits with interest and noninterest costs of 14%. This bank has $250 in equity capital with a cost of 25%. This bank has estimated that reserverequirements, deposit insurance fees and uncollected balances reduce the amount of moneyavailable on checking deposits by 15% and on savings and time deposits by 4%. What is the bank’s before-tax cost of funds?A) 15.00%B) 12.75%C) 13.42%D) 15.74%E) None of the aboveAnswer: C114.A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%.This bank expects to earn 9% on all money that it receives in new deposits. What deposit rate should the bank offer on its deposits, if they use the marginal cost method of determining deposit rates?A) 7%B) 7.5%C) 8%D) 8.5%E) None of the aboveAnswer: B115.A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%.This bank expects to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank raises their deposit rate from 7 to 7.5%?A) .5%B) 7.5%C) 8.0%D) 9.5%E) 10.5%Answer: C116.Under the Truth in Savings Act, a bank must inform its customers of the terms being quoted on their deposits. Which of the following is not one of the terms listed?A) Loan rate informationB) Balance computation methodC) Early withdrawal penaltyD) Transaction limitationsE) Minimum balance requirementsAnswer: A117.Which of these Acts is attempting to address the low savings rate of workers in the U.S. by including an automatic enrollment (“default option”) in employees’ retirement accounts?A)The Economic Recovery Tax Act of 1981B)The Tax Reform Act of 1986C)The Tax Relief Act of 1997D)The Pension Protection Act of 2006E)None of the aboveAnswer: D118.Business (commercial) transaction accounts are generally more profitable than personal checking accounts, according to the textbook. Which of the following explain the reasons for this statement:A)The average size of the business transaction is smaller than the personal transactionB)Lower interest expenses are associated with commercial deposit transactionC)The bank receives more investable funds in the commercial deposits transactionD) A and BE) B and CAnswer: E。

Chapter 1An Overview of the Changing Financial-Services SectorFill in the Blank Questions1._______________________ is a traditional service provided by banks in which the banks storethe valuables of their customers and certify their true value.Answer: Safekeeping of valuables2.The fact that financial institutions make loans based on confidential information is the_______________________ theory of banking.Answer: delegated monitoring3._______________________ refers to when a financial institution trades one form of currency foranother. An example of this would be when the bank trades dollars for yen for a fee.Answer: currency exchange4.A(n) _______________________ is a traditional service which permits a depositor to write adraft （汇票）in payment for goods and services.Answer: demand deposit (checking account)5._______________________ is a service provided by banks where the bank lends money toindividuals for the purchase of durable and other goods.Answer: Consumer lending6.The _______________________ of a bank is a traditional service where the bank manages thefinancial affairs and property of individuals (and in some cases businesses).Answer: trust servicespanies such as Merrill Lynch and Sears which offered some but not all banking services inthe 1980s were called _______________________.Answer: nonbank banks8.The loosening of government regulation and control of financial institutions is called_______________________.Answer: deregulation9.___________________________ is an alternative to lending in which the financial institutionpurchases the equipment and rents it to its customers.Answer: Equipment leasing services10.The___________________________ is a landmark act which allows financial service providersto offer an expanded menu of financial services for the customer. This law allows banks to truly become conglomerate financial service providers.Answer: Financial Services Modernization Act (Gramm-Leach-Bliley Act)11.The country with the most banks is _______________________.Answer: United States12.According to Congress a ____________ is defined as any institution that can qualify for depositinsurance administered by the FDIC.Answer: Bank13. A bank which spans regions, nations, and continents, offering the widest menu of financialservices is known as a __________bank.Answer: money-center bank14._____________ refers to the movement of businesses across industry lines in order to broaden itsbase.Answer: Convergence15.Banks which serve primarily households and small firms are known as ____________ banks.Answer: retail16.Banks that sell deposits and make loans to businesses and individuals are known as ______banks.Answer: commercial17.Banks which underwrite issues of new securities for their corporate customers are known as________ banks.Answer: investment18.Banks which function under a federal charter through the Comptroller (审计署)of the Currency inthe United States are known as ____________ banks.Answer: National19.Banks which supply both debt and equity capital to businesses are known as _________ banks.Answer: merchant（商人）20. A bank that offers its services only over the internet is known as a(n) .Answer: virtual bank（虚拟银行）21.When a local merchant sells the accounts receivables they hold against their customer to a bankthis generally known as .Answer: discounting commercial notes22.A(n) offers loans to commercial enterprises (such as appliancedealers) or to individuals using funds borrowed in the open market or from other financialinstitutions. Examples of this type of financial service provider include GMAC FinancialServices and Household Finance.Answer: finance company23.A(n) buys and sells securities on behalf of their customers and fortheir own accounts. Examples of this type of financial service provider include Merrill Lynchand Charles Schwab.Answer: security broker (or dealer)24.A(n) sells shares mainly to upscale investors in a broadgroup of different kinds of assets including nontraditional investments in commodities, realestate, loans to ailing companies and other risky assets.Answer: hedge fund25.When a bank agrees to handle the cash collections and disbursements for a company and investany temporary cash surpluses in interest bearing assets, they are providing services to their customers.Answer: cash managementTrue/False QuestionsT F26.Under U.S. federal law, an institution making only loans to households a nd offering uninsured checkable deposits and savings deposits qualifies as a commercial bank.Answer: FalseT F27.Nonbank banks can offer deposits to the public, but these deposits are not eligible（合适的） for insurance coverage by the FDIC.Answer: FalseT F28.The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table".Answer: TrueT F29.According to the textbook, banks are those financial institutions that today offer the widest range of financial services of any business firm in the economy.Answer: TrueT F30.According to the delegated monitoring theory banks are able to attract borrowing customers because they pledge confidentiality.Answer: TrueT F31.Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services.Answer: FalseT F32.The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role.Answer: TrueT F33.The role performed by banks in which they stand behind their customers when those customers are unable to pay a debt obligation is known as the guarantor role.Answer: TrueT F34.When banks serve as conduits（中转机构） for government policy this is referred to as their agency role.Answer: FalseT F35.According to the textbook, high-volume banking is required to make efficient use of automation and other technological innovations.Answer: TrueT F36.The number of independently owned banks has risen in the United States over the last decade.Answer: FalseT F37.Money-center banks usually service local communities, towns, and cities, offering a narrow menu of services to the public.Answer: FalseT F38. A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market.Answer: TrueT F39.The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry.Answer: FalseT F40.Lending institutions act as delegated monitors and can diversify and reduce their risk exposure, resulting in increased safety for savers’ funds.Answer: TrueT F41.Current theory suggests that banks exist because of imperfections in our financial system.Answer: TrueT F42.Today U.S. banks account for approximately fifty percent of the largest banks in the world.Answer: FalseT F43.According to the textbook, traditional banking may be on the decline.Answer: TrueT F44.Convergence refers to the fact that the number of bank mergers has increased in recent years.Answer: FalseT F45.Banks which offer virtually all financial services are known as universal banks（综合银行）.Answer: TrueT F46.Life insurance companies, securities firms, and mortgage（抵押） companies all compete with the traditional bank.Answer: TrueMultiple Choice Questions47.In the United States a commercial bank qualifies as a "bank" under federal law if it offers:A)Consumer installment loans, CDsB)Savings deposits, commercial loansC)Checking accounts, commercial loansD)Security investments, inventory loans to business customersE)Commercial deposit accounts, consumer savings plansAnswer: C48. E. F. Hutton, J.C. Penney, and Sears Roebuck are among leading firms that in the1980’sorganized competitors with banks that are known as:A)Nonbank BanksB)Discount Security Brokerage CompaniesC)Money Market FundsD)Finance CompaniesE)Investment Banking UnitsAnswer: A49. A study of history shows that one of the first services offered by banks was:A)Equipment LeasingB)Currency ExchangeC)Security Brokerage and UnderwritingD)Sale of Real EstateE)None of the aboveAnswer: B50.Banks perform the indispensable task of:A)Creating money without making loan.B)Absorbing the excess liquidity created by other financial institutionsC)Intermediating between surplus-spending individuals or institutions and deficit-spendingindividuals or institutionsD)Issuing risky depositsE)None of the aboveAnswer: C51.The view that depositors hire banks to analyze the financial condition of prospective borrowersand continually evaluate the condition of outstanding loans is referred to as:A)Delegated monitoringB)The concept of financial intermediationC)The liquidity function in bankingD)Market imperfection theoryE)The efficiency contribution of bankingAnswer: A52. Which of the following has been an important trend regarding consolidation and geographicexpansion in banks?A)Increased bank branching activityB)The formation of more holding companies to purchase smaller banksC)Mergers among some of the largest banks in the industryD) A and C aboveE)All of the above.Answer: E53.Included among leading structural trends in the U.S. banking industry in recent years are:A)The number of independently owned banks has declinedB)The average size of individual banking firms has increasedC)Entry across state lines from neighboring states has increasedD) A and B onlyE)All of the above.Answer: E54.Smaller, locally focused commercial and savings banks that offer narrower but more personalizedmenu of financial services are known as:A)Money center banksB)Community banksC)Mutual FundsD) State banksE)Fringe banks.Answer: B55.The banking services that includes executing buy and sell orders for security trading customersand marketing new securities to raise funds for corporations and other institutions is referred to:A)Comprehensive PackagingB)Wrap-around AccountsC)Investment BankingD)Professional BankingE)None of the above.Answer: C56. A bank that wires funds for the purchase of a beach house in South Carolina for a customer inOklahoma is carrying out the __________ of banks.A)The intermediation roleB)The payment roleC)The guarantor roleD)The agency roleE)The policy roleAnswer: B57.Examples of imperfections in the financial system which allow banks to exist include which ofthe following?A)Informational asymmetryB)Efficiency of marketsC)All individuals and businesses have full information about all investment opportunities.D)All individuals and businesses have no difficulty meeting their liquidity needs on their own.E)All of the above are examples of the imperfections that exist.Answer: A58. A bank which manages the investment portfolio and pays the bills of an elderly customer who isunable to do it for him or herself is carrying out the __________ of banks.A)The intermediation roleB)The payment roleC)The guarantor roleD)The agency roleE)The policy roleAnswer: D59.Which of the following is a trend that has affected all banks today?A)Increased isolation of banks in the U.S.B)Decreased competition from other financial institutionsC)Decreased amount of services provided by modern banksD)Rising funding costsE)Increased regulationsAnswer: D60.Which of the following is not a current trend in the banking industry?A)The number of banks is decliningB)The number of bank branches is decliningC)The number of bank services is increasingD)The number of bank competitors is increasingE)Bank industry convergenceAnswer: B61.Which of the following types of banks would most likely offer the largest number of financialservices?A) A retail bankB) A community bankC) A commercial bankD) A universal bankE)An international bankAnswer: D62.The phenomenon of convergence refers to:A)Financial service firms expanding into other product linesB)Firms reducing their product linesC)Bank merger activityD)Globalization in bankingE)Technological innovation in bankingAnswer: A63.Bank equipment leasing activity involves:A) A bank leasing its office facilities instead of buyingB) A bank buying equipment and then leasing the item to a customerC) A customer buying equipment and then leasing it to a bankD) A bank leasing computer equipmentE)None of the aboveAnswer: B64.Wholesale banks are those banks that:A)Sell at a discount relative to all commercial banksB)Only make loans to the wholesale industryC)Lend almost exclusively to farmersD)Are large banks which serve corporations and governmentE)Have only retail customersAnswer: D65.Jonathan Robbins has an account in a bank that does not have a physical branch. Jonathan doesall of his banking business over the internet. What type of bank does Jonathan have his account at?A) Virtual BankB) Mortgage BankC) Community BankD) Affiliated BankE) None of the aboveAnswer: A66.The Edmond National Bank serves only the City of Edmond, Oklahoma and concentrates onproviding the best possible service to this city. What type of bank is this most likely to be?A) Virtual BankB) Mortgage BankC) Community Bank（社区银行）D) Affiliated BankE) None of the aboveAnswer: C67.The Charleston Southern Bank makes loans for families to purchase new and existing homes butdoes not take deposits. What type of bank is this most likely to be?A) Virtual BankB) Mortgage BankC) Community BankD) Affiliated BankE) None of the aboveAnswer: B68.Which of the following is considered a fringe bank?A) Community BankB) Wholesale BankC) Merchant BankD) Payday LenderE) None of the aboveAnswer: D69.During the middle ages, banks encountered religious opposition because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: A70.Religious opposition decreased during the Renaissance because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: B71.Banks like the Medici Bank in Italy and the Hochstetter Bank in Germany were successfulbecause and they responded well to these new needs.A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: C72.Early European banks were places for safekeeping of wealth because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The industrial revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: D73.The U.S. government wants to prevent money laundering by drug cartels. To promote this goal,they have asked banks to report any cash deposits greater than $10,000 to the government.Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: E74.The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit.Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan, Bank of America will. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor（保证人） roleE) The policy roleAnswer: D75.Alexander Phua goes to his local bank and gets an insurance policy that protects him against lossin case he is in a car accident. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: C76.Chris Jones gets a cashier’s check from Wachovia Bank to make his down payment on a newhome. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: B77.The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (amongothers) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing?A) The intermediation（仲裁） roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: A78.Major trends affecting the performance of financial firms today include all of these except:A) Greater product-line diversificationB) Reduced branchingC) Geographic diversificationD) ConvergenceE) Increasing automationAnswer: B79.The First National Bank of Lakeland makes risky loans to business to expand and grow theirbusinesses while at the same time accepting funds into checking accounts that are insured by the FDIC. Which of the following services is this bank offering to their customers?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of the bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: A80.Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount hewould spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide is he taking advantage of?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of the bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: D81.Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator（冰箱）for his condo. What service that a bank provides is he taking advantage of?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of a bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: E82.Drew Davis goes to his local bank to get help developing a financial plan and making investmentdecisions. Which of the more recent services banks offer is Drew taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: B83.The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bankwho invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer is the Bartholemew bakery taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: C84.MyWebCast is a new company that makes it easy for individuals to create streaming videos onthe internet to share with friends and family for a small fee. MyWebCast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is MyWebCast taking advantange of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: D85.Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on makingregular contributions to this account until she retires. Which of the financial services isChandriga taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: E86.Banks with less than ___________in assets are generally called community banks.A)More than $1 billionB)Less than $1 billionC)More than $10 billionD)Less than $1 trillionE)More than $1 trillionAnswer: B87.The principal functions and services offered by many financial-service firms today include:A) Lending and investing moneyB) Making payments of behalf of customers to facilitate their purchases of goods and servicesC) Managing and protecting customers’ cash and other propertyD) Assisting customers in raising and investing funds profitablyE) All of the aboveAnswer: E88.Which of the following is considered a depository financial institution?A)Mortgage companyB)Mutual fundC)Savings and Loan associationsD)Federal ReserveE)Insurance companyAnswer: C89.Which of the following is not a purpose of bank regulation:A)Guarantee minimal profitability of the banking system（保证银行体系的最低利润）B)Provide monetary stabilityC)Ensure safety and soundness of banksD)Provide competitive financial systemE)Protect consumers from abuses by banksAnswer: A90.During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of BearStearns reaffirmed the importance of the fundamental principle of:A) Superior managementB) GlobalizationC) Government bailoutD) Regulatory arbitrageE) Public trust and confidence in the systemAnswer: E。

商业银行管理彼得S罗斯英文原书第8版英语试题库Chap001商业银行管理彼得S罗斯英文原书第8版英语试题库Chap001是一本经典的商业银行管理教材，该教材共分为八个章节，本文将为大家概述第一章的主要内容和考点。

第一章：商业银行与金融体系商业银行作为金融体系的核心组成部分，扮演着促进经济发展、风险管理和金融中介等多重角色。

在这一章中，我们将深入探讨商业银行的定义、功能以及与其他金融机构的关系。

1.1 商业银行简介商业银行是指一种以盈利为目的并且经营存款、贷款和其他金融服务的金融机构。

商业银行的主要特点包括：接受存款、发放贷款、支付结算、信用创造和风险管理等方面。

1.2 商业银行的功能商业银行的主要功能包括：存款业务、贷款业务、国际业务、信用业务、投资业务以及其他金融衍生品业务。

商业银行通过这些功能为个人、家庭和企业提供全方位的金融服务。

1.3 商业银行与其他金融机构的关系商业银行与其他金融机构如证券公司、保险公司和投资基金公司等之间存在紧密的联系和合作关系。

商业银行提供资金支持和资金流动性，为其他金融机构的运营提供必要的支持。

1.4 商业银行管理的挑战商业银行管理面临着多方面的挑战，包括竞争压力、市场风险、信用风险、资产负债管理等。

商业银行需要有效的管理措施和风险管理工具来应对这些挑战。

1.5 商业银行监管商业银行是金融体系中最重要的组成部分之一，其监管对于金融稳定和社会经济的发展至关重要。

监管机构通过制定监管规定、开展监督检查和提供政策指导等方式来确保商业银行行为的合规性和稳健性。

1.6 商业银行的未来发展随着科技的进步和金融创新的不断涌现，商业银行面临着新的发展机遇和挑战。

商业银行需要积极应对市场变化和技术革新，加强内部管理和业务转型，以适应金融行业的发展趋势。

总结：本章主要介绍了商业银行作为金融体系核心的定义、功能、与其他金融机构的关系，以及管理中面临的挑战和监管情况。

商业银行作为重要的金融服务提供者，在经济发展和金融稳定中发挥着重要作用。

Chapter 13Managing Nondeposit LiabilitiesFill in the Blank Questions1. Dollar denominated CDs issued outside the U.S. are called _________________________.Answer: Eurodollar CDs2. The CDs large foreign banks sell through their U.S. branches are called_________________________.Answer: Yankee CDs3. When a bank buys funds from other financial institutions in order to cover good quality loandemand and to satisfy deposit reserve requirements they are practicing_________________________.Answer: liability management4. When the first priority of a bank is to make loans to all good quality loan customers they arefollowing the _________________________.Answer: customer relationship doctrine5. Originally __________________ consisted exclusively of deposits held by U.S. banks at theFederal Reserve banks which were loaned from one bank to another.Answer: federal funds6. _________________________ is the short-term notes, with maturities ranging from 3 to 4 days to9 months, issued by well known companies.Answer: Commercial paper7. A _________________________ is the temporary sale of high-quality, easily-liquidated assetsaccompanied by the agreement to buy back those assets on a future specific date at a predetermined price.Answer: repurchase agreement8. Because the interest rate on CDs, commercial paper and other nondeposit borrowings (exceptborrowings from the Federal Reserve discount window) are determined by supply and demandconditions in the market they all face __________________ risk.Answer: interest rate9. The spread between current and expected loans and investments and the current and expecteddeposit inflows and other sources of funds is known as the _________________________.Answer: funds gap10. A(n) _________________________ is an interest bearing receipt for funds issued by a bank with aminimum denomination of $100,000.Answer: negotiable (jumbo) CD11. Because there is a danger that the bank in need of funds will not be able to find someone willing togrant the bank a loan at a reasonable rate, they face _________________________.Answer: credit availability risk12. The Federal Reserve will make loans through its _________________________.Answer: discount window13. The securities most often used in a repurchase agreement are _________________________.Answer: T-Bills14. Virtually all nondeposit borrowing of a bank are ______-term rather than _______-term debt.Answer: short, long15. Repurchase Agreements (RPs) are very similar to Federal Funds and are often viewed as____________ federal funds transactions.Answer: collateralized16. A repurchase agreement (RP) whereby the collateral is specifically identified is known as aconventional or ____________ RP.Answer: fixed-collateral17. A ______________ repurchase agreement (RP) is one in which the underlying collateral is notidentified precisely and thus allows some substitution.Answer: General Collateral Finance18. The type of discount window loan with generally the highest rates of interest is known as___________ credit.Answer: secondary19. The type of discount window loan with generally the lowest rate of interest is known as__________ credit.Answer: seasonal20.Federal Reserve balances of banks can be transferred from one institution to another in secondsthrough the Fed’s wire transfer network called the .Answer: Fedwire21.One of the three types of loans in the Fed Funds market, are unwrittenagreements, negotiated via wire or telephone, with the borrowed funds returned the next day.Answer: overnight loans22.One of the three types of loans in the Fed Funds market, are longer-term Fed Fundscontracts lasting several days, weeks or months, often accompanied by a written contract.Answer: term loans23.One of the three types of loans in the Fed Funds market, are automatically renewedeach day unless either the borrower or lender decides to end this agreement.Answer: continuing contracts24.When financial institution borrows in the RP market, this loan is listed as .Answer: Securities Sold under Agreements to Repurchase25. are nondeposit borrowings that are fully collateralized by homemortgages and have maturities ranging from overnight to 20 years.Answer: Advances from the Federal Home Loan BanksTrue/False Questions26. The traditional and principal source of bank funds is deposits.Answer: True27. Asset management (i.e., conversion of assets to cash) is regarded as an interest-sensitive approachto raising funds.Answer: False28. Deposits have been growing faster than nondeposit sources of funds in recent years among U.S.banks.Answer: False29. Federal funds today consist exclusively of deposits held at the Federal Reserve banks.Answer: False30. There are no reserve requirements on Federal funds borrowings in the U.S.Answer: True31. Accommodating banks buy and sell Federal funds simultaneously.Answer: True32. Loans of Federal funds under a continuing contract are automatically renewed each day unlesseither the borrower or the lender decides to end the agreement.Answer: True33. The loan from a Federal Reserve bank which normally lasts only a few days and is designed toprovide immediate aid in meeting a bank's legal reserve requirement is known as extended credit.Answer: False34. Yankee CDs are issued by large savings and loan associations and other nonbank savingsinstitutions.Answer: False35. The volume of variable-rate CDs exceeds the volume of fixed-rate CDs among U.S. banks.Answer: False36. Liability management is considered to be an interest-sensitive approach to raising bank funds.Answer: True37. Funds raised by the use of liability management techniques are considered to be flexible.Answer: True38. Liability management banking calls for using price (the interest rate offered) as the control lever toregulate incoming funds.Answer: True39. The most common type of federal funds loans are term loans.Answer: False40. Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied bya written contract, are called continuing contracts.Answer: False41. According to the FDIC Improvement Act undercapitalized U.S. banks cannot be granted discountwindow loans for more than 60 days in each 120-day period.Answer: True42. The largest foreign banks active in the United States sell CDs through their U.S. branches calledYankee CDs.Answer: True43. Under current federal law commercial banks in the United States can issue commercial paper asdirect obligations of the banks.Answer: False44. Nondeposit funds do have the advantage of quick availability compared to most types of deposits,but are not as stable a funding source for banks as are time and savings deposits.Answer: True45. Longer-term federal funds contracts which are automatically renewed each day unless either theborrower or the lender decides to end the agreement are called term loans,Answer: False46. The main use of federal funds today is still the traditional one. Federal funds provide a mechanismthat allows banks short of legal reserves to tap into immediately available funds from otherinstitutions possessing temporarily idle funds.Answer: True47. One of the factors to consider when a bank chooses among nondeposit funding sources is therelative cost. In general, the cheapest source of short-term funds is the Fed Funds market.Answer: True48. There are no restrictions on getting a Federal Reserve loan and because it is the cheapest source ofshort-term funds most banks will use this source of funds exclusively.Answer: False49. CDs must be issued with maturities of at least 7 days.Answer: True50. Loans from the Fed Funds market must be backed by collateral.Answer: False51. In recent years financial institutions have gotten better at managing interest rate risk.Answer: True52. Large banks depend more on nondeposit borrowings than small banks.Answer: True53. Although there is an active federal funds spot market, there is currently no associated futuresmarket for federal funds.Answer: False54. Repurchase Agreement (RPs) transactions are perceived to be less risky than equivalent federalfunds transactions.Answer: True55. Interest rates in the Repurchase Agreement (RP) market are quoted on a 360-day basis.Answer: True56. Seasonal credit discount window loans generally have the highest interest rates.Answer: False57.Primary credit is defined as loans available for short terms and normally considered beneficial forthe borrower because it carries an interest rate slightly below the target Fed funds rate.Answer: False58.When the general credit conditions are tight, there is a possibility that not every borrower will beaccommodated by a lender. This chance of credit rationing is referred to as credit availability risk.Answer: True59.The size of a financial institution has an effect on the type of nondeposit funding source that it willconsider. For example, larger depository institutions have the credit standing to sell the largest negotiable CDs, while the Fed funds market is suitable for smaller institutions.Answer: True60.Only federal regulators can limit the terms (amount, frequency, and use) of borrower funds by theU.S. depository institutions.Answer: FalseMultiple Choice Questions61.The doctrine that the first priority of a bank is to make loans to all those customers from whom thebank expects to receive positive net earnings is called the:A) Funds management doctrineB) Customer relationship doctrineC) Loan priority doctrineD) Revenue flows doctrineE) None of the above.Answer: B62.The doctrine that banks should be able to buy the reserves they need to cover good-quality loanrequests is known as:A) Funds ManagementB) Asset ManagementC) Liability ManagementD) Asset-Liability Coordinated ManagementE) None of the above.Answer: C63.With liability management banking the control lever to regulate incoming bank funds is:A) Management discretionB) The volume of loan demand the bank faces.C) Deposit growthD) PriceE) None of the above.Answer: D64.The most popular domestic source of borrowed reserves for U.S. banks is:A) Federal funds marketB) Money market negotiable CDsC) Eurodollar marketD) Borrowings from the Federal Reserve BanksE) Commercial paper marketAnswer: A65.The phrase "short-term borrowings of immediately available money" refers to:A) Negotiable CDsB) Eurodollar depositsC) Commercial paper issuesD) Borrowings of legal reserves at the Federal Reserve banksE) None of the above.Answer: Erge time deposits are generally referred to as:A)Mini CDs.B)Jumbo CDs.C)Large CDs.D)Giant CDs.E)Super CDs.Answer: B67.The source of short-term funds for commercial banks that was developed to tap temporary surplusfunds held by large corporate and wealthy individual customers is:A) Federal funds.B) Commercial paper.C) Eurodollar deposits.D) Negotiable CDs.E) None of the above.Answer: D68.First National Bank has new loan requests of $225 million, needs to purchase $100 million in U.S.Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $135 million. Deposits received today total $215 million and the bank expects to bring in anadditional $100 million next week. What is First National's estimated funds gap for the coming week?A) $225 million.B) $145 million.C) $135 million.D) $100 million.E) None of the above.Answer: B69.First National Bank has new loan requests of $175 million, needs to purchase $50 million in U.S.Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $45 million. Deposits received today total $140 million and the bank expects to bring in an additional $230 million next week. What is First National's estimated funds gap for the coming week?A) $225 million.B) $145 million.C) $135 million.D) $100 million.E) None of the above.Answer: D70.Factors that will affect a bank's decision as to which nondeposit sources of funds it will use to coverits projected funds gap include which of the following?A) The relative cost of raising the funds.B) The length of time the funds will be required.C) The risk associated with each source of funds.D) The size of the bank.E) All of the above.Answer: E71.First National Bank is planning to raise $30 million through an offering of negotiable CDs. Thecurrent rate for similar CDs is 5.5%. Noninterest cost rate for CDs is 0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of borrowing in the CD market?A) 6.9%B) 7.2%C) 6.0%D) 5.5%E) None of the above.Answer: B72.CDs that are sold by the largest foreign banks through their U.S. branches are called:A) Thrift CDs.B) Domestic CDs.C) EuroCDs.D) Yankee CDs.E) None of the above.Answer: D73.Accommodating banks perform what role?A) They act as intermediaries in the Eurodollar market.B) They issue negotiable CDs for themselves and for other banks.C) They sell commercial paper to raise funds for themselves and other firms belonging to theirbank holding company.D) They buy and sell federal funds simultaneously in order to make a market for reserves ofcustomer banks.E) None of the above.Answer: D74. A federal funds loan that is automatically renewed each day unless either the borrower or the lenderdecides to end the loan agreement is known as a:A) Overnight loan.B) Continuing contract.C) Term loan.D) Rollover loan agreementE) None of the aboveAnswer: B75.Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied bya written contract, are known as:A) Term loans.B) Continuing contractsC) Rollover loans.D) Federal funds mutuality agreementsE) None of the aboveAnswer: A76.The federal law that restricts Federal Reserve lending to undercapitalized banks and to banks thatare "viable entities" is the:A) Riegle Community Development and Regulatory Improvement ActB) FDIC Improvement Act.C) Financial Institutions Reform, Recovery, and Enforcement Act.D) Depository Institutions Deregulation and Monetary Control Act.E) None of the above.Answer: B77.The bank funding source that is really a "hybrid" account is the:A) Federal funds loan.B) Repurchase agreement.C) Negotiable CD.D) Eurodollar deposit.E) None of the above.Answer: C78. A bank plans on borrowing $150 million through an RP transaction collateralized by T-bills. Thebank plans on borrowing the money for 5 days and the current RP rate is 5.25 percent. What is this bank's total interest cost in dollars?A) $7,875,000B) $107,877C) $21,875D) $109,375E) None of the aboveAnswer: D79.Suppose a bank promises an annual return of 6.5 percent on a three month (90 day) $150,000 CD)What will be the total amount due the customer at the end of the three month period?A) $152,437.50B) $2,437.50C) $150,000D) $152,404.11E) None of the aboveAnswer: A80.The short-term notes, with maturities ranging from 3 or 4 days to 9 months, issued by well knowncompanies are known as:A) Negotiable CDsB) Commercial paperC) Federal fundsD) Repurchase agreementsE) None of the aboveAnswer: B81.The TRC Bank is planning on raising $500 million in a new offering of commercial paper throughits holding company. The plan on using $475 million of it to fund new loans. The current interest rate for similar commercial paper is 6.45 percent and they expect .25 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper?A) 6.65%B) 6.45%C) 7.05%D) 6.79%E) None of the aboveAnswer: C82.An agreement where one party agrees to sell T-bills to another party and at the same time agrees tobuy them back at a set price is known as:A) A repurchase agreementB) Commercial paperC) Federal FundsD) Negotiable CDsE) None of the aboveAnswer: A83.Which of the following is not an advantage of using a repurchase agreement?A) The bank gains excess reserves which can used to make new depositsB) The bank makes use of high-quality but low yielding assets without losing them permanentlyC) If the agreement is made with a bank who keeps a checkable deposit with the bank it can reduceboth the bank's deposits and reserve requirementsD) The interest rate the bank has to pay is usually lowE) All of the above are advantages of using a repurchase agreementAnswer: A84.Which of the following is an example of a longer term nondeposit funding source?A) Federal fundsB) Repurchase agreementsC) Capital notes and debenturesD) Negotiable CDsE) None of the aboveAnswer: C85.Suppose a bank expects to issue 45 day negotiable CDs for $150 million. The interest rate on theseCDs is 6.35%. What is the dollar amount in interest the bank will owe on these CDs at the end of the 45 days?A) $9,525,000B) $1,190,625C) $76,200,000D) $6,750,000E) None of the aboveAnswer: B86.Dollar denominated CDs issued by banks outside the United States are known as:A) Domestic CDsB) Euro CDsC) Yankee CDsD) Commercial paperE) None of the aboveAnswer: B87. A repurchase agreement (RP) in which the collateral is specifically identified is known as:A) A conventional RPB) A General Collateral Finance RPC) A specific RPD) A general RPE) An individual RPAnswer: A88. A conventional Repurchase Agreement (RP) is ________ flexible for the borrower than (as) aGeneral Collateral Finance RP.A) MoreB) LessC) AsD) UnknownE) None of the aboveAnswer: B89.The following types of loans are all available at the discount window except:A) Adjustment creditB) Primary creditC) Secondary creditD) Seasonal creditE) None of the aboveAnswer: A90.In addition to the Federal Reserve, another governmental agency has also been loaning largeamounts of money to banks and thrift institutions and is known as the:A) FDICB) OCCC) OTSD) FHLBE) RTCAnswer: D91.The Bridges State Bank has new loan requests of $315 and wants to purchase $125 million in U.S.Treasury securities and anticipates draws on lines of credit in the amount of $65 million. Deposits received today totaling $205 million and the bank expects to bring in an additional $185 million in deposits next week. What is the estimated funds gap for the Bridges State Bank?A) $505 millionB) $390 millionC) $115 millionD) $315 millionE) None of the aboveAnswer: C92.The Williams National Bank has new loan requests of $585 million and wants to purchase $160 inU.S. Treasury securities. They also anticipate draws on lines of credit in the amount of $120million. This bank received deposits totaling $300 million and they expect to bring in an additional $340 million in deposits next week. What is the estimated funds gap of the Williams National Bank?A) $225 millionB) $585 millionC) $640 millionD) $865 millionE) None of the aboveAnswer: A93.The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with thatin the negotiable CD market. They are making sure to include the noninterest costs and the deposit insurance costs as well as the amount of money that will actually be available for new loans. Which factor that affects a bank’s use of nondeposit sources of funds is the bank examining?A) The relative cost of raising the fundsB) The length of time the funds will be requiredC) The risk associated with each source of fundsD) The size of the bankE) RegulationsAnswer: A94.The First State Bank of Summerville knows that, if they issue commercial paper through asubsidiary, money is very tight and the interest rate on the commercial paper may very high. What factor that affects a bank’s use of nondeposit sources of funds is the bank concerned about?A) The relative cost of raising the fundsB) The length of time the funds will be requiredC) The risk associated with each source of fundsD) The size of the bankE) RegulationsAnswer: C95.The First State Bank of Summerville knows that, if they issue a large amount of the negotiable CD,money is tight. As a result, they choose to ration the credit and lend only to their most loyal clients.What risk factor that affects a bank’s use of nondeposit sources of funds is the concern here?A) Interest rate changesB) The length of time the funds will be requiredC) The relative cost of raising the fundsD) Credit availabilityE) RegulationsAnswer: D96.The manager of the First National Bank of Edmond needs $100 million this afternoon to satisfy anunexpected loan demand from an excellent customer of the bank. What factor that affects a bank’s use of nondeposit sources of funds is the manager concerned about?A) The relative cost of raising the fundsB) The length of time the funds will be requiredC) The risk associated with each source of fundsD) The size of the bankE) RegulationsAnswer: B97.The First State Bank of Summerville needs to raise $500,000 in nondeposit sources of funds. Theyknow that the Eurodollar market requires a minimum denomination of $1 million. What factor that affects a bank’s use of nondeposit sources of funds is this bank concerned about?A) The relative cost of raising the fundsB) The length of time the funds will be requiredC) The risk associated with each source of fundsD) The size of the bankE) RegulationsAnswer: D98.Bank of America is concerned because they have heard that the Federal Reserve Board may imposelegal reserve requirements on money borrowed in the Fed Funds market. Which factor that affectsa bank’s use of nondeposit sources of funds is this bank concerned about?A) The relative cost of raising the fundsB) The length of time the funds will be requiredC) The risk associated with each source of fundsD) The size of the bankE) RegulationsAnswer: E99.The Bank of Boulder is planning on issuing $45 million in negotiable CDs. Currently other similarCDs have an interest rate of 4.75%. The Bank of Boulder has estimated that its noninterest costs of issuing these CDs are .15%. The Bank of Boulder must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $40 million of the funds raised will be fully invested. What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest .01%)A) 4.75%B) 4.90%C) 5.10%D) 5.79%E) None of the aboveAnswer: D100.The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs. Currently other similar CDs have an interest rate of 5.15%. The Lawrence Bank of Cleveland has estimated that is noninterest costs of issuing these CDs will be .2%. The Lawrence Bank of Cleveland must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $50 of the funds raised will be full invested. What is the effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your answer to thenearest .01%)A) 6.71%B) 6.42%C) 5.58%D) 5.15%E) None of the aboveAnswer: A101.CDs issued by savings institutions are called:A) Thrift CDsB) Domestic CDsC) Euro CDsD) Yankee CDsE) Variable rate CDsAnswer: A102.When a foreign branch lends a Eurodeposit to its home office in the U.S., how is this listed on the balance sheet of the home office?A) Loan from SubsidiaryB) Liabilities to Foreign BranchesC) Securities Sold under Agreement to RepurchaseD) Bankers AcceptanceE) None of the aboveAnswer: B103. A Fed Funds loan that is an unwritten agreement negotiated via wire or telephone with theborrowed funds returned the next day is known as:A) An overnight loanB) A continuing contractC) A term loanD) A daytime loanE) None of the aboveAnswer: A104. A bank plans on borrowing $225 million for 10 days through a RP transaction collateralized by T-Bills. The current RP rate is 4.5%. What is this bank’s total interest cost in dollars?A) $10,125,000B) $1,125,000C) $281,250D) $28,125E) None of the aboveAnswer: C105. A bank plans on borrowing $450 million for 20 days through a RP transaction collateralized by T-Bills. The curr ent RP rate is 6.25%. What is this bank’s total interest cost in dollars?A) $28,125,000B) $78,125C) $1,406,250D) $1,562,500E) None of the aboveAnswer: D106. A bank promises an annual return of 7.75 percent on a 180 day, $250,000 CD. What will be the total amount due the customer at the end of the six month period?A) $269,375.00B) $259,687.50C) $9687.50D) $250,000.00E) None of the aboveAnswer: B107. A bank promises an annual return of 4.85% on a 60 day, $300,000 CD. What will be the total amount due to the customer at the end of the two month period?A) $302,425B) $314,550C) $14,550D) $2,425E) None of the aboveAnswer: A108.The HTR Bank is planning on raising $750 million in a new offering of commercial paper throughits holding company. They plan on using $725 million of it to fund new loans. The current interest rate for similar commercial paper is 7.15% and they expect .15% in issuing costs. What is the effective rate of interest on this issue of commercial paper?A) 7.30%B) 7.15%C) 7.40%D) 7.55%E) None of the aboveAnswer: D109.The Carter State Bank is planning on raising $600 million in a new offering of commercial paper through its holding company. They plan on using $500 million of it to fund new loans. The current interest rate for similar commercial paper is 4.85% and they expect .3% in issuing costs. What is the effective rate of interest on this issue of commercial paper?A) 5.15%B) 6.18%C) 5.82%D) 4.85%E) None of the aboveAnswer: B110.Setting the Federal Reserve primary-credit discount rate above the Fed Funds rate mirrors what credit facilities used by several European central banks?A) The Vince credit facilitiesB) The Adam Smith credit facilitiesC) The Lombard credit facilitiesD) The Lower Back credit facilitiesE) None of the aboveAnswer: C。

Chapter 1An Overview of the Changing Financial-Services SectorFill in the Blank Questions1._______________________ is a traditional service provided by banks in which the banks storethe valuables of their customers and certify their true value.Answer: Safekeeping of valuables2.The fact that financial institutions make loans based on confidential information is the_______________________ theory of banking.Answer: delegated monitoring3._______________________ refers to when a financial institution trades one form of currency foranother. An example of this would be when the bank trades dollars for yen for a fee.Answer: currency exchange4.A(n) _______________________ is a traditional service which permits a depositor to write adraft （汇票）in payment for goods and services.Answer: demand deposit (checking account)5._______________________ is a service provided by banks where the bank lends money toindividuals for the purchase of durable and other goods.Answer: Consumer lending6.The _______________________ of a bank is a traditional service where the bank manages thefinancial affairs and property of individuals (and in some cases businesses).Answer: trust servicespanies such as Merrill Lynch and Sears which offered some but not all banking services inthe 1980s were called _______________________.Answer: nonbank banks8.The loosening of government regulation and control of financial institutions is called_______________________.Answer: deregulation9.___________________________ is an alternative to lending in which the financial institutionpurchases the equipment and rents it to its customers.Answer: Equipment leasing services10.The___________________________ is a landmark act which allows financial service providersto offer an expanded menu of financial services for the customer. This law allows banks to truly become conglomerate financial service providers.Answer: Financial Services Modernization Act (Gramm-Leach-Bliley Act)11.The country with the most banks is _______________________.Answer: United States12.According to Congress a ____________ is defined as any institution that can qualify for depositinsurance administered by the FDIC.Answer: Bank13. A bank which spans regions, nations, and continents, offering the widest menu of financialservices is known as a __________bank.Answer: money-center bank14._____________ refers to the movement of businesses across industry lines in order to broaden itsbase.Answer: Convergence15.Banks which serve primarily households and small firms are known as ____________ banks.Answer: retail16.Banks that sell deposits and make loans to businesses and individuals are known as ______banks.Answer: commercial17.Banks which underwrite issues of new securities for their corporate customers are known as________ banks.Answer: investment18.Banks which function under a federal charter through the Comptroller (审计署)of the Currency inthe United States are known as ____________ banks.Answer: National19.Banks which supply both debt and equity capital to businesses are known as _________ banks.Answer: merchant（商人）20. A bank that offers its services only over the internet is known as a(n) .Answer: virtual bank（虚拟银行）21.When a local merchant sells the accounts receivables they hold against their customer to a bankthis generally known as .Answer: discounting commercial notes22.A(n) offers loans to commercial enterprises (such as appliancedealers) or to individuals using funds borrowed in the open market or from other financialinstitutions. Examples of this type of financial service provider include GMAC FinancialServices and Household Finance.Answer: finance company23.A(n) buys and sells securities on behalf of their customers and fortheir own accounts. Examples of this type of financial service provider include Merrill Lynchand Charles Schwab.Answer: security broker (or dealer)24.A(n) sells shares mainly to upscale investors in a broadgroup of different kinds of assets including nontraditional investments in commodities, realestate, loans to ailing companies and other risky assets.Answer: hedge fund25.When a bank agrees to handle the cash collections and disbursements for a company and investany temporary cash surpluses in interest bearing assets, they are providing services to their customers.Answer: cash managementTrue/False QuestionsT F26.Under U.S. federal law, an institution making only loans to households a nd offering uninsured checkable deposits and savings deposits qualifies as a commercial bank.Answer: FalseT F27.Nonbank banks can offer deposits to the public, but these deposits are not eligible（合适的） for insurance coverage by the FDIC.Answer: FalseT F28.The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table".Answer: TrueT F29.According to the textbook, banks are those financial institutions that today offer the widest range of financial services of any business firm in the economy.Answer: TrueT F30.According to the delegated monitoring theory banks are able to attract borrowing customers because they pledge confidentiality.Answer: TrueT F31.Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services.Answer: FalseT F32.The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role.Answer: TrueT F33.The role performed by banks in which they stand behind their customers when those customers are unable to pay a debt obligation is known as the guarantor role.Answer: TrueT F34.When banks serve as conduits（中转机构） for government policy this is referred to as their agency role.Answer: FalseT F35.According to the textbook, high-volume banking is required to make efficient use of automation and other technological innovations.Answer: TrueT F36.The number of independently owned banks has risen in the United States over the last decade.Answer: FalseT F37.Money-center banks usually service local communities, towns, and cities, offering a narrow menu of services to the public.Answer: FalseT F38. A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market.Answer: TrueT F39.The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry.Answer: FalseT F40.Lending institutions act as delegated monitors and can diversify and reduce their risk exposure, resulting in increased safety for savers’ funds.Answer: TrueT F41.Current theory suggests that banks exist because of imperfections in our financial system.Answer: TrueT F42.Today U.S. banks account for approximately fifty percent of the largest banks in the world.Answer: FalseT F43.According to the textbook, traditional banking may be on the decline.Answer: TrueT F44.Convergence refers to the fact that the number of bank mergers has increased in recent years.Answer: FalseT F45.Banks which offer virtually all financial services are known as universal banks（综合银行）.Answer: TrueT F46.Life insurance companies, securities firms, and mortgage（抵押） companies all compete with the traditional bank.Answer: TrueMultiple Choice Questions47.In the United States a commercial bank qualifies as a "bank" under federal law if it offers:A)Consumer installment loans, CDsB)Savings deposits, commercial loansC)Checking accounts, commercial loansD)Security investments, inventory loans to business customersE)Commercial deposit accounts, consumer savings plansAnswer: C48. E. F. Hutton, J.C. Penney, and Sears Roebuck are among leading firms that in the1980’sorganized competitors with banks that are known as:A)Nonbank BanksB)Discount Security Brokerage CompaniesC)Money Market FundsD)Finance CompaniesE)Investment Banking UnitsAnswer: A49. A study of history shows that one of the first services offered by banks was:A)Equipment LeasingB)Currency ExchangeC)Security Brokerage and UnderwritingD)Sale of Real EstateE)None of the aboveAnswer: B50.Banks perform the indispensable task of:A)Creating money without making loan.B)Absorbing the excess liquidity created by other financial institutionsC)Intermediating between surplus-spending individuals or institutions and deficit-spendingindividuals or institutionsD)Issuing risky depositsE)None of the aboveAnswer: C51.The view that depositors hire banks to analyze the financial condition of prospective borrowersand continually evaluate the condition of outstanding loans is referred to as:A)Delegated monitoringB)The concept of financial intermediationC)The liquidity function in bankingD)Market imperfection theoryE)The efficiency contribution of bankingAnswer: A52. Which of the following has been an important trend regarding consolidation and geographicexpansion in banks?A)Increased bank branching activityB)The formation of more holding companies to purchase smaller banksC)Mergers among some of the largest banks in the industryD) A and C aboveE)All of the above.Answer: E53.Included among leading structural trends in the U.S. banking industry in recent years are:A)The number of independently owned banks has declinedB)The average size of individual banking firms has increasedC)Entry across state lines from neighboring states has increasedD) A and B onlyE)All of the above.Answer: E54.Smaller, locally focused commercial and savings banks that offer narrower but more personalizedmenu of financial services are known as:A)Money center banksB)Community banksC)Mutual FundsD) State banksE)Fringe banks.Answer: B55.The banking services that includes executing buy and sell orders for security trading customersand marketing new securities to raise funds for corporations and other institutions is referred to:A)Comprehensive PackagingB)Wrap-around AccountsC)Investment BankingD)Professional BankingE)None of the above.Answer: C56. A bank that wires funds for the purchase of a beach house in South Carolina for a customer inOklahoma is carrying out the __________ of banks.A)The intermediation roleB)The payment roleC)The guarantor roleD)The agency roleE)The policy roleAnswer: B57.Examples of imperfections in the financial system which allow banks to exist include which ofthe following?A)Informational asymmetryB)Efficiency of marketsC)All individuals and businesses have full information about all investment opportunities.D)All individuals and businesses have no difficulty meeting their liquidity needs on their own.E)All of the above are examples of the imperfections that exist.Answer: A58. A bank which manages the investment portfolio and pays the bills of an elderly customer who isunable to do it for him or herself is carrying out the __________ of banks.A)The intermediation roleB)The payment roleC)The guarantor roleD)The agency roleE)The policy roleAnswer: D59.Which of the following is a trend that has affected all banks today?A)Increased isolation of banks in the U.S.B)Decreased competition from other financial institutionsC)Decreased amount of services provided by modern banksD)Rising funding costsE)Increased regulationsAnswer: D60.Which of the following is not a current trend in the banking industry?A)The number of banks is decliningB)The number of bank branches is decliningC)The number of bank services is increasingD)The number of bank competitors is increasingE)Bank industry convergenceAnswer: B61.Which of the following types of banks would most likely offer the largest number of financialservices?A) A retail bankB) A community bankC) A commercial bankD) A universal bankE)An international bankAnswer: D62.The phenomenon of convergence refers to:A)Financial service firms expanding into other product linesB)Firms reducing their product linesC)Bank merger activityD)Globalization in bankingE)Technological innovation in bankingAnswer: A63.Bank equipment leasing activity involves:A) A bank leasing its office facilities instead of buyingB) A bank buying equipment and then leasing the item to a customerC) A customer buying equipment and then leasing it to a bankD) A bank leasing computer equipmentE)None of the aboveAnswer: B64.Wholesale banks are those banks that:A)Sell at a discount relative to all commercial banksB)Only make loans to the wholesale industryC)Lend almost exclusively to farmersD)Are large banks which serve corporations and governmentE)Have only retail customersAnswer: D65.Jonathan Robbins has an account in a bank that does not have a physical branch. Jonathan doesall of his banking business over the internet. What type of bank does Jonathan have his account at?A) Virtual BankB) Mortgage BankC) Community BankD) Affiliated BankE) None of the aboveAnswer: A66.The Edmond National Bank serves only the City of Edmond, Oklahoma and concentrates onproviding the best possible service to this city. What type of bank is this most likely to be?A) Virtual BankB) Mortgage BankC) Community Bank（社区银行）D) Affiliated BankE) None of the aboveAnswer: C67.The Charleston Southern Bank makes loans for families to purchase new and existing homes butdoes not take deposits. What type of bank is this most likely to be?A) Virtual BankB) Mortgage BankC) Community BankD) Affiliated BankE) None of the aboveAnswer: B68.Which of the following is considered a fringe bank?A) Community BankB) Wholesale BankC) Merchant BankD) Payday LenderE) None of the aboveAnswer: D69.During the middle ages, banks encountered religious opposition because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: A70.Religious opposition decreased during the Renaissance because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: B71.Banks like the Medici Bank in Italy and the Hochstetter Bank in Germany were successfulbecause and they responded well to these new needs.A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The Industrial Revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: C72.Early European banks were places for safekeeping of wealth because:A) Loans to the poor often carried high interest ratesB) Loans and deposits were primarily for wealthy customersC) The industrial revolution demanded new methods of making payments and obtaining creditD) Savings and wealth were lost due to war, theft and expropriation by governmentsE) All of the aboveAnswer: D73.The U.S. government wants to prevent money laundering by drug cartels. To promote this goal,they have asked banks to report any cash deposits greater than $10,000 to the government.Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: E74.The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit.Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan, Bank of America will. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor（保证人） roleE) The policy roleAnswer: D75.Alexander Phua goes to his local bank and gets an insurance policy that protects him against lossin case he is in a car accident. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: C76.Chris Jones gets a cashier’s check from Wachovia Bank to make his down payment on a newhome. Which of the following roles is the bank performing?A) The intermediation roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: B77.The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (amongothers) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing?A) The intermediation（仲裁） roleB) The payment roleC) The risk management roleD) The guarantor roleE) The policy roleAnswer: A78.Major trends affecting the performance of financial firms today include all of these except:A) Greater product-line diversificationB) Reduced branchingC) Geographic diversificationD) ConvergenceE) Increasing automationAnswer: B79.The First National Bank of Lakeland makes risky loans to business to expand and grow theirbusinesses while at the same time accepting funds into checking accounts that are insured by the FDIC. Which of the following services is this bank offering to their customers?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of the bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: A80.Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount hewould spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide is he taking advantage of?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of the bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: D81.Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator（冰箱）for his condo. What service that a bank provides is he taking advantage of?A) Risky arbitrage servicesB) Liquidity servicesC) Ability of a bank to evaluate informationD) Divisibility of money servicesE) Credit servicesAnswer: E82.Drew Davis goes to his local bank to get help developing a financial plan and making investmentdecisions. Which of the more recent services banks offer is Drew taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: B83.The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bankwho invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer is the Bartholemew bakery taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: C84.MyWebCast is a new company that makes it easy for individuals to create streaming videos onthe internet to share with friends and family for a small fee. MyWebCast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is MyWebCast taking advantange of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: D85.Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on makingregular contributions to this account until she retires. Which of the financial services isChandriga taking advantage of?A) Getting a consumer loanB) Getting financial adviceC) Managing cashD) Getting venture capital servicesE) Buying a retirement planAnswer: E86.Banks with less than ___________in assets are generally called community banks.A)More than $1 billionB)Less than $1 billionC)More than $10 billionD)Less than $1 trillionE)More than $1 trillionAnswer: B87.The principal functions and services offered by many financial-service firms today include:A) Lending and investing moneyB) Making payments of behalf of customers to facilitate their purchases of goods and servicesC) Managing and protecting customers’ cash and other propertyD) Assisting customers in raising and investing funds profitablyE) All of the aboveAnswer: E88.Which of the following is considered a depository financial institution?A)Mortgage companyB)Mutual fundC)Savings and Loan associationsD)Federal ReserveE)Insurance companyAnswer: C89.Which of the following is not a purpose of bank regulation:A)Guarantee minimal profitability of the banking system（保证银行体系的最低利润）B)Provide monetary stabilityC)Ensure safety and soundness of banksD)Provide competitive financial systemE)Protect consumers from abuses by banksAnswer: A90.During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of BearStearns reaffirmed the importance of the fundamental principle of:A) Superior managementB) GlobalizationC) Government bailoutD) Regulatory arbitrageE) Public trust and confidence in the systemAnswer: E。

商业银行管理彼得S.罗斯第八版课后答案第一章现代商业银行的概述1.解释现代商业银行的定义和特点。

商业银行是一种金融机构，主要从事存款、贷款、支付和其他与金融活动相关的业务。

其特点包括但不限于：收取利息和手续费、进行风险管理、提供信贷和储蓄服务、发行货币等。

2.列举现代商业银行的主要功能。

现代商业银行的主要功能包括但不限于：存款业务、贷款业务、国际业务、支付结算、外汇交易、信用和担保、投资银行业务、资金运作等。

3.商业银行与其他金融机构的区别是什么？和其他金融机构相比，商业银行的最大区别在于其可以发行货币，并具有相应的存储和支付功能。

此外，商业银行还可以从中央银行和其他金融机构获得流动性支持。

此外，商业银行还拥有广泛的客户群体和网络，可以提供多样化的金融产品和服务。

第二章商业银行的治理结构1.解释商业银行的治理结构。

商业银行的治理结构是指银行内各个决策层级和机构之间相互关系的安排和管理方式。

这包括董事会、监事会、高级管理层等。

2.详细描述商业银行治理结构中各种角色的职责和权力。

•董事会：负责制定银行的战略方向和政策，监督高级管理层的工作表现。

•监事会：负责审计和监督董事会和高级管理层的工作，确保其合法、合规。

•高级管理层：负责银行的日常经营管理，执行董事会决策，负责风险管理和业绩目标的实现。

•内部控制机构：负责制定和实施内部控制制度，保障银行运营的合规性和风险控制。

3.商业银行的治理结构有哪些挑战和改进措施？商业银行的治理结构面临的主要挑战包括：信息不对称、利益冲突、监管合规等。

为了改善这些问题，银行可以采取以下措施：加强内部控制机制、设立独立董事、加强风险管理和合规审查等。

第三章商业银行的资本管理1.商业银行为什么需要资本？商业银行需要资本来保证其业务的顺利运作。

资本可以用于覆盖银行风险、偿还债务、承担损失等。

同时，一定水平的资本也是银行移植的法定要求。

2.商业银行的资本可以来源于哪些渠道?商业银行资本的主要来源有：股东投资、利润留存、债务融资、政府注资等。

Chapter 2The Impact of Government Policy and Regulation on the Financial-Services IndustryFill in the Blank Questions1. The _____________________ was created as part of the Glass Steagall Act. In the beginning itinsured deposits up to $2,500.Answer: FDIC2. The________________________ is the law that states that a bank must get approved from theirregulatory body in order to combine with another bank.Answer: Bank Merger Act3. One tool that the Federal Reserve uses to control the money supply is _________________ . TheFederal Reserve will buy and sell T-bills when they are using this tool of monetary policy.Answer: open market operations4. The__________________________ was created in 1913 in response to a series of economicdepressions and failures. Its principal role is to serve as the lender of last resort and to stabilize the financial markets.Answer: Federal Reserve5. The __________________________ prevented banks from crossing state lines and made nationalbanks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law.Answer: McFadden-Pepper Act6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem calledthe ____________________ among banks. The fixed premiums encourage all banks to accept greater risk.Answer: moral hazard7. In 1980, __________________________ was passed and lifted government ceilings on depositinterest rates in favor of free market interest rates.Answer: DIDMCA15 / 138. One tool that the Federal Reserve uses to control the money supply is _________________. TheFederal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.Answer: changing the discount rate9. The first major federal banking law in the U.S. was the __________________________. This lawwas passed during the Civil War and set up a system for chartering national banks and created the OCC.Answer: National Banking Act10. The_________________________ was passed during the Great Depression. It separatedinvestment and commercial banks and created the FDIC.Answer: Glass-Steagall Act11. The__________________________ brought bank holding companies under the jurisdiction of theFederal Reserve.Answer: Bank Holding Company Act12. The__________________________ allows bank holding companies to acquire banks anywhere inthe United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country.Answer: Riegle-Neal Interstate Banking Act13. The allows banks to affiliate with insurance companies and securitiesfirms either through a holding company or as a subsidiary.Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act)14. Customers of financial-service companies may _____________________ of having their privateinformation shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties.Answer: opt out15. The federal bank regulatory agency which examines the most banks is the ______________.Answer: FDIC16. The _________________ requires financial service companies to report suspicious activity incustomer accounts to the Treasury Department.Answer: U.S. Patriot Act17. The central bank of the new European Union is known as the _______________________.Answer: European Central Bank or ECB18. The _____________________ Act prohibits banks and other publicly owned firms frompublishing false or misleading financial performance information.Answer: Sarbanes-Oxley19.One of the main roles of the Federal Reserve today is . They have three tools thatthey use today to carry out this role; open market operations, the discount rate and legal reserverequirements.Answer: monetary policy20.The is the center of authority and decision making within the FederalReserve. It consists of seven members appointed by the president for terms not exceeding 14 years.Answer: Board of Governors21.The main regulators of insurance companies are .Answer: state insurance commissions22.Federal Credit Unions are regulated and examined by .Answer: the National Credit Union Administration.23.The makes it easier for victims of identity theft to alerts and allowsthe public to apply for a free credit report once a year.Answer: Fair and Accurate Credit Transactions Act (FACT Act)24.The makes it faster and less costly for banks to clear checks. Itallows for banks to electronically send check images instead of shipping paper checks across the country.Answer: Check 21 Act25.The was created by the National Banking Act and is part of theTreasury Department. It is the primary regulator of National Banks.Answer: Office of the Comptroller of the Currency (OCC)26.The _________________________ proposes various regulations applying to the financial marketsto combat the recent credit crisis. This “bail-out” bill granted the US Treasury the means topurchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, andpermitted the government to inject additional capital into the banking system.Answer: The Emergency Economic Stabilization Act of 2008True/False Questions17 / 13T F 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.Answer: FalseT F 28. In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard.Answer: TrueT F 28. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.Answer: FalseT F 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small.Answer: FalseT F 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve.Answer: FalseT F 31. National banks cannot merge without the prior approval of the Comptroller of the Currency.Answer: TrueT F 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S.Congress to outlaw discrimination in providing bank services to the public.Answer: FalseT F 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as the CompetitiveEquality in Banking Act.Answer: FalseT F 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Boardapproval.Answer: TrueT F 35. The 1994 federal interstate banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.Answer: FalseT F 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central governmentand local governments regulate banks.Answer: FalseT F 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk.Answer: TrueT F 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.Answer: FalseT F 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease.Answer: FalseT F 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort.Answer: FalseT F 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices.Answer: TrueT F 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).Answer: FalseT F 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.Answer: TrueT F 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.Answer: FalseT F 45. The tool used by the Federal Reserve System to influence the economy and behavior of19 / 13banks is known as moral hazard.Answer: FalseT F 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.Answer: TrueMultiple Choice Questions47.Banks are regulated for which of the reasons listed below?A) Banks are leading repositories of the public's savings.B) Banks have the power to create money.C) Banks provide businesses and individuals with loans that support consumption and investmentspending.D) Banks assist governments in conducting economic policy, collecting taxes and dispensinggovernment payments.E) All of the above.Answer: E48.An institutional arrangement in which federal and state authorities both have significant bankregulatory powers is referred to as:A) Balance of PowerB) FederalismC) Dual Banking SystemD) Cooperative RegulationE) Coordinated ControlAnswer: C49.The law that set up the federal banking system and provided for the chartering of national bankswas the:A) National Bank ActB) McFadden-Pepper ActC) Glass-Steagall ActD) Bank Merger ActE) Federal Reserve ActAnswer: A50.The federal law that prohibited federally supervised commercial banks from offering investmentbanking services on privately issued securities is known as:A) The Glass-Steagall ActB) The Bank Merger ActC) The Depository Institutions Deregulation and Monetary Control ActD) The Federal Reserve ActE) None of the AboveAnswer: A51.The Gramm-Leach-Bliley Act (Financial Services Modernization Act) calls for linkinggovernment supervision of the financial-services firm to the types of activities that the firmundertakes. For example the insurance portion of the firm would be regulated by state insurance commissions and the banking portion of the firm would be regulated by banking regulators. This approach to government supervision of financial services is known as:A) Consolidated regulation and supervision.B) Functional regulation.C) Services oversight.D) Umbrella supervision and regulation.E) None of the above.Answer: B52.The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure tobear on individuals and institutions to conform to the Fed's policies, using letters, phone calls, and speeches, is known as:A) Margin requirementsB) Moral suasionC) Discount window supervisionD) Conference and compromiseE) None of the above.Answer: B53.The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is:A) The Glass-Steagall ActB) The Federal Deposit Insurance Corporation Improvement ActC) The National Bank ActD) The Riegle-Neal Interstate Banking and Branching Efficiency Act.E) None of the above.Answer: D54.The federal law that allowed the Federal Reserve to set margin requirements is:A) The National Banking Act.B) The McFadden-Pepper Act.C) The Glass Steagall Act.D) The Federal Reserve Act.E) None of the above.Answer: C55.Of the principal reasons for regulating banks, what was the primary purpose of the NationalBanking Act (1863)?A) Protection of the public's savingsB) Control of the money supplyC) Providing support for government activitiesD) Maintaining confidence in the banking systemE) Preventing banks from realizing monopoly powers21 / 1356.Of the principal reasons for regulating banks, what was the primary purpose of the Federal ReserveAct of 1913?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: B57.The law that allows lifted government deposit interest ceilings and allowed them to pay acompetitive interest rate is:A) The National Banking Act.B) The Glass Steagall Act.C) The Bank Merger Act.D) DIDMCAE) None of the above.Answer: D58.The law that allows banks to affiliate with insurance companies and security brokerage firms toform financial services conglomerates isA) The National Banking ActB) The Glass Steagall ActC) The Garn St. Germain ActD) The Riegle Neal Interstate Banking ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: E59.Of the principal reasons for regulating banks, what was the primary purpose of the Truth inLending Law?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: D60.Which of the following is an unresolved issue in the new century?A) What should be done about the regulatory safety net set up to protect small depositors?B) If financial institutions are allowed to take on more risk, how can taxpayers be protected frompaying the bill when more institutions fail?C) Does functional regulation actually work?D) Should regulators allow the mixing of banking and commerce?E) All of the above are unresolved issues61.The law that made bank and nonbank depository institutions more alike in the services they couldoffer and allowed banks and thrifts to more fully compete with other financial institutions is:A) The National Banking ActB) The Federal Reserve ActC) The Garn-St. Germain ActD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: C62.The law that allowed bank holding companies to acquire nonbank depository institutions andconvert them to branches is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) None of the AboveAnswer: C63.The equivalent of the Federal Reserve System in Europe is known as the:A) European UnionB) Bank of LondonC) Basle GroupD) European Central BankE) Swiss Bank CorporationAnswer: D64.The new financial organization created by Gramm-Leach-Bliley is theA) Financial Holding CompanyB) Bank Holding CompanyC) European Central BankD) Financial Service CorporationE) Financial Modernization OrganizationAnswer: A65.The act which requires financial institutions to share information about customer identities withgovernment agencies is:A) The Sarbanes-Oxley ActB) The U.S. Treasury Department ActC) The 9/11 ActD) The USA Patriot ActE) The Gramm-Leach-Bliley ActAnswer: D23 / 1366.The 1977 law that prevents banks from “redlining” certain neig hborhoods, refusing to serve thoseareas is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) Community Reinvestment Act (CRA)Answer: Emon minimum capital requirements on banks in leading industrialized nations that are basedon the riskiness of their assets is imposed by:A) The National Banking ActB) FIRREAC) The International Banking ActD) The Basel AgreementE) None of the AboveAnswer: D68.The fastest growing crime in the U.S. is:A) Financial statement misrepresentationB) Bank robberiesC) Individual privacy violationsD) Credit card fraudE) Identity theftAnswer: E69.The oldest federal bank agency is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: A70.The federal agency that regulates the most banks is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: B71.Which federal banking act requires that financial service providers establish the identity of anycustomers opening new accounts?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: B72.Which federal banking act prohibits publishing false or misleading information about the financialperformance of a public company and requires top corporate officers to vouch for the accuracy of their company’s financial statements?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: A73.Which federal banking act reduces the need for banks to transport paper checks across the country?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: C74.Which federal banking act forces more individuals to repay at least part of what they owe and willpush higher-income borrowers into more costly forms of bankruptcy?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: E75.Which federal banking act requires the Federal Trade Commission to make it easier for victims ofidentity theft to make theft reports and requires credit bureaus to help victims resolve theproblem?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: D76.The _________ allows adequately capitalized bank holding companies to acquire banks in anystate.A)Riegle-Neal Interstate Banking and Branching Efficiency ActB)Competitive Equality Banking Act25 / 13C)Financial Institutions Reform, Recovery and Enforcement ActD)Federal Deposit Insurance Corporation Improvement ActE)Depository Institutions Deregulation and Monetary Control ActAnswer: A77.One of the earliest theories regarding the impact of regulation on banks was developed by GeorgeStigler. He contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: A78.Samual Peltzman had an opposing view to George Stigler on the impact of regulation on banks. Hecontends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: B79.There is an important debate raging today regarding whether banks should be regulated at all.George Benston contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: D80.The European Central Bank has the main goal of:A) Ensuring the economy grows at an adequate rate.B) Keeping unemployment low.C) Ensuring price stability.D) Ensuring an adequate and fair supply of loans.E) All of the aboveAnswer: C81.Which of the following has become the principal tool of central bank monetary policy today?A) Open market operationsB) Changing the discount rateC) Changing reserve requirementsD) Using moral suasionE) None of the aboveAnswer: A82.The Federal Reserve buys Treasury Bills in the open market. This will tend to:A) Cause interest rates in the market to riseB) Cause interest rates in the market to fallC) Cause reserves held at the Federal Reserve to decreaseD) Cause a decrease in the growth of deposits and loansE) All of the aboveAnswer: B83.Which federal banking act extends deposit insurance coverage on qualified retirement accountsfrom $100,000 to $250,000 and authorizes the FDIC to periodically increase deposit insurance coverage to keep up with inflation?A) Sarbanes-Oxley ActB) The Gramm-Leach-Bliley ActC) Check 21 ActD) The FACT ActE) Federal Deposit Insurance Reform ActAnswer: E84.The Financial Services Regulatory Relief Act of 2006 does the following:A) Adds selected new service powers to depository institutionsB) Loosens regulations on depository institutionsC) Grants the Federal Reserve authority to pay interest on depository institutions’ legal reservesD) All of the aboveE) None of the aboveAnswer: D85.The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis allowedthe following:A) An emergency sale of “bad assets”B) Temporary increase of FDIC deposit insurance to $250,000 for all depositsC) Injections of capital by the government into banks and other qualified lendersD) Closer surveillance of the mortgage market participants, such as brokers and lendersE) All of the aboveAnswer: E27 / 13。

CHAPTER 4CREATING AND MANAGING SERVICE OUTLETS:NEW CHARTERS, BRANCHES, AND ELECTRONIC FACILITIESGoal of This Chapter: The purpose of this chapter is to learn how new banks are chartered by state and federal authorities in the United States, to determine what makes a good site for a new branch office, to recognize how the role of branch offices is changing, and to explore the advantages and disadvantages of automated banking facilities.Key Topics in This Chapter•Chartering New Financial Service Institutions•Performance of New Banks•Establishing Full Service Branches•In-Store Branching•Establishing Limited Service Facilities•ATMs and Telephone Centers•The Internet and Online BankingChapter OutlineI. IntroductionA. The Importance of Convenience and Timely Access to CustomersB. Service Options Available Today1. Chartering New (De Novo) Financial Institutions2. Establishing New Full-Service Branches3. Setting Up Limited-Service FacilitiesII.Chartering a New Bank or Other Financial Service InstitutionsIII.The Bank Chartering Process in the United StatesA. The Chartering Authorities in the U.S.B. Benefits of Applying for a National CharterC. Benefits of Applying for a State CharterIV. Questions Regulators Usually Ask the Organizers of a New BankV. Factors Weighing on the Decision to Seek a New Bank CharterA. External Factors1. Level of Economic Activity2. Growth of Local Economic Activity3. The Need for a New Bank4. Strength and Character of Local Competition in Supplying FinancialServicesB. Internal Factors1. Qualifications and Contacts of the Organizers2. Management Quality3. Pledging of Capital and Funds to Cover the Cost of Filing a CharterApplication and Getting UnderwayVI. Volume and Characteristics of New Bank ChartersA. Numbers of New ChartersB. Characteristics of New Charter MarketsVII. How Well Do New Banks Perform?A. New Bank Financial PerformanceB. Pro-Competitive Effects on Service Offerings and Service PricingVIII. Establishing Full-Service Branch Offices: Choosing Locations and Designing New BranchesA. Advantages of Full-Service BranchesB. Trends in the Design of New BranchesC. Desirable Sites for New BranchesD. Expected Rate of ReturnE. Geographic DiversificationF. Branch RegulationG. The Changing Role of BranchesH. In-Store BranchingIX. Establishing and Monitoring Automated Limited-Service FacilitiesX. Point-of-Sale TerminalsXI. Automated Tellers (ATMs)A. History of ATMsB. ATM ServicesC. Fee Structures for ATM UsageD. Customer Service Limitations of ATMsE. Example of the ATM Capital-Budgeting DecisionXII. Home and Office Online BankingA. Telephone Banking and Call CentersB. Internet Banking1. Services Provided Through the Internet2. Challenges in Providing Internet Services3. The Net and Customer Privacy and SecurityXIII. Financial Service Facilities of the FutureXIV. Summary of the ChapterConcept Checks4-1. Why is the physical presence of a bank still important to many bank customers despite recent advances in long-distance communications technology?Many customers still prefer the personal attention and personal service that contact with bank employees provides. Moreover, for those services where problems can arise that require detailed information and explanation-for example, when a checking account is overdrawn and checks begin to bounce-the customer needs quick access and, often, the personal attention to his or her problem on the part of one or more employees.4-2. Why is the creation (chartering) of new banks closely regulated? What about nonblank financial firms?The creation of new banks is regulated to insure the safety and soundness of existing banks and to avoid excessive numbers of bank failures. The same arguments are usually made for non-bank financial firms. Financial-Service firms hold the public’s savings, are the heart of the payment system and create money. The failure of these firms could disrupt the economy and too many could mean in excessive growth in the money supply and inflation.4-3. What do you see as the principal benefits and costs of government regulation of the number of financial service charters issued?While control over the entry of new banks may reduce the number of failures, it also limits competition, so that the public may receive a smaller volume or lower quality of services at excessive prices.4-4. Who charters new banks in the United States? New thrift institutions?New banks are chartered by the banking commissions of the individual states or, at the federal level, by the Comptroller of the Currency. Thrift institutions are chartered by the states or at the federal level by the Office of Thrift Supervision.4-5. What key role does the FDIC play in the chartering process?The FDIC exercises some control over state bank charter activity as well as federal charters because most states insist that their new banks qualify for federal deposit insurance before they can open for business.4-6. What are the advantages of having a national bank charter? A state bank charter?The benefits of a national charter are:a.)It brings prestige due to stricter regulations and may help attract more customersb.)In times of trouble the technical assistance given may be better ensuring a betterchance of long run survivalThe benefits of a state charter are:a.)It may be easier and less costly to get a state charterb.)The bank does not have to join the Federal Reserve and therefore avoids buying andholding low yield stock of the Federal Reservec.)Many states let a bank lend more to one borrowerd.)State chartered banks may be able to make types of loans that a nationally charteredbank cannot4-7. What kinds of information must the organizers of new national banks provide the Comptroller of the Currency in order to get a charter? Why might this required information be important?The Comptroller of the Currency asks for information on the number of competing banks and bank-like institutions in the service area of the proposed bank. More competitive market situations limit the profit potential and perhaps the growth potential of a new bank. Also requested is information about shopping centers, retail and wholesale business activity, recent population growth, traffic counts, and personal income levels - all viewed as indicators of potential demand for banking services in the service area of the proposed new bank. Applicants must also provide background information on the organizers and proposed management of a new bank so the Comptroller can decide if these people are qualified, law-abiding, and trustworthy to manage the public's funds as well as their own.4-8. Why do you think the organizers of a new financial firm are usually expected to put together and submit to the chartering authority a detailed business plan, including marketing, management, and financial components?This demonstrates to regulators that the organizers of the bank have the expertise, experience and skills necessary to be successful in managing the new bank. If the organizers of a bank do not know where they are going, they are unlikely to be successful. In addition, it demonstrates whether the organizers of the new bank have a realistic picture of the community they are planning on serving and whether the organizers have a realistic view of the profit potential in the new bank. 4-9. What are the key factors the organizers of a new financial firm should consider before deciding to seek a charter?While a variety of factors are examined by different business people interested in establishing a new bank, most look at some or all of the following factors.1. External Factorsa. The level of local economic activity.b. Growth of local economic activity.c. The need for a new bank.d. The strength and character of local competition in supplying financialservices.2. Internal Factorsa. Qualifications and contacts of the new bank's organizers.b. Management quality.c. Pledging of capital and funds to cover the cost of filing a charter applicationand begin operations.4-10. Where are most new banks chartered in the United States?New charters tend to be concentrated in large urban areas where expected rates of return on the organizers investments are likely to be the highest. As the population increases relative to the number of financial firms, the number of new charters increases. The success of local banksalready in the area suggests that new financial firms would also be successful. Places where the concentration ratio for new banks has increased tend to have fewer new bank charters.4-11. How well do most new banks perform for the public and for their owners?Most new banks succeed, especially those whose organizers can bring in new deposits and loan accounts during the first year of the bank's operation. Most are profitable within two to three years of opening. There is some ev idence that newly charted banks are financially ‘fragile’ and more prone to failure than existing banks. They appear to be more vulnerable to real estate crises than established banks. New banks tend to under perform their competitors until they have been around for a while and new banks are more closely supervised than established banks.4-12. Why is the establishment of new branch offices usually favored over the chartering of new financial firms as a vehicle for delivering financial services?The chartering of a new financing corporation is normally a lengthy and expensive process, requiring the completion of elaborate federal or state application forms, while the branch application process is normally far simpler and less costly. Moreover, with the increase in the number of failures in recent years regulatory-imposed capital requirements for new charters have increased substantially, while new branch offices usually carry significantly lower capital requirements. Moreover, branch offices themselves are often much less elaborate and costly to build and maintain than are the headquarters' facility of a new institution where some duplicate facilities can be eliminated (for example, checking processing, credit analysis, and records departments).4-13. What factors are often considered in evaluating possible sites for new branch offices? Bankers first need to decide the goals and objectives of a new facility. Often this means assessing whether the proposed new branch is aimed at selling one or more particular services, such as deposits or loans, and also deciding how closely correlated cash flows and returns from the new branch office may be with cash flows and returns from the other facilities operated by the bank. If returns or cash flows through the proposed new institution are negatively correlated or display low positive correlation with the institution's other facilities, they may be able to lower the variance of its returns or cash flows by proceeding to establish the new office.Other considerations revolve around the economic strength of the proposed branch officesite-whether there is adequate traffic volume, large numbers of stores and shops, older or younger age populations who often require slightly different menus of services, recent area population growth, density and income, the occupational and residential makeup of the proposed new branch area, a large enough population to generate enough customers to breakeven and the number and size of facilities operated by competitors. Generally, for branches designed to attract and hold deposits key factors to consider usually revolve around individual and family incomes, concentrations of retail stores and shops, older-than-average residents, and homeowners rather than renters. For branch facilities emphasizing credit services residential areas with substantial new construction activity, heavy traffic flow, and high concentrations of stores and shopping centers are typically desirable for consumer and retail loan demand, while central city office locations are often chosen as locations for commercial loan facilities.4-14. What changes are occurring in the design of, and the roles played by, branch offices? Please explain why these changes are occurring.Bank branches are increasingly becoming selling platforms in which more and more fee-based services are attractively and prominently advertised in order to maximize the fee-income generating potential of each branch. Moreover, branches are becoming increasingly automated to reduce personnel and other operating costs and improve speed, efficiency, and accuracy in handling a growing service volume. Branch design has come to reflect these trends with automated facilities placed at easy access points, along with information booths to speedily direct customers to the service areas they need. Human tellers may be placed deeper inside branch facilities so that customers must pass by other service departments and conspicuous advertising in order to encourage customers to become aware of and avail themselves of other bank services.4-15. What laws and regulations affect the creation of new bank and thrift branches and the closing of existing branches? What advantages and what problems can the closing of a branch office create?The opening of new branch off ices must be approved by a bank's or thrift’s principal federal or state supervisor. Closing a branch office has become much more complicated in recent years as the result of several new laws and regulations. For example, the FDIC Improvement Act requires 90 days advance notice of branch closings to both customers and the principal supervisory agency and a posting on the branch site at least 30 days prior to closing. Banks and thrifts must also make an "affirmative effort" to reach all segments of their communities without discrimination under the terms of the Community Reinvestment Act which raises the danger of customer protests against closings if it appears the bank is under-serving certain groups of customers. Finally, the Community Reinvestment Act can be used as a vehicle to prevent U.S. banks and thrifts from branching expansion when they have a poor record of serving all segments of their communities. Closing selected branch offices can reduce operating costs and divert resources from less profitable to more profitable uses. However, they risk alienating good customer relationships unless it can serve those same customers with its remaining facilities.4-16. What new and innovative sites have been selected for new branch offices in recent years? Why have these sites been chosen by financial firms? Do you have any ideas about other sites that you believe should be considered?Rapid increases in new branches located in grocery stores, shopping centers, and inside other businesses and facilities where the public frequently gathers have helped to reduce branch construction costs and promote cross-selling of goods and financial services. Other branches have been opened in apartment complexes, senior citizen centers, and other customer-convenient locations as bankers come to realize they must adjust their service locations and service hours to conform to customer needs in an intensely competitive financial-services environment.4-17. What are POS terminals and where are they usually located?Point-of-sale terminals are set up to accommodate customer purchases of goods and services. These computer terminals normally are located in retail stores, gasoline stations, and similar places with a link to the banks’ own computer records. When a customer of the bank makes a purchase, the amount of the transaction is deducted from the customer's deposit account and added to the store's account. Because the customer immediately loses funds many bank customers have been hesitant to use the service as opposed to paying by check or credit card where payment is delayed for a few days. However, this depends on whether the POS terminal is an offline or online terminal. An offline terminal accumulates all transactions until the end of the day when all transactions are su btracted from a customer’s account. This type of terminal is less costly for the bank to operate. An online terminal subtracts the transactions immediately from the customer’s account and reduces the chance of an overdraft occurring but is more expensive for the bank to operate. Consumer reluctance to use POS terminals appears to be fading and as fees for other services rise this reluctance will continue to disappear.4-18. What services do ATMs provide? What are the principal limitations of ATMs as a service provider? Should ATM carry fees? Why?The earliest ATMs provided a convenient mechanism for cashing checks, making deposits, and verifying checking account balances, often at hours when the full-service branch offices were closed. Today, ATMs frequently provide a wide menu of old and new services, including bill paying, transfer of funds between accounts, and the purchase of tickets for travel and entertainment. Most authorities expect ATM usage to grow rapidly as these machines offer more services and as bankers increasingly move to restrict customer access to more costly human tellers and other bank personnel, often by charging extra fees for personal service.ATMs do have some significant limitations that bankers will have to work to overcome. They break down and need to be replaced, sometimes quite frequently and annoyingly for customers, and as technology changes often become quickly outdated. Customer activity around ATMs, particularly at night, has invited criminals to steal money and injure customers, sometimes creating liability for banks. Moreover, not all customers make use of these facilities due to a preference for personalized service, fear of crime, or unfamiliarity with how the machines work. Customer education and better service pricing are two important tools that could help with these problem areas in the future. In addition, ATMs do not rank high in their ability to sell peripheral services. Some banks have found that there has been a sharp decline in their ability to sell other services. Finally, ATMs are not necessarily profitable for all banks. Because they are available 24 hours, some customers may make more frequent and smaller withdrawals from the machine than they would with a human teller, driving up the costs. In addition, these same customers will often still demand a human teller to deposit their pay check, making the bank keep both tellers and ATM machines.Whether ATM should carry a fee is rather controversial. Recently, two of the largest ATM networks have decided to let owners of ATMs charge non-customers a surcharge. Several regional have begun to charge fees as well. These fees reflect the usage of ATMs. About 85% of all ATM transactions consist of cash withdrawals and only about 10 percent represent incoming deposits. In addition, in many places, ATM usage has declined as customers pass over ATMs in favor of credit and debit cards, onsite terminals and the internet.4-19. What are self-service terminals and what advantages do they have for financial institutions and their customers?Self-service terminals include ATMs and other computer-based limited-service facilities that permit a customer to call up information about his or her account and recent transactions with the institution or information about different services that the customer might be interested in purchasing. Many are accessible 24 hours a day or are easier to get to rather than wait for the help of personnel. They can save on resources by saving on staff time. Many institutions are adding telephones and video screens so that customers with problems can dial up an employee day or night with problems. This is also saving money because they can avoid duplication of staff at each branch.4-20. What financial services are currently available from banks on the internet? What problems have been encountered in trying to offer internet services?Customers can make payments, check on account balances, move funds between accounts and get applications for loans, deposits and other services. In addition banks can advertise on the web. Some of the problems include protecting customers’ privacy and heading off crime. In addition, the web does not make it easy for a bank to get to know their customers personally. The cost may also be prohibitive to some customers.4-21. How can financial firms better promote internet services?They need to emphasize the safety of their internet services. They need to promote their home page at every opportunity and update it frequently to keep customers’ interest. They need to survey customers about their satisfaction with the services and encourage dialogue via e-mail to resolve problems. They can also provide programs to download to act as screen savers (and advertisements) and also information about the institution and the services it provides. Problems4-1. A group of businessmen and women from the town of Mathews are considering filing an application with the state banking commission to charter a new bank. Due to a lack of current banking facilities within a 10-mile radius of the community, the organizing group estimates that the initial banking facility would cost about $3.2 million to build along with another $700,000 in other organizing expenses and would last for about 20 years. Total revenues are projected to be $510,000 the first year, while total operating expenses are projected to reach $180,000 in year 1. Revenues are expected to increase 6 percent annually after the first year, while expenses will grow an estimated 5 percent annually after year 1. If the organizers require a minimum of a 10 percent annual rate of return on their investment of capital in the proposed new bank, are they likely to proceed with their charter application given the above estimates?Year Revenues Op Expense Net Profits1 $510,000 $180,000 $330,0002 $540,600 $189,000 $351,6003 $573,036 $198,450 $374,5864 $607,418 $208,373 $399,0465 $643,863 $218,791 $425,0726 $682,495 $229,731 $452,7647 $723,445 $241,217 $482,2288 $766,851 $253,278 $513,5739 $812,863 $265,942 $546,92110 $861,634 $279,239 $582,39511 $913,332 $293,201 $620,13112 $968,132 $307,861 $660,27113 $1,026,220 $323,254 $702,96614 $1,087,793 $339,417 $748,37715 $1,153,061 $356,388 $796,67316 $1,222,245 $374,207 $848,03817 $1,295,579 $392,917 $902,66218 $1,373,314 $412,563 $960,75119 $1,455,713 $433,191 $1,022,52220 $1,543,056 $454,851 $1,088,205Initial Investment $3,900,000Required Rate of Return 0.10Present Value of Future CashFlows $4,491,642Net Present Value of Investment $591,642Given the above information, the organizers are likely to proceed given that the net present value of this investment is positive. The return they are going to earn is greater than the 10% they need to earn.4-2. Andover Savings Bank is considering the establishment of a new branch office at the corner of Lafayette and Connecticut Avenues. The savings association’s Economics Department projects annual operating revenues of $1.75 million from services sold to generate fee income and annual branching operating expenses of $880,000. The cost of procuring the property is $2.5 million and branch construction will total an estimated $2.32 million; the facility is expected to last 16 years. If the savings bank has a minimum acceptable rate of return on its invested capital of 12 percent, will Andover likely proceed with this branch office project?Year Revenues Op Expenses Net Profits1 $1,750,000 $880,000 $870,0002 $1,750,000 $880,000 $870,0003 $1,750,000 $880,000 $870,0004 $1,750,000 $880,000 $870,0005 $1,750,000 $880,000 $870,0006 $1,750,000 $880,000 $870,0007 $1,750,000 $880,000 $870,0008 $1,750,000 $880,000 $870,0009 $1,750,000 $880,000 $870,00010 $1,750,000 $880,000 $870,00011 $1,750,000 $880,000 $870,00012 $1,750,000 $880,000 $870,00013 $1,750,000 $880,000 $870,00014 $1,750,000 $880,000 $870,00015 $1,750,000 $880,000 $870,00016 $1,750,000 $880,000 $870,000Initial Investment $4,820,000Required Rate of Return 0.12Present Value of Future CashFlows $6,067,368Net Present Value of Investment $1,247,368Andover is likely to proceed with this project because the net present value is positive. This means that the interest rate that Andover will earn on this project is higher than the 12% they need to earn. 4-3. Jackson Bank of Commerce estimates that building a new branch office in the newly developed Guidar residential township will yield an annual expected return of 13 percent with an estimated standard deviation of 5 percent. The bank’s marketing department estimates that cash flows from the proposed Guidar branch will be mildly correlated (with a correlation coefficient of +0.3) with the bank’s other sources of cash flow. The expected annual return from the bank's existing facilities and other assets is 10 percent with a standard deviation of 3 percent. The branch will represent just 10 percent of Jackson’s total assets. Will the proposed branch increase Sullivan's overall rate of return? Its overall risk?The estimated total rate of return would be:E (R) = 0.10 (13%) + 0.90 (10%) = 10.3%The risk attached to this overall return rate would be:Thus ?? 2.89% and the branch will slightly increase the bank's expected return but slightly decrease its overall risk. The bank should proceed with this project.4-4. The following statistics and estimates were compiled by First Savings Bank of Talbot regarding a proposed new branch office and the bank itself:Branch Office Expected Return 16%Standard Deviation of Return = 7%Ban k’s overall expected return= 10%Standard deviation of bank’s return= 3%Branch Asset Value as a Percentof Total Bank Assets = 15%Correlation of Cash Flows = + 0.27What will happen to the Talbot’s total expected return and overall risk if the proposed new branch is adopted?The bank's total expected return is:E (R) = 0.15 (16%) + 0.85 (10%) = 10.9%The bank's risk exposure is:σ=And thus .0301 or 3.01%The proposed project raises the savings banks expected return slightly and does not affect the risk of the bank. This is a good project.4-5. First National Bank of Yukon is considering installing 3 ATMs in its westside branch. The new machines are expected to cost $48,000 apiece. Installation costs will amount to about $16,000 per machine. Each machine has a projected useful life of 10 years. Due to rapid growth in the westside district these three machines are expected to handle 180,000 transactions per year. On average, each cash transaction is expected to save $0.32 per transaction in check processing costs. If First National has a 12% cost of capital, should the bank proceed with this investment project? Year Savings1 $57,600 (.32*180,000)2 $57,6003 $57,6004 $57,6005 $57,6006 $57,6007 $57,6008 $57,6009 $57,60010 $57,600Initial Investment 192000 (48,000*3+16,000*3)Required Rate of Return 0.12Present Value of Future CashFlows $325,452.85Net Present Value $133,452.85The net present value of this project is positive. First National Bank of Yukon should add the ATM machines to the Westside.4-6. First State Security Bank is planning to set up its own web page to advertise its location and services on the Internet and to offer customers selected service options, such as paying recurring household bills, verification of account balances, and dispensing deposit account and loan application forms. What factors should First State take into account as it plans its own web page and Internet service menu? How can the bank effectively differentiate itself from other banks currently present on the Internet? How might the bank be able to involve its own customers in designing its web site and pricing its Internet service package?The bank should remember that while the internet is a relatively low cost way of expanding and allows customers to find the bank rather than the bank having to find customers, there are serious concerns about privacy. In addition, the Internet is not limited by geography and while there are thousands of potential customers, there are also many financial institutions around the world competing for customer deposits and loans. The bank needs to be aware that there are many bank web pages out there and that they will need to invest in employees with the technical expertise to manage the new web site well. One of the first things the bank needs to do is to take steps to protect its customers and let its customers know what its privacy and security policies are. Another step the bank can take is to start with a customer survey to find out what its customers want and need from the bank’s Internet services. They can run this as a contest and give away some small items to the customer with the best ideas for the web page and Internet service. This should help get customers involved in the design and implementation of the web page and may help the bank start building an online customer base.。

Chapter 2The Impact of Government Policy and Regulation on the Financial-Services IndustryFill in the Blank Questions1. The _____________________ was created as part of the Glass Steagall Act. In the beginning itinsured deposits up to $2,500.Answer: FDIC2. The________________________ is the law that states that a bank must get approved from theirregulatory body in order to combine with another bank.Answer: Bank Merger Act3. One tool that the Federal Reserve uses to control the money supply is _________________ . TheFederal Reserve will buy and sell T-bills when they are using this tool of monetary policy.Answer: open market operations4. The__________________________ was created in 1913 in response to a series of economicdepressions and failures. Its principal role is to serve as the lender of last resort and to stabilize the financial markets.Answer: Federal Reserve5. The __________________________ prevented banks from crossing state lines and made nationalbanks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law.Answer: McFadden-Pepper Act6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem calledthe ____________________ among banks. The fixed premiums encourage all banks to accept greater risk.Answer: moral hazard7. In 1980, __________________________ was passed and lifted government ceilings on depositinterest rates in favor of free market interest rates.Answer: DIDMCA15 / 138. One tool that the Federal Reserve uses to control the money supply is _________________. TheFederal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.Answer: changing the discount rate9. The first major federal banking law in the U.S. was the __________________________. This lawwas passed during the Civil War and set up a system for chartering national banks and created the OCC.Answer: National Banking Act10. The_________________________ was passed during the Great Depression. It separatedinvestment and commercial banks and created the FDIC.Answer: Glass-Steagall Act11. The__________________________ brought bank holding companies under the jurisdiction of theFederal Reserve.Answer: Bank Holding Company Act12. The__________________________ allows bank holding companies to acquire banks anywhere inthe United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country.Answer: Riegle-Neal Interstate Banking Act13. The allows banks to affiliate with insurance companies and securitiesfirms either through a holding company or as a subsidiary.Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act)14. Customers of financial-service companies may _____________________ of having their privateinformation shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties.Answer: opt out15. The federal bank regulatory agency which examines the most banks is the ______________.Answer: FDIC16. The _________________ requires financial service companies to report suspicious activity incustomer accounts to the Treasury Department.Answer: U.S. Patriot Act17. The central bank of the new European Union is known as the _______________________.Answer: European Central Bank or ECB18. The _____________________ Act prohibits banks and other publicly owned firms frompublishing false or misleading financial performance information.Answer: Sarbanes-Oxley19.One of the main roles of the Federal Reserve today is . They have three tools thatthey use today to carry out this role; open market operations, the discount rate and legal reserverequirements.Answer: monetary policy20.The is the center of authority and decision making within the FederalReserve. It consists of seven members appointed by the president for terms not exceeding 14 years.Answer: Board of Governors21.The main regulators of insurance companies are .Answer: state insurance commissions22.Federal Credit Unions are regulated and examined by .Answer: the National Credit Union Administration.23.The makes it easier for victims of identity theft to alerts and allowsthe public to apply for a free credit report once a year.Answer: Fair and Accurate Credit Transactions Act (FACT Act)24.The makes it faster and less costly for banks to clear checks. Itallows for banks to electronically send check images instead of shipping paper checks across the country.Answer: Check 21 Act25.The was created by the National Banking Act and is part of theTreasury Department. It is the primary regulator of National Banks.Answer: Office of the Comptroller of the Currency (OCC)26.The _________________________ proposes various regulations applying to the financial marketsto combat the recent credit crisis. This “bail-out” bill granted the US Treasury the means topurchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, andpermitted the government to inject additional capital into the banking system.Answer: The Emergency Economic Stabilization Act of 2008True/False Questions17 / 13T F 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.Answer: FalseT F 28. In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard.Answer: TrueT F 28. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.Answer: FalseT F 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small.Answer: FalseT F 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve.Answer: FalseT F 31. National banks cannot merge without the prior approval of the Comptroller of the Currency.Answer: TrueT F 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S.Congress to outlaw discrimination in providing bank services to the public.Answer: FalseT F 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as the CompetitiveEquality in Banking Act.Answer: FalseT F 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Boardapproval.Answer: TrueT F 35. The 1994 federal interstate banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.Answer: FalseT F 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central governmentand local governments regulate banks.Answer: FalseT F 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk.Answer: TrueT F 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.Answer: FalseT F 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease.Answer: FalseT F 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort.Answer: FalseT F 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices.Answer: TrueT F 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).Answer: FalseT F 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.Answer: TrueT F 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.Answer: FalseT F 45. The tool used by the Federal Reserve System to influence the economy and behavior of19 / 13banks is known as moral hazard.Answer: FalseT F 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.Answer: TrueMultiple Choice Questions47.Banks are regulated for which of the reasons listed below?A) Banks are leading repositories of the public's savings.B) Banks have the power to create money.C) Banks provide businesses and individuals with loans that support consumption and investmentspending.D) Banks assist governments in conducting economic policy, collecting taxes and dispensinggovernment payments.E) All of the above.Answer: E48.An institutional arrangement in which federal and state authorities both have significant bankregulatory powers is referred to as:A) Balance of PowerB) FederalismC) Dual Banking SystemD) Cooperative RegulationE) Coordinated ControlAnswer: C49.The law that set up the federal banking system and provided for the chartering of national bankswas the:A) National Bank ActB) McFadden-Pepper ActC) Glass-Steagall ActD) Bank Merger ActE) Federal Reserve ActAnswer: A50.The federal law that prohibited federally supervised commercial banks from offering investmentbanking services on privately issued securities is known as:A) The Glass-Steagall ActB) The Bank Merger ActC) The Depository Institutions Deregulation and Monetary Control ActD) The Federal Reserve ActE) None of the AboveAnswer: A51.The Gramm-Leach-Bliley Act (Financial Services Modernization Act) calls for linkinggovernment supervision of the financial-services firm to the types of activities that the firmundertakes. For example the insurance portion of the firm would be regulated by state insurance commissions and the banking portion of the firm would be regulated by banking regulators. This approach to government supervision of financial services is known as:A) Consolidated regulation and supervision.B) Functional regulation.C) Services oversight.D) Umbrella supervision and regulation.E) None of the above.Answer: B52.The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure tobear on individuals and institutions to conform to the Fed's policies, using letters, phone calls, and speeches, is known as:A) Margin requirementsB) Moral suasionC) Discount window supervisionD) Conference and compromiseE) None of the above.Answer: B53.The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is:A) The Glass-Steagall ActB) The Federal Deposit Insurance Corporation Improvement ActC) The National Bank ActD) The Riegle-Neal Interstate Banking and Branching Efficiency Act.E) None of the above.Answer: D54.The federal law that allowed the Federal Reserve to set margin requirements is:A) The National Banking Act.B) The McFadden-Pepper Act.C) The Glass Steagall Act.D) The Federal Reserve Act.E) None of the above.Answer: C55.Of the principal reasons for regulating banks, what was the primary purpose of the NationalBanking Act (1863)?A) Protection of the public's savingsB) Control of the money supplyC) Providing support for government activitiesD) Maintaining confidence in the banking systemE) Preventing banks from realizing monopoly powers21 / 1356.Of the principal reasons for regulating banks, what was the primary purpose of the Federal ReserveAct of 1913?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: B57.The law that allows lifted government deposit interest ceilings and allowed them to pay acompetitive interest rate is:A) The National Banking Act.B) The Glass Steagall Act.C) The Bank Merger Act.D) DIDMCAE) None of the above.Answer: D58.The law that allows banks to affiliate with insurance companies and security brokerage firms toform financial services conglomerates isA) The National Banking ActB) The Glass Steagall ActC) The Garn St. Germain ActD) The Riegle Neal Interstate Banking ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: E59.Of the principal reasons for regulating banks, what was the primary purpose of the Truth inLending Law?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: D60.Which of the following is an unresolved issue in the new century?A) What should be done about the regulatory safety net set up to protect small depositors?B) If financial institutions are allowed to take on more risk, how can taxpayers be protected frompaying the bill when more institutions fail?C) Does functional regulation actually work?D) Should regulators allow the mixing of banking and commerce?E) All of the above are unresolved issues61.The law that made bank and nonbank depository institutions more alike in the services they couldoffer and allowed banks and thrifts to more fully compete with other financial institutions is:A) The National Banking ActB) The Federal Reserve ActC) The Garn-St. Germain ActD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: C62.The law that allowed bank holding companies to acquire nonbank depository institutions andconvert them to branches is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) None of the AboveAnswer: C63.The equivalent of the Federal Reserve System in Europe is known as the:A) European UnionB) Bank of LondonC) Basle GroupD) European Central BankE) Swiss Bank CorporationAnswer: D64.The new financial organization created by Gramm-Leach-Bliley is theA) Financial Holding CompanyB) Bank Holding CompanyC) European Central BankD) Financial Service CorporationE) Financial Modernization OrganizationAnswer: A65.The act which requires financial institutions to share information about customer identities withgovernment agencies is:A) The Sarbanes-Oxley ActB) The U.S. Treasury Department ActC) The 9/11 ActD) The USA Patriot ActE) The Gramm-Leach-Bliley ActAnswer: D23 / 1366.The 1977 law that prevents banks from “redlining” certain neig hborhoods, refusing to serve thoseareas is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) Community Reinvestment Act (CRA)Answer: Emon minimum capital requirements on banks in leading industrialized nations that are basedon the riskiness of their assets is imposed by:A) The National Banking ActB) FIRREAC) The International Banking ActD) The Basel AgreementE) None of the AboveAnswer: D68.The fastest growing crime in the U.S. is:A) Financial statement misrepresentationB) Bank robberiesC) Individual privacy violationsD) Credit card fraudE) Identity theftAnswer: E69.The oldest federal bank agency is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: A70.The federal agency that regulates the most banks is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: B71.Which federal banking act requires that financial service providers establish the identity of anycustomers opening new accounts?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: B72.Which federal banking act prohibits publishing false or misleading information about the financialperformance of a public company and requires top corporate officers to vouch for the accuracy of their company’s financial statements?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: A73.Which federal banking act reduces the need for banks to transport paper checks across the country?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: C74.Which federal banking act forces more individuals to repay at least part of what they owe and willpush higher-income borrowers into more costly forms of bankruptcy?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: E75.Which federal banking act requires the Federal Trade Commission to make it easier for victims ofidentity theft to make theft reports and requires credit bureaus to help victims resolve theproblem?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: D76.The _________ allows adequately capitalized bank holding companies to acquire banks in anystate.A)Riegle-Neal Interstate Banking and Branching Efficiency ActB)Competitive Equality Banking Act25 / 13C)Financial Institutions Reform, Recovery and Enforcement ActD)Federal Deposit Insurance Corporation Improvement ActE)Depository Institutions Deregulation and Monetary Control ActAnswer: A77.One of the earliest theories regarding the impact of regulation on banks was developed by GeorgeStigler. He contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: A78.Samual Peltzman had an opposing view to George Stigler on the impact of regulation on banks. Hecontends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: B79.There is an important debate raging today regarding whether banks should be regulated at all.George Benston contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: D80.The European Central Bank has the main goal of:A) Ensuring the economy grows at an adequate rate.B) Keeping unemployment low.C) Ensuring price stability.D) Ensuring an adequate and fair supply of loans.E) All of the aboveAnswer: C81.Which of the following has become the principal tool of central bank monetary policy today?A) Open market operationsB) Changing the discount rateC) Changing reserve requirementsD) Using moral suasionE) None of the aboveAnswer: A82.The Federal Reserve buys Treasury Bills in the open market. This will tend to:A) Cause interest rates in the market to riseB) Cause interest rates in the market to fallC) Cause reserves held at the Federal Reserve to decreaseD) Cause a decrease in the growth of deposits and loansE) All of the aboveAnswer: B83.Which federal banking act extends deposit insurance coverage on qualified retirement accountsfrom $100,000 to $250,000 and authorizes the FDIC to periodically increase deposit insurance coverage to keep up with inflation?A) Sarbanes-Oxley ActB) The Gramm-Leach-Bliley ActC) Check 21 ActD) The FACT ActE) Federal Deposit Insurance Reform ActAnswer: E84.The Financial Services Regulatory Relief Act of 2006 does the following:A) Adds selected new service powers to depository institutionsB) Loosens regulations on depository institutionsC) Grants the Federal Reserve authority to pay interest on depository institutions’ legal reservesD) All of the aboveE) None of the aboveAnswer: D85.The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis allowedthe following:A) An emergency sale of “bad assets”B) Temporary increase of FDIC deposit insurance to $250,000 for all depositsC) Injections of capital by the government into banks and other qualified lendersD) Closer surveillance of the mortgage market participants, such as brokers and lendersE) All of the aboveAnswer: E27 / 13。

Chapter 15The Management of CapitalFill in the Blank Questions1. The risk that has to do with banks trading in foreign currencies is called_________________________.Answer: exchange risk2. The risk that has to do with fraud, embezzlement and bank robberies is called__________________.Answer: crime risk3. _________________________ is measured by the par value of the shares of commonequity outstanding.Answer: Common stock4. __________________ is the amount in excess of par value paid by the bank'sshareholders.Answer: Surplus5. _________________________ are the net earnings of the bank which have been keptby the bank rather than distributed as dividends to stockholders.Answer: Undivided Profits (or retained earnings)6. Core capital such as common stock, surplus, undivided profits, qualifyingnoncumulative preferred stock, etc. is referred to as __________________ capital as defined by the Basel agreement.Answer: Tier 17. The international treaty involving the U.S. and 11 other leading industrializedcountries to impose common capital requirements on all banks is known as the_________________________.Answer: Basel Agreement8. Supplemental capital such as the allowance for loan losses, subordinated debt,mandatory convertible debt, intermediate-term preferred stock, cumulativepreferred perpetual stock and equity notes is more commonly known as _________________________.Answer: Tier 2 capital9. When items on a bank's balance sheet are multiplied by the appropriaterisk-weighting factor they are often called _________________________.Answer: risk-weighted assets10. The fact that a bank may suffer deficiencies in quality control, inefficienciesin producing and delivering of services, weather damage, aging or faulty computer systems, errors in judgment by management and fluctuations in economy that could adversely affect the bank's performance is known as _________________________ risk.Answer: operational11. One defense against risk for the bank is to spread out a bank's credit accountsand deposits among a wide variety of customers, including large and small accounts different industries, etc. This defense is known as _________________________.Answer: portfolio diversification12. One defense against risk is for the bank to seek out customers located in differentcommunities or in different countries. This defense is known as_________________________.Answer: geographic diversification13. When all else fails, the ultimate defense against risk in banking is_________________________.Answer: owners' capital (net worth)14. The largest component of capital among thrift institutions is _____________.Answer: retained earnings15. The largest component of capital among banks is ____________.Answer: surplus16. ____________ models attempt to measure price or market risk of a portfolio of assetsand attempt to determine the maximum loss they might sustain over a designated period of time.Answer: Value at risk (VaR)17. The latest revision to the Basel accord is known as __________ and will affect onlyabout 20 of the largest U.S. banks and a handful of leading foreign banks.Answer: Basel II18. ____________ models measure lender exposure to defaults or credit downgrades.Answer: Credit Risk19. Credit risk models will be ________ widely used when Basel II takes effect.Answer: more20.At the center of the debate of the Basel Agreement is the ,headquartered in Basel Switzerland , which assists central banks in theirtransactions with each other and serves as a forum for international financial issues.Answer: Bank for International Settlements (BIS)21. represents funds set aside forcontingencies such as legal action against the institution as well as providinga reserve for dividends expected to be paid but not yet declared and a sinkingfund to retire stock or debt in the future.Answer: Equity reserves22. are debtsecurities repayable from the sale of stock.Answer: Equity commitment notes23. is a hybrid form ofequity capital issued to investors through a trust company, The funds raise are loaned to the financial firm. Dividends paid to stockholders on this time of capital are tax deductible.Answer: Trust preferred stock24. is long-term debtcapital whose claims legally follow claims of depositors.Answer: Subordinated notes and debentures25. for banksinclude mortgage servicing rights and purchased credit card relationships and can be counted as part of bank capital.Answer: Identifiable intangible assetsTrue/False QuestionsT F 26. In the field of banking, capital refers principally to those funds contributed by a bank's owners.Answer: TrueT F 27. According to the textbook capital and risk are intimately related to each other.Answer: TrueT F 28. One fundamental purpose for regulating capital is to limit losses to the federal government arising from deposit insurance claims.Answer: TrueT F 29. Deposit insurance subsidized by government encourages banks to increase their ratios of capital to deposits.Answer: FalseT F 30. Tier 2 includes undivided profits.Answer: FalseT F 31. Core capital includes the surplus account for stock.Answer: TrueT F 32. Under the international capital (Basel) agreement Tier 2 capital must be raised to a minimum of 4 percent of risk-weighted assets.Answer: FalseT F 33. Off-balance-sheet commitments of banks carry capital requirements under the international (Basel) capital requirements.Answer: TrueT F 34. Portfolio diversification refers to seeking out customers located in different communities or countries, which presumably will experiencedifferent economic conditions.Answer: FalseT F 35. Geographic diversification refers to the spreading out credit accounts and deposits among a wide variety of customers, including large and smallbusiness accounts, different industries, and households with a variety ofsources of income and collateral.Answer: FalseT F 36. The last line of defense against bank failure is owner's capital, according to the textbook.Answer: TrueT F 37. Under the FDIC Improvement Act of 1991 a U.S. bank possessing a leverage ratio greater than 4 percent would be considered well capitalized.Answer: FalseT F 38. Under the FDIC Improvement Act of 1991 a bank whose leverage ratio drops to2 percent or less is considered to be critically undercapitalized.Answer: TrueT F 39. Recent research suggests that interest-rate contracts display considerably less risk exposure than do foreign-currency contracts.Answer: TrueT F 40. The Basel Agreement on capital as drafted in the 1980s failed to deal with market risk.Answer: TrueT F 41. If a bank benefits when the value of a foreign currency rises, the bank is said to be in a short position.Answer: FalseT F 42. If a bank benefits when a foreign currency declines in value, then the bank is in a long position.Answer: FalseT F 43. If the ratio of tangible equity capital to total assets is 2 percent or less it is subject to being placed in conservatorship or receivership if itscapital ratios are not increased within a prescribed period of time even ifits net worth is still positive.Answer: TrueT F 44. According to recent research, bank stock prices usually drop within a week after a dividend cut is announced.Answer: TrueT F 45. Equity notes are considered to be part of Tier 1 capital.Answer: FalseT F 46. The most important source of thrift capital in terms of dollar volume is common stock (par value).Answer: FalseT F 47. The daily rate at which robberies have occurred in the U.S. has continued to climb in the 1990s.Answer: FalseT F 48. One of the reasons to regulate the capital position of banks is to limit the risk of bank failures, especially large bank failures.Answer: TrueT F 49. Deposits with the Federal Reserve banks are considered to have moderate credit risk and are therefore placed in the 50 percent risk weight category.Answer: FalseT F 50. The largest component of capital among banks is retained earnings.Answer: FalseT F 51. VaR models provide a single number which indicates the potential for losses on a portfolio of assets.Answer: TrueT F 52. VaR models are most successful in assessing potential risk when the assets are non-traded.Answer: FalseT F 53. Credit risk models will probably not be needed when Basel II takes effect.Answer: FalseT F 54. One of the key innovations which have been proposed in Basel II is to require banks to hold capital against operational risk.Answer: TrueT F 55. Basel II will require each bank to determine its own capital requirements based on its own calculated risk exposure.Answer: TrueT F 56. It is anticipated that Basel II may lower capital requirements for the largest banks.Answer: TrueT F 57. The global financial crisis of 2007-2009 highlighted the importance of taking into consideration a bank’s exposure to market risk that arise from changesin interest rates, security prices, and currency.Answer: TrueT F 58. Smaller banks rely more heavily on internally generated capital than larger banks.Answer: TrueT F 59. A well-capitalized institution has a ratio of capital to risk-weighted assets of at least 10 percent and faces no significant regulatory restrictions onits expansion.Answer: TrueT F 60. Regulatory capital focus on the market value of equity.Answer: FalseMultiple Choice Questions61.According to the textbook the role of capital is to:A) Provide a cushion against failure risk.B) Provide funds needed to organize, open, and operate a bank.C) Promote public confidenceD) Support growth and the development of new servicesE) All of the above.Answer: E62.The textbook discusses several alternative defenses banks have against risk. Thesedefenses include:A) Quality managementB) Portfolio diversificationC) Geographic diversificationD) Deposit insuranceE) All of the above.Answer: E63.Measured by dollar volume the largest category of capital at U.S. banks is:A) Par value of common stockB) Subordinated notes and debenturesC) SurplusD) Undivided profits and capital reservesE) None of the above.Answer: C64.The fundamental purposes of regulating bank capital cited in the textbook includewhich of the following?A) To limit the risk of bank failures.B) To preserve public confidence in banks.C) To limit losses to the federal government arising from insurance claims.D) All of the above.E) A and B only.Answer: D65.The Internal Capital Growth Rate for a bank is a function of which of the followingfactors?A) Profit margin.B) Asset utilization.C) Equity multiplier.D) Earnings retention ratio.E) All of the above.Answer: E66.Second National Bank is forecasting a return on equity of 15 percent for this year.The board of directors wants to maintain its current policy of paying the bank's stockholders 40 percent of any net earnings the bank will earn. How fast can the bank's assets grow this year without jeopardizing its ratio of capital to assets?A) 15 percent.B) 9 percent.C) 8 percent.D) 6 percent.E) None of the aboveAnswer: B67.Possible breakdowns in quality control, inefficiencies in producing and deliveringfinancial services, weather damage, aging or faulty computer systems and simple errors in judgment by bank management illustrate what form of risk faced by banks?A) Credit riskB) Liquidity riskC) Interest-rate riskD) Operational riskE) None of the aboveAnswer: D68.The ratio of core capital to average assets is called the:A) Supplemental Capital ratioB) Leverage ratioC) Long-term capital ratioD) GAAP capital ratioE) None of the above.Answer: B69.The risk that a customer the bank has entered into a contract with will fail topay or to perform, forcing the bank to find a replacement contract that may be less satisfactory is what form of risk listed below?A) Counterparty riskB) Interest-rate riskC) Operating riskD) Credit riskE) Liquidity riskAnswer: A70.If a bank benefits when a foreign currency declines in value, then the bank mustbe in a __________ position. The term below that correctly fills in the blank in the preceding sentence is:A) LongB) ShortC) NegativeD) Credit riskE) None of the aboveAnswer: B71.In the United States a 'well capitalized' bank must have a ratio of capital torisk-weighted assets of at least:A) 6 percentB) 8 percentC) 10 percent.D) 5 percent.E) None of the aboveAnswer: C72.In the United States a bank to be considered 'adequately capitalized' must havea ratio of Tier 1 (or core) capital to risk-weighted assets of at least:A) 8 percentB) 6 percentC) 10 percentD) 4 percentE) None of the aboveAnswer: D73. A "well capitalized" bank in the United States must have a leverage ratio of atleast:A) 5 percentB) 4 percentC) 6 percentD) 8 percentE) None of the aboveAnswer: B74. A bank has $100 million in assets in the 0 percent risk weight category, $200 millionin assets in the 20 percent risk weight category, $500 million in assets in the50 percent risk weight category and $750 million in assets in the 100 percent riskweight category. This bank has $57 million in core (Tier 1) capital. What is this bank's ratio of Tier 1 capital to risk-weighted assets?A) 3.68 percentB) 7.6 percentC) 18.25 percentD) 5.48 percentE) None of the aboveAnswer: D75. A bank has a profit margin of 5 percent, an asset utilization ratio of 11 percent ,an equity multiplier of 12 and a retention ratio of 60 percent. What is this bank's ICGR?A) 6.6 percentB) 3.96 percentC) 7.2 percentD) .33 percentE) None of the aboveAnswer: B76.Which of the following would be an example of Tier 1 capital?A) Subordinated debt capital instruments with an original maturity of at least 5yearsB) Allowance for loan and lease lossesC) Minority interest in the equity accounts of consolidated subsidiariesD) Intermediate term preferred stockE) All of the aboveAnswer: C77.Which of the following would be an example of Tier 2 capital?A) Subordinated debt capital instruments with an original maturity of at least 5yearsB) Undivided profitsC) Minority interest in the equity accounts of consolidated subsidiariesD) Qualifying noncumulative preferred stockE) All of the aboveAnswer: A78.Which of the following would be an example of crime risk?A) A bank manager that embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest and principal has beencollected in 2 yearsD) A bank manager predicts that interest rates will rise. However interest ratesfall causing the bank 's net income to fall by $250,000E) All of the above are examples of crime riskAnswer: A79.Which of the following assets fits into the 0 percent risk weight category?A) CashB) Deposits at the Federal ReserveC) Treasury BillsD) GNMA mortgage-backed securitiesE) All of the above fit into the 0 percent risk weight categoryAnswer: E80. A bank that is 'well-capitalized':A) Faces no significant regulatory restrictionsB) Cannot accept broker placed deposits without regulatory approvalC) Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD) Will be placed into conservatorship or receivership if it its capital level isnot increased within a certain time limit.E) None of the aboveAnswer: A81. A bank that is 'critically undercapitalized':A) Faces no significant regulatory restrictionsB) Cannot accept broker-placed deposits without regulatory approvalC) Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD) Will be placed into conservatorship or receivership if it its capital level isnot increased within a certain time limit.E) None of the aboveAnswer: D82. A bank that is adequately capitalized:A) Faces no significant regulatory restrictionsB) Cannot accept broker-placed deposits without regulatory approvalC) Has limits on dividends and management fees it is allowed to pay and limits onthe maximum asset growth rate among other restrictionsD) Will be placed into conservatorship or receivership if it its capital level isnot increased within a certain time limit.E) None of the aboveAnswer: B83.Which of the following is in the 100 percent risk-weight category?A) CashB) General obligation municipal bondsC) Residential mortgage loansD) Credit card loansE) None of the aboveAnswer: D84.Which of the following is in the 50 percent risk-weight (moderate) category?A) CashB) General Obligation Municipal BondsC) Residential Mortgage LoansD) Credit Card LoansE) None of the aboveAnswer: C85.Which of the following is in the 20 percent risk-weight (low) category?A) CashB) General obligation municipal bondsC) Residential mortgage loansD) Credit card loansE) None of the aboveAnswer: B86. A bank has a ROE of 14 percent and a ROA of 2 percent. What is this bank's equitycapital to total assets ratio?A) 7.00 percentB) 14.29 percentC) 28.00 percentD) 16 percentE) None of the aboveAnswer: B87. A bank has $200 million in assets in the 0 percent risk-weight category. It has$400 million in assets in the 20 percent risk-weight category. It has $1000 million in assets in the 50 percent risk-weight category and has $1000 million in assets in the 100 percent risk-weight category. This bank has $96 million in Tier 1 capitaland $48 million in Tier 2 capital. What is this bank's ratio of Tier 1 capital to risk assets?A) 6.08 percentB) 3.04 percentC) 9.11 percentD) 5.54 percentE) None of the aboveAnswer: A88. A bank has $200 million in assets in the 0 percent risk-weight category. It has$400 million in assets in the 20 percent risk-weight category. It has $1000 million in assets in the 50 percent risk-weight category and has $1000 million in assets in the 100 percent risk-weight category. This bank has $96 million in Tier 1 capital and $48 million in Tier 2 capital. What is this bank's ratio of Tier 2 capital to risk assets?A) 6.08 percentB) 3.04 percentC) 9.11 percentD) 5.54 percentE) None of the aboveAnswer: B89. A bank has $200 million in assets in the 0 percent risk-weight category. It has$400 million in assets in the 20 percent risk-weight category. It has $1000 million in assets in the 50 percent risk-weight category and has $1000 million in assets in the 100 percent risk-weight category. This bank has $96 million in Tier 1 capital and $48 million in Tier 2 capital. What is this bank's ratio of total capital to risk assets?A) 6.08 percentB) 3.04 percentC) 9.11 percentD) 5.54 percentE) None of the aboveAnswer: C90. A bank has a net profit margin of 5.25 percent. It has an asset utilization ratioof 45 percent and has an equity multiplier of 12. It retains 40 percent of its earnings each year. What is this bank's internal capital growth rate?A) 28.35 percentB) 2.36 percentC) 11.34 percentD) 4.8 percentE) None of the aboveAnswer: C91.The revised Basel I rules impose capital requirements for market risk on:A) Only the largest banksB) Only the smallest banksC) Only moderate size banksD) All banksE) No banksAnswer: A92.Bank debt which appears to be highly sensitive to the market perception of the bank'srisk is which of the following?A) DepositsB) Fed fundsC) ReposD) Subordinated debt capitalE) Preferred stockAnswer: D93.Bank operational risk includes:A) Employee fraudB) Account errorsC) Computer breakdownsD) Natural disastersE) All of the aboveAnswer: E94.The issue of correctly adding up all of the different types of bank risk exposureis known as:A) Risk tallyingB) Summing riskC) Risk aggregationD) Risk accumulationE) Risk totalityAnswer: C95.For a bank with deficient capital ratios, which of the following actions could berequired by regulators to increase the capital ratios, all else constant?A)Cut the bank's dividend paymentB)Increase the bank's leverageC)Reduce the bank’s holdings of cashD)Increase the bank's growth rate by making additional commercial loans.E)Reduce the bank's holdings of Treasury securities.Answer: A96.Basel II has a different set of rules for different bank size categories and thenumber of categories is:A) twoB) threeC) fourD) fiveE) tenAnswer: A97.Which of the following would be an example of exchange risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal has beencollected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank’s net income to fall by $250,000E) All of the above are examples of exchange riskAnswer: B98.Which of the following would be an example of credit risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal has beencollected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank’s net income to fall by $250,000E) All of the above are examples of credit riskAnswer: C99.Which of the following would be an example of interest rate risk?A) A bank manager embezzles $1,000,000 from the bankB) A bank that loses $500,000 from trading in foreign currenciesC) A $1,000,000 loan to a business on which no interest or principal has beencollected in 2 yearsD) A bank manager predicts interest rates will rise. However interest rates fallcausing the bank’s net income to fall by $250,000E) All of the above are examples of interest rate risk?Answer: D100.Which of the following would be an example of operational risk?A) A bank teller manages to steal $250,000 over a period of several monthsB) An out of date computer system causes the bank to lose $750,000C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet theneeds of depositorsD) A $500,000 loan the bank has made has been deemed uncollectableE) None of the above are examples of operational riskAnswer: B101.Which of the following would be an example of liquidity risk?A) A bank teller manages to steal $250,000 over a period of several monthsB) An out of date computer system causes the bank to lose $750,000C) A bank is forced to sell $1,000,000 in loans at a loss in order to meet theneeds of depositorsD) A $500,000 loan the bank has made has been deemed uncollectableE) None of the above are examples of liquidity riskAnswer: C102.Which of the following would not be an example of operational risk?A) A bank on the coast of Louisiana is hit by a hurricane and is flooded for 6weeksB) A bank employee acting as a derivatives trader is also the one who writes thereports on profits and losses in derivatives trading at the end of each dayC) The banks older computer system breaks down causing a loss of service to customersfor 2 weeksD) A bank robber robs a teller at gun point and gets away before police can getto the bankE) All of the above are examples of operational riskAnswer: D103.The Jennings Bank of Texas wants to protect itself from credit risk by making large loans to corporate customers, by making residential mortgages to families, by making agriculture loans to farmers and ranchers in the area, by making small business loans to business along main street and by making automobile loans for the car dealership across the street from the bank. What defense against risk is this bank making?A) Portfolio diversificationB) Geographic diversificationC) Quality managementD) Increasing owners’ capitalE) All of the aboveAnswer: A104.The Michelson Bank of Stetson wants to protect itself from risk. It decides to make loans in Florida, Georgia, Texas and Oklahoma as well as invest in municipal bonds from California and Oregon. What defense against risk is this bank making?A) Portfolio diversificationB) Geographic diversificationC) Quality managementD) Increasing owners’ capitalE) All of the aboveAnswer: B105.The Perdue Bank of Houston has just hired a new manager who has a reputation of anticipating potential problems and acting quickly to prevent those problems so that the bank stays healthy and profitable. What defense against risk is this bank making?A) Portfolio diversificationB) Geographic diversificationC) Quality managementD) Increasing owners’ capitalE) All of the aboveAnswer: C106.The Norton Bank of Illinois has just issued trust preferred stock. What defense against risk is this bank making?A) Portfolio diversificationB) Geographic diversificationC) Quality managementD) Increasing owners’ capitalE) All of the aboveAnswer: D107.What type of preferred stock has become popular among large banks in recent years, partly because dividends paid are tax deductible for the issuing institution?A) Cumulative preferred stockB) Noncumulative preferred stockC) Convertible preferred stockD) Trust preferred stockE) All of the aboveAnswer: D108.Even if individual banks are good at forecasting risk using VAR models there may still be problems because losses may occur at several banks at the same time due to the interdependency of the financial system, magnifying each bank’s risk exposure and possibly causing a major problem for regulators. The book calls this:A) Systematic riskB) Operational riskC) Credit riskD) Market riskE) Liquidity riskAnswer: A109.There are three pillars of Basel II. One of them wants to make market disciplinea powerful force compelling risky banks to lower their risk exposure. What doesBasel II want to do to make this happen?A) Require minimum capital requirement based on the bank’s own evaluation of itsriskB) Require greater public disclosure of each bank’s true fina ncial conditionC) Expand the risks to be evaluated to include credit risk, market risk andoperational riskD) Require supervisory review of each bank’s risk evaluation proceduresE) All of the aboveAnswer: B110. A bank has capital to risk weighted assets of 11.5%, Tier 1 capital to risk weighted assets of 7.2% and a leverage ratio of 5.8%. What type of bank is this?A) Well capitalizedB) Adequately capitalizedC) UndercapitalizedD) Significantly undercapitalizedE) Critically undercapitalizedAnswer: A111. A bank has capital to risk weighted assets of 9.2%, Tier 1 capital to risk weighted assets of 5% and a leverage ratio of 4.8%. What type of bank is this?A) Well capitalizedB) Adequately capitalizedC) UndercapitalizedD) Significantly undercapitalizedE) Critically undercapitalized。

第一章1.在所有权形式的公司中,股东是公司的所有者。

股东选举公司的董事会,董事会任命该公司的管理层。

企业的所有权和控制权分离的组织形式是导致的代理关系存在的主要原因。

管理者可能追求自身或别人的利益最大化,而不是股东的利益最大化。

在这种环境下,他们可能因为目标不一致而存在代理问题。

2.非营利公司经常追求社会或政治任务等各种目标。

非营利公司财务管理的目标是获取并有效使用资金以最大限度地实现组织的社会使命。

3.这句话是不正确的。

管理者实施财务管理的目标就是最大化现有股票的每股价值，当前的股票价值反映了短期和长期的风险、时间以及未来现金流量。

4.有两种结论。

一种极端,在市场经济中所有的东西都被定价。

因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。

另一种极端,我们可以认为这是非经济现象,最好的处理方式是通过政治手段。

一个经典的思考问题给出了这种争论的答案:公司估计提高某种产品安全性的成本是30美元万。

然而,该公司认为提高产品的安全性只会节省20美元万。

请问公司应该怎么做呢?”5.财务管理的目标都是相同的,但实现目标的最好方式可能是不同的,因为不同的国家有不同的社会、政治环境和经济制度。

6.管理层的目标是最大化股东现有股票的每股价值。

如果管理层认为能提高公司利润，使股价超过35美元,那么他们应该展开对恶意收购的斗争。

如果管理层认为该投标人或其它未知的投标人将支付超过每股35美元的价格收购公司,那么他们也应该展开斗争。

然而,如果管理层不能增加企业的价值,并且没有其他更高的投标价格,那么管理层不是在为股东的最大化权益行事。

现在的管理层经常在公司面临这些恶意收购的情况时迷失自己的方向。

7.其他国家的代理问题并不严重,主要取决于其他国家的私人投资者占比重较小。

较少的私人投资者能减少不同的企业目标。

高比重的机构所有权导致高学历的股东和管理层讨论决策风险项目。

此外,机构投资者比私人投资者可以根据自己的资源和经验更好地对管理层实施有效的监督机制。

Chapter 2The Impact of Government Policy and Regulation on the Financial-Services IndustryFill in the Blank Questions1. The _____________________ was created as part of the Glass Steagall Act. In the beginning itinsured deposits up to $2,500.Answer: FDIC2. The________________________ is the law that states that a bank must get approved from theirregulatory body in order to combine with another bank.Answer: Bank Merger Act3. One tool that the Federal Reserve uses to control the money supply is _________________ . TheFederal Reserve will buy and sell T-bills when they are using this tool of monetary policy.Answer: open market operations4. The__________________________ was created in 1913 in response to a series of economicdepressions and failures. Its principal role is to serve as the lender of last resort and to stabilize the financial markets.Answer: Federal Reserve5. The __________________________ prevented banks from crossing state lines and made nationalbanks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law.Answer: McFadden-Pepper Act6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem calledthe ____________________ among banks. The fixed premiums encourage all banks to accept greater risk.Answer: moral hazard7. In 1980, __________________________ was passed and lifted government ceilings on depositinterest rates in favor of free market interest rates.Answer: DIDMCA158. One tool that the Federal Reserve uses to control the money supply is _________________. TheFederal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.Answer: changing the discount rate9. The first major federal banking law in the U.S. was the __________________________. This lawwas passed during the Civil War and set up a system for chartering national banks and created the OCC.Answer: National Banking Act10. The_________________________ was passed during the Great Depression. It separatedinvestment and commercial banks and created the FDIC.Answer: Glass-Steagall Act11. The__________________________ brought bank holding companies under the jurisdiction of theFederal Reserve.Answer: Bank Holding Company Act12. The__________________________ allows bank holding companies to acquire banks anywhere inthe United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country.Answer: Riegle-Neal Interstate Banking Act13. The allows banks to affiliate with insurance companies and securitiesfirms either through a holding company or as a subsidiary.Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act)14. Customers of financial-service companies may _____________________ of having their privateinformation shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties.Answer: opt out15. The federal bank regulatory agency which examines the most banks is the ______________.Answer: FDIC16. The _________________ requires financial service companies to report suspicious activity incustomer accounts to the Treasury Department.Answer: U.S. Patriot Act17. The central bank of the new European Union is known as the _______________________.Answer: European Central Bank or ECB18. The _____________________ Act prohibits banks and other publicly owned firms frompublishing false or misleading financial performance information.Answer: Sarbanes-Oxley19.One of the main roles of the Federal Reserve today is . They have three tools thatthey use today to carry out this role; open market operations, the discount rate and legal reserverequirements.Answer: monetary policy20.The is the center of authority and decision making within the FederalReserve. It consists of seven members appointed by the president for terms not exceeding 14 years.Answer: Board of Governors21.The main regulators of insurance companies are .Answer: state insurance commissions22.Federal Credit Unions are regulated and examined by .Answer: the National Credit Union Administration.23.The makes it easier for victims of identity theft to file fraud alertsand allows the public to apply for a free credit report once a year.Answer: Fair and Accurate Credit Transactions Act (FACT Act)24.The makes it faster and less costly for banks to clear checks. Itallows for banks to electronically send check images instead of shipping paper checks across the country.Answer: Check 21 Act25.The was created by the National Banking Act and is part of theTreasury Department. It is the primary regulator of National Banks.Answer: Office of the Comptroller of the Currency (OCC)26.The _________________________ proposes various regulations applying to the financial marketsto combat the recent credit crisis. T his “bail-out” bill granted the US Treasury the means topurchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, andpermitted the government to inject additional capital into the banking system.Answer: The Emergency Economic Stabilization Act of 2008True/False Questions17T F 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.Answer: FalseT F 28. In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard.Answer: TrueT F 28. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.Answer: FalseT F 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small.Answer: FalseT F 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve.Answer: FalseT F 31. National banks cannot merge without the prior approval of the Comptroller of the Currency.Answer: TrueT F 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S.Congress to outlaw discrimination in providing bank services to the public.Answer: FalseT F 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as the CompetitiveEquality in Banking Act.Answer: FalseT F 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Boardapproval.Answer: TrueT F 35. The 1994 federal interstate banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.Answer: FalseT F 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central governmentand local governments regulate banks.Answer: FalseT F 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk.Answer: TrueT F 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.Answer: FalseT F 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease.Answer: FalseT F 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort.Answer: FalseT F 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices.Answer: TrueT F 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).Answer: FalseT F 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.Answer: TrueT F 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.Answer: FalseT F 45. The tool used by the Federal Reserve System to influence the economy and behavior of19banks is known as moral hazard.Answer: FalseT F 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.Answer: TrueMultiple Choice Questions47.Banks are regulated for which of the reasons listed below?A) Banks are leading repositories of the public's savings.B) Banks have the power to create money.C) Banks provide businesses and individuals with loans that support consumption and investmentspending.D) Banks assist governments in conducting economic policy, collecting taxes and dispensinggovernment payments.E) All of the above.Answer: E48.An institutional arrangement in which federal and state authorities both have significant bankregulatory powers is referred to as:A) Balance of PowerB) FederalismC) Dual Banking SystemD) Cooperative RegulationE) Coordinated ControlAnswer: C49.The law that set up the federal banking system and provided for the chartering of national bankswas the:A) National Bank ActB) McFadden-Pepper ActC) Glass-Steagall ActD) Bank Merger ActE) Federal Reserve ActAnswer: A50.The federal law that prohibited federally supervised commercial banks from offering investmentbanking services on privately issued securities is known as:A) The Glass-Steagall ActB) The Bank Merger ActC) The Depository Institutions Deregulation and Monetary Control ActD) The Federal Reserve ActE) None of the AboveAnswer: A51.The Gramm-Leach-Bliley Act (Financial Services Modernization Act) calls for linkinggovernment supervision of the financial-services firm to the types of activities that the firmundertakes. For example the insurance portion of the firm would be regulated by state insurance commissions and the banking portion of the firm would be regulated by banking regulators. This approach to government supervision of financial services is known as:A) Consolidated regulation and supervision.B) Functional regulation.C) Services oversight.D) Umbrella supervision and regulation.E) None of the above.Answer: B52.The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure tobear on individuals and institutions to conform to the Fed's policies, using letters, phone calls, and speeches, is known as:A) Margin requirementsB) Moral suasionC) Discount window supervisionD) Conference and compromiseE) None of the above.Answer: B53.The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is:A) The Glass-Steagall ActB) The Federal Deposit Insurance Corporation Improvement ActC) The National Bank ActD) The Riegle-Neal Interstate Banking and Branching Efficiency Act.E) None of the above.Answer: D54.The federal law that allowed the Federal Reserve to set margin requirements is:A) The National Banking Act.B) The McFadden-Pepper Act.C) The Glass Steagall Act.D) The Federal Reserve Act.E) None of the above.Answer: C55.Of the principal reasons for regulating banks, what was the primary purpose of the NationalBanking Act (1863)?A) Protection of the public's savingsB) Control of the money supplyC) Providing support for government activitiesD) Maintaining confidence in the banking systemE) Preventing banks from realizing monopoly powers21Answer: C56.Of the principal reasons for regulating banks, what was the primary purpose of the Federal ReserveAct of 1913?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: B57.The law that allows lifted government deposit interest ceilings and allowed them to pay acompetitive interest rate is:A) The National Banking Act.B) The Glass Steagall Act.C) The Bank Merger Act.D) DIDMCAE) None of the above.Answer: D58.The law that allows banks to affiliate with insurance companies and security brokerage firms toform financial services conglomerates isA) The National Banking ActB) The Glass Steagall ActC) The Garn St. Germain ActD) The Riegle Neal Interstate Banking ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: E59.Of the principal reasons for regulating banks, what was the primary purpose of the Truth inLending Law?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: D60.Which of the following is an unresolved issue in the new century?A) What should be done about the regulatory safety net set up to protect small depositors?B) If financial institutions are allowed to take on more risk, how can taxpayers be protected frompaying the bill when more institutions fail?C) Does functional regulation actually work?D) Should regulators allow the mixing of banking and commerce?E) All of the above are unresolved issuesAnswer: E61.The law that made bank and nonbank depository institutions more alike in the services they couldoffer and allowed banks and thrifts to more fully compete with other financial institutions is:A) The National Banking ActB) The Federal Reserve ActC) The Garn-St. Germain ActD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: C62.The law that allowed bank holding companies to acquire nonbank depository institutions andconvert them to branches is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) None of the AboveAnswer: C63.The equivalent of the Federal Reserve System in Europe is known as the:A) European UnionB) Bank of LondonC) Basle GroupD) European Central BankE) Swiss Bank CorporationAnswer: D64.The new financial organization created by Gramm-Leach-Bliley is theA) Financial Holding CompanyB) Bank Holding CompanyC) European Central BankD) Financial Service CorporationE) Financial Modernization OrganizationAnswer: A65.The act which requires financial institutions to share information about customer identities withgovernment agencies is:A) The Sarbanes-Oxley ActB) The U.S. Treasury Department ActC) The 9/11 ActD) The USA Patriot ActE) The Gramm-Leach-Bliley ActAnswer: D2366.The 1977 law that prevents banks from “redlining” ce rtain neighborhoods, refusing to serve thoseareas is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) Community Reinvestment Act (CRA)Answer: Emon minimum capital requirements on banks in leading industrialized nations that are basedon the riskiness of their assets is imposed by:A) The National Banking ActB) FIRREAC) The International Banking ActD) The Basel AgreementE) None of the AboveAnswer: D68.The fastest growing crime in the U.S. is:A) Financial statement misrepresentationB) Bank robberiesC) Individual privacy violationsD) Credit card fraudE) Identity theftAnswer: E69.The oldest federal bank agency is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: A70.The federal agency that regulates the most banks is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: B71.Which federal banking act requires that financial service providers establish the identity of anycustomers opening new accounts?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: B72.Which federal banking act prohibits publishing false or misleading information about the financialperformance of a public company and requires top corporate officers to vouch for the accuracy of their company’s financial statements?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: A73.Which federal banking act reduces the need for banks to transport paper checks across the country?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: C74.Which federal banking act forces more individuals to repay at least part of what they owe and willpush higher-income borrowers into more costly forms of bankruptcy?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: E75.Which federal banking act requires the Federal Trade Commission to make it easier for victims ofidentity theft to make theft reports and requires credit bureaus to help victims resolve theproblem?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: D76.The _________ allows adequately capitalized bank holding companies to acquire banks in anystate.A)Riegle-Neal Interstate Banking and Branching Efficiency ActB)Competitive Equality Banking Act25C)Financial Institutions Reform, Recovery and Enforcement ActD)Federal Deposit Insurance Corporation Improvement ActE)Depository Institutions Deregulation and Monetary Control ActAnswer: A77.One of the earliest theories regarding the impact of regulation on banks was developed by GeorgeStigler. He contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: A78.Samual Peltzman had an opposing view to George Stigler on the impact of regulation on banks. Hecontends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: B79.There is an important debate raging today regarding whether banks should be regulated at all.George Benston contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticrents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulatedfirms.D) Depository institutions should be regulated no differently than any other corporation with nosubsidies or special privileges.E) None of the aboveAnswer: D80.The European Central Bank has the main goal of:A) Ensuring the economy grows at an adequate rate.B) Keeping unemployment low.C) Ensuring price stability.D) Ensuring an adequate and fair supply of loans.E) All of the aboveAnswer: C26Test Bank, Chapter 281.Which of the following has become the principal tool of central bank monetary policy today?A) Open market operationsB) Changing the discount rateC) Changing reserve requirementsD) Using moral suasionE) None of the aboveAnswer: A82.The Federal Reserve buys Treasury Bills in the open market. This will tend to:A) Cause interest rates in the market to riseB) Cause interest rates in the market to fallC) Cause reserves held at the Federal Reserve to decreaseD) Cause a decrease in the growth of deposits and loansE) All of the aboveAnswer: B83.Which federal banking act extends deposit insurance coverage on qualified retirement accountsfrom $100,000 to $250,000 and authorizes the FDIC to periodically increase deposit insurance coverage to keep up with inflation?A) Sarbanes-Oxley ActB) The Gramm-Leach-Bliley ActC) Check 21 ActD) The FACT ActE) Federal Deposit Insurance Reform ActAnswer: E84.The Financial Services Regulatory Relief Act of 2006 does the following:A) Adds selected new service powers to depository institutionsB) Loosens regulations on depository institutionsC) Grants the Federal Reserve authority to pay interest on depository institutions’ legal reservesD) All of the aboveE) None of the aboveAnswer: D85.The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis allowedthe following:A) An emergency sale of “bad assets”B) Temporary increase of FDIC deposit insurance to $250,000 for all depositsC) Injections of capital by the government into banks and other qualified lendersD) Closer surveillance of the mortgage market participants, such as brokers and lendersE) All of the aboveAnswer: E27。