Financial Intermediation and Depository Institutions: A Quiz

CHAPTER 3

Financial Intermediation and Depository Institutions

Quiz

1. ____________ is the process by which individual savings are accumulated in depository institutions where the funds are then loaned out to consumers or invested in businesses.

1. Savings/investment
2. Financial intermediation
3. Contractual savings
4. Mortgage banking

Answer: b

2. Contractual savings organizations provide all of the following services with the exception of __________.

1. Collecting premiums on insurance policies
2. Accepting deposits or savings from individuals and then lending these pooled savings to businesses.
3. Providing retirement benefits and insurance against major financial losses.
4. Collecting employee or employer contributions from pension fund participants.

Answer: b

3. ________________ ________________ receive contributions from employees or their employers and invest the proceeds on behalf of the employees.

1. Pension funds
2. Insurance companies
3. Credit unions
4. Savings banks

Answer: a

4. All of the following are characteristics of a commercial bank EXCEPT

1. A commercial bank accepts deposits.
2. A commercial bank issues check writing accounts to facilitate purchases and pay bills.
3. A commercial bank helps businesses sell their new debt and equity securities to raise financial capital.
4. A commercial bank makes loans to individuals and businesses.

Answer: c

5. Which legislative act provided for the separation of commercial banks and investment banks in the United States?

1. Glass-Steagall Act of 1933
2. Gramm-Leach-Bliley Act of 1999
3. Hudson-Glenna Act of 1942
4. Van Buren-Cline Act of 1938

Answer: a

6. Who established the first incorporated bank in North America?

1. Alexander Hamilton
2. Andrew Jackson
3. Robert Morris
4. John Jacob Astor

Answer: c

7. The Federal Reserve Act of 1913

1. Gave more powers to state banks.
2. Brought a system of central banks.
3. Made it possible for banks to receive federal charters for the first time.
4. Separated commercial banks and investment banks.

Answer: b

8. When federal deposit insurance was increased from $40,000 to $100,000 for each account, the U.S. Treasury stated that _________________________.

1. It undermined market discipline and enabled depository institutions to make high-risk loans for which the taxpayers in the long run have become liable.
2. It amended the Home Owners’ Loan Act of 1933.
3. It expanded the uses of the funds of S&L’s.
4. It established interest rate ceilings on time and savings deposits.

Answer: a

9. What allows commercial banks to obtain charters from either the federal government or a state government?

1. Reserve requirements set by the Fed for member banks extended to state nonmember banks
2. Dual banking system
3. Reducing insurable deposit limits to protect only the small deposits
4. Eliminating all deposit insurance

Answer: b

10. The policies of banks controlled by a holding company are determined by _____________.

1. The placement of branches.
2. The parent company and coordinated for the purposes of that organization.
3. Both OBHCs and MBHCs.
4. Limited branch banking.

Answer: b

11. ______________ are the financial debts and obligations owed by the bank.

1. Liabilities
2. Owners’ capital
3. Financial equity
4. Assets

Answer: a

12. The interest rate charged by banks for short-term unsecured loans to their highest quality business customers is referred to as what rate?

1. Unsecured
2. Industrial
3. Prime rate
4. Secured

Answer: c

13. ___________ reflects the ability to keep the value of a bank’s assets greater than its liabilities.

1. Bank solvency
2. Bank safety
3. Bank liquidity
4. Capital adequacy management

Answer: a

14. What is necessary to ensure that banks remain solvent, meet depositor demands, and pay their debts as they come due?

1. Owners’ capital
2. Underlying debt instruments
3. Adequate capital
4. An inverse relationship between the price or value and interest rates

Answer: c

15. The purpose of the Basel Accord has been to

    a. establish capital adequacy requirement for banks with international operations.

    b. increase short term liquidity positions of key international banks.

    c. try to stem capital flight to offshore tax havens.

    d. improve the monetary coordination between the main economies of western Europe.

Answer: a