978-0133427073 Test Bank Chapter 19 Part 3

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84) In recent years, commercial banks have been allowed to

A) invest in real estate.

B) enter certain insurance markets.

C) underwrite stocks.

D) do all of the above.

E) do only A and B of the above.

85) In a ________ banking system, commercial banks provide a full range of banking, securities,

and insurance services, all within a single legal entity.

A) universal

B) British-style universal

C) barrier-free

D) seamless

86) In a ________ banking system, commercial banks engage in securities underwriting, but

separate subsidiaries conduct the different activities. Also, banking and insurance are not

typically undertaken together in this system.

A) universal

B) British-style universal

C) divided

D) compartmentalized

E) severable

87) A major difference between the United States and Japanese banking systems is that

A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas

Japanese banks cannot.

B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas

American banks cannot.

C) bank holding companies are illegal in the United States.

D) both A and C of the above

E) both B and C of the above

88) Major differences between the United States and Japanese banking systems include:

A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas

Japanese banks cannot.

B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas

American banks cannot.

C) bank holding companies are illegal in Japan.

D) both A and C of the above.

E) both B and C of the above.

89) Which of the following is a reason for the rapid expansion of international banking?

A) The rapid growth in international trade

B) The growth of multinational corporations

C) The desire of U.S. banks to expand

D) All of the above

90) Since the passage of the International Banking Act of 1978, the competitive advantage

enjoyed by foreign banks has been ________.

A) reduced

B) mildly expanded

C) completely eliminated

D) greatly expanded

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

A) an international banking facility.

B) an agency office.

C) an Edge Act corporation.

D) a foreign bank subsidiary.

92) U.S. banks have most of their foreign branches in

A) Latin America, the Far East, the Caribbean, and London.

B) Latin America, the Middle East, the Caribbean, and London.

C) Mexico, the Middle East, the Caribbean, and London.

D) South America, the Middle East, the Caribbean, and Canada.

93) Eurodollars are

A) dollar-denominated deposits held in banks outside the United States.

B) deposits held by U.S. banks in Europe.

C) deposits held by U.S. banks in foreign countries.

D) dollar-denominated deposits held in U.S. banks by Europeans.

94) Deposits in European banks denominated in dollars for the purpose of international

transactions are known as ________.

A) Eurodollars

B) European Currency Units

C) euros

D) International Monetary Units

95) The main center of the Eurodollar market is ________.

A) London

B) Basel

C) Paris

D) New York

96) In 1975, financial institutions developed financial derivatives that included ________.

A) adjustable-rate mortgages

B) futures contracts

C) financial engineering

D) virtual banks

97) An electronic machine that allows customers to make deposits, get cash, transfer funds from

one account to another, and check balances is

A) an automated banking machine.

B) the virtual bank.

C) an automated teller machine.

D) a smart card.

98) A form of electronic money used on the Internet to pay for goods and services is

A) e-money.

B) e-cash.

C) a smart card.

D) a virtual bank.

99) A financial innovation that enables banks to avoid the “tax” from reserve requirements by

taking any balances above a certain amount in a corporation’s checking account at the end of the

business day and investing them in overnight securities that pay interest is called a ________.

A) money market mutual fund

B) deposit rate ceiling

C) sweep account

D) disintermediation

100) There are approximately how many commercial banks in the United States currently?

A) 5,000

B) 6,200

C) 1,000

D) 1,250

101) Regulations restricting branching have promoted the development of what two financial

innovations?

A) Bank consolidation and nationwide banking

B) Bank holding companies and automated teller machines

C) Money market mutual funds and sweep accounts

D) Reserve requirements and restrictions on interest paid on deposits

102) In September of 2008, the money market mutual fund Reserve Primary Fund had a price of

less than $1.00 for a dollar invested. How did this happen?

A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went

broke.

B) The fund invested in high-yield junk bonds, which defaulted.

C) The fund invested in Treasuries, which yielded less than 0% returns.

D) This actually didn’t happen. It cannot happen since the fund only invested in low-risk debt.

103) What is the key difference between an S&L and a mutual savings bank?

A) Mutual savings banks are jointly owned by depositors, whereas S&Ls aren’t.

B) The FDIC insures an S&L’s deposits, but not those of mutual savings banks.

C) Both A and B are correct.

D) Neither A nor B is correct.

104) Because their members share a common bond, credit unions are typically quite small; most

hold less than ________ of assets.

A) $500,000

B) $10 million

C) $100 million

D) $1 billion

19.2 True/False

1) Today, the United States has a dual banking system in which banks supervised by the federal

government and banks supervised by the states operate side by side.

2) Bank holding companies are regulated by the FDIC.

3) The existence of large numbers of banks in the United States indicates the presence of

vigorous competition.

4) Even when an ATM is owned by a bank, states typically have special provisions that allow

wider establishment of ATMs than is permissible for traditional “brick and mortar” branches.

5) Bank holding companies that have begun to rival the money center banks in size but whose

headquarters are not based in one of the money center cities are called superregional banks.

6) The future structure of the U.S. banking industry is likely to be characterized by many more

smaller banks, as customers demand neighborhood banks operated by people they know

personally.

7) Restrictions on commercial banks’ securities and insurance activities put American banks at a

competitive disadvantage relative to foreign banks.

8) Eurodollars are created when deposits in accounts in the United States are transferred to a

bank outside the country and are kept in the form of dollars.

9) Financial innovation has widened the cost advantages that banks have in acquiring funds,

helping to explain why bank profitability has soared in recent years.

10) Americans are the biggest users of checks in the world but nonetheless are ahead of

Europeans in the proportion of noncash payments that are made by electronic means.

11) Securitization is the process of transforming illiquid financial assets such as residential

mortgages into marketable securities.

12) Disintermediation occurs when funds are deposited into banks and lent to borrowers.

13) The principle underlying Treasury strips is that an investor will earn a higher interest rate

when reinvestment risk is eliminated.

14) Economies of scope come from increasing the size of a given financial activity and

economies of scale come from combining different activities to lower their costs.

15) Checkable deposits, a traditional source of low-cost funds for banks, have declined

dramatically in importance, falling from over 60 percent of bank liabilities to less than 10 percent

today.

16) A change in the financial environment will stimulate a search by financial institutions for

innovations that are likely to be profitable.

17) Reserve requirements that force banks to keep a certain fraction of their deposits as reserves

and restrictions on the interest rates that can be paid on deposits have been the major forces

behind financial innovation.

18) An alternative corporate structure for U.S. banks that operate overseas is the Edge Act

corporation, a special subsidiary engaged primarily in international banking.

19) Unlike commercial banks, S&Ls can only be chartered by the federal government.

1) Discuss some of the major milestones in the development of the U.S. banking system.

Topic: Chapter 19.1 Historical Development of the Banking System

Question Status: New Question

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

Topic: Chapter 19.2 Financial Innovation and the Growth of the Shadow Banking System