Principles of Finance, 6e
Besley/Brigham
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
c.
founded to provide consumers with low-cost loans and encourage thrift for members.
d.
first organized in the United States.
e.
All of the above.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Credit Unions
13. Each of the following is classified as a thrift financial institution, except
a.
commercial bank.
b.
savings and loan association.
c.
savings bank.
d.
credit union.
e.
All of the above are thrift institutions.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Thrift Institutions
14. Which statement is not true about life insurance companies?
a.
They have relatively predictable inflows and outflows.
b.
Their liabilities are long-term in nature.
c.
They invest heavily in short-term highly marketable securities.
d.
They sell contracts that offer financial protection against premature death.
e.
All of the above.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
Principles of Finance, 6e
Besley/Brigham
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d.
Securities and Exchange Commission.
e.
None of the above.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Mutual Fund Regulation
21. The most frequent common bond for credit union formation is
a.
occupational.
b.
church-related or religious affiliation.
c.
geographical.
d.
ethnicity factors.
e.
political affiliation.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Credit Unions
22. The major regulator of investment companies is the
a.
state in which they are incorporated.
b.
bank holding companies that own them.
c.
Securities and Exchange Commission.
d.
Federal Reserve System.
e.
U.S. Treasury.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Investment Companies
Principles of Finance, 6e
Besley/Brigham
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Page 11
e.
All of the above.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
International Bank Act
29. Early goldsmiths began to function as modern banks when they began to operate under a fractional reserve policy and
a.
loaned gold.
b.
issued receipts for gold deposited.
c.
issued deposit receipts to borrowers in return for a note (loan).
d.
when they received a banking charter from the government.
e.
All of the above.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Fractional Reserves
30. The original purpose of deposit insurance was to
a.
prevent bank runs by large depositors.
b.
increase the regulatory monitoring of banks.
c.
force the banks to invest in less risky investments.
d.
prevent bank panics by insuring the small deposits of many people.
e.
All of the above.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Deposit Insurance
31. All but which of the following financial institutions would you expect to be able to get federal deposit insurance for
Principles of Finance, 6e
Besley/Brigham
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
their customers?
a.
bank holding companies
b.
credit unions
c.
commercial banks
d.
savings and loan associations
e.
None of the above.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Deposit Insurance
32. Federal deposit insurance has
a.
prevented bank depositor panics, but not bank failures.
b.
prevented bank panic and bank failures.
c.
prevented bank failures, but not bank depositor panic.
d.
not prevented bank depositor panics, but has eliminated bank failures.
e.
None of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-a – 5 min.
TOPICS:
Deposit Insurance
33. All of the following are reasons to regulate depository institutions except
a.
to promote safety and soundness.
b.
to affect the structure of banking.
c.
to make sure banks’ earnings are competitive with other financial institutions.
d.
to protect the interest of consumers.
e.
None of the above.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
Principles of Finance, 6e
Besley/Brigham
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Page 14
e.
Total deposits would decrease, but there is not enough information to compute the amount.
ANSWER:
a
RATIONALE:
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-2 – Application
Business Program-3 – Analytic
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-b – 10 min.
TOPICS:
Fractional Reserves
37. A small state bank currently has reserves equal to $300,000. If the state reserve requirement is 20%, but the bank feels
more comfortable with maintaining a 30% reserve, what amount of deposits does the bank currently have?
a.
$1,500,000
b.
$600,000
c.
$1,000,000
d.
$300,000
e.
None of the above.
ANSWER:
c
RATIONALE:
Reserves = $300,000 = 0.30(Total deposits)
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-2 – Application
Business Program-3 – Analytic
DISC-FIN-04 – International Financial Management
DISC-FIN-09 – Investments
Time Estimate-b – 10 min.
TOPICS:
Reserve Requirements
38. Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits. What is the
total reserve requirement for a bank with total deposits equal to $800 million, if $600 million of these deposits are
classified as transaction deposits?
a.
$80 million
b.
$60 million
c.
$70 million
d.
$100 million
e.
None of the above.
ANSWER:
c
RATIONALE:
Reserve
requirement
= $600 million × 0.10 + $200 million × 0.05
