Principles of Finance, 6e
Besley/Brigham
Chapter 04
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DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-2 – Application
Business Program-3 – Analytic
DISC-FIN-04 – International Financial Management
Time Estimate-b – 10 min.
TOPICS:
Reserve Requirements
45. A(n) ____ is a depository institution that is owned by its depositors, who are members of a common organization or
association, such as an occupation, a religious group, or a community.
a.
pension fund
b.
commercial bank
c.
credit union
d.
insurance company
e.
mutual fund
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Credit Unions
46. Which of the following financial institutions is most likely to be the cheapest source of funds for individual
borrowers?
a.
credit unions
b.
savings and loans
c.
commercial bank
d.
insurance company
e.
finance company
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Credit Unions
47. A(n) ____ is an investment company that accepts money from savers and then use these funds to buy various types of
financial assets.
a.
savings and loans
b.
insurance company
c.
mutual savings bank
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.
d.
mutual fund
e.
commercial bank
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Mutual Funds
48. Mutual funds that invest primarily in instruments that generate fairly constant annual cash flows such as bonds and
preferred stocks are ____.
a.
income funds
b.
growth funds
c.
value funds
d.
money market funds
e.
social funds
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Mutual Funds
49. If the federal reserve purchases $100 million worth of government securities in open market operations, what is the
maximum amount of change in the money supply if the reserve requirement is 8% and banks hold no excess reserves?
a.
Decrease by $1.25 billion
b.
Increase by $1.25 billion
c.
Decrease by $1.15 billion
d.
Increase by $1.15 billion
ANSWER:
d
RATIONALE:
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-2 – Application
Business Program-3 – Analytic
DISC-FIN-04 – International Financial Management
Time Estimate-b – 10 min.
TOPICS:
Fractional Reserves
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50. If the reserve requirement for banks is fixed at 10% and the Fed wishes to decrease the money supply by $500 billion,
what type of open market operation should the Fed undertake?
a.
Sell $55.56 billion in government securities
b.
Purchase $55.56 billion in government securities
c.
Sell $50.00 billion in government securities
d.
Purchase $50.00 billion in government securities
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Fractional Reserves
51. The Fed banks are supervised by a central governing body called
a.
the Board of Governors
b.
the Federal Open Market Committee
c.
the Chairman of the Fed
d.
the Federal Banking Committee
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Federal Reserve
52. Which of the following is not a major provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010?
a.
New organizations to protect and inform consumers will be created
b.
greater transparency for trading exotic securities will be required
c.
stockholders will be permitted to have a say on corporate governance, including executive compensation,
through nonbinding votes
d.
Fannie Mae and Freddie Mac will be liquidated
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
Principles of Finance, 6e
Besley/Brigham
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a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Fractional Reserves
57. Banks are regulated because they provide several important services to their local and national economies.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Bank Regulation
58. Goldsmiths became banks when they began to hold fractional reserves and make loans.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Fractional Reserves
59. With 100 percent reserve banking, little or no lending is possible.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Monetary Policy
64. The primary function of the Federal Reserve is economic stabilization through control of the level and growth of the
money supply.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Federal Reserve
65. An increase in the money supply does not affect the supply of loanable funds.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Money Supply
66. The Federal Reserve can change the level of member bank reserves as well as reserve requirements.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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TOPICS:
Federal Reserve
67. Demand deposits represent the largest asset category for commercial banks.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Commercial Banks
68. Federal deposit insurance has prevented widespread bank failures and panics.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Deposit Insurance
69. The Federal Reserve System controls the money supply and is not a bank regulator.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Federal Reserve
70. Mutual savings banks are owned by depositors, as are mutual S&Ls.
a.
True
b.
False
ANSWER:
False
POINTS:
1
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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74. The Federal Reserve’s most influential policy is its reserve requirement policy.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Monetary Policy
75. All else equal, the nation’s money supply increases when the Federal Reserve purchases U.S. Treasury securities.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Monetary Policy
76. The Federal Reserve is an independently funded federal agency of Congress, thus is independent of the political
processes of Washington.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Federal Reserve
77. A decrease in reserve requirements should result in an increase in the total level of member bank reserves.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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domestic banks.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
International Banking
82. U.S. banks have been permitted to engage in a wider range of business activities in foreign countries than at home in
order to be competitive with foreign banks.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
International Banking
83. The Federal Deposit Insurance Corporation (FDIC) approves and charters all federal, or national, banks and many
state banks.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Deposit Insurance
84. Savings and loan associations were established to provide commercial real estate financing.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Banking
89. Financial intermediaries are the end users of the funds that they get from those who wish save money for the future.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Financial Intermediaries
90. Financial intermediaries allow savers to provide the funds directly to the borrowers.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Financial Intermediaries
91. Individuals have greater expertise than financial intermediaries when it comes to gathering, verifying, and evaluating
information concerning borrowers.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Principles of Finance, 6e
Besley/Brigham
Chapter 04
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b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Financial Intermediaries
96. In the Basel III Accord, 27 countries agreed to increase their banks’ capital requirements in an effort to reduce the risk
that mega bank failures will cause future financial crises.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Financial Institutions
97. The success of financial institutions in the future will depend on their ability to specialize and offer niche products to a
narrow base of customers.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-04 – International Financial Management
Time Estimate-a – 5 min.
TOPICS:
Financial Institutions
98. Most of the financial panics experienced by the United States in the past can be traced to the behavior of financial
intermediaries who either took on too much risk or behaved unethically.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.