TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 3
DEPOSITORY INSTITUTIONS
MULTIPLE CHOICE
1. Depository institutions include:
[E]
2. In generating spread income, depository institutions face several risks. They include:
[E]
3. Depository institutions accommodate net withdrawals and loan demand by:
[E]
4. Loans to nonfinancial corporations, financial corporations and government entities fall
into the category of:
5. Banks are highly leveraged financial institutions, which means that most of their funds
come from:
[M]
6. The market where banks can borrow and lend reserves is called the:
[M]
7. If actual reserves exceed required reserves, the difference is referred to as:
[M]
8. The discount rate is the interest rate charged to:
[M]
9. Member banks can borrow from the Fed in order to:
10. Until the 1960, Regulation Q had virtually no impact on the ability of banks to compete
with other financial institutions to obtain funds because:
[M]
11. The capital structure of banks, like that of all corporations, consists of:
[E]
12. What are the principal objectives of the risk-based capital requirements?
[M]
13. The Garn-St. Germain Act of 1982 expanded the types of assets in which S&Ls could
invest. The acceptable list now includes:
[M]
14. The principal assets of savings banks are:
15. The primary source of funds for credit unions is:
[E]
16. Regulation Q allowed the Fed to impose:
[E]
17. The borrowings by S&Ls from the Federal Home Loan Banks are called:
[M]
18. Since credit unions are owned by their members, member deposits are called:
[E]
19. The basic motivation behind the creation of S&Ls was provision of funds for financing:
20. Continual bank borrowing at the Fed for long periods and in large amounts is viewed as a
sign of:
TRUE/FALSE
1. A depository institution seeks to earn income from the positive spread between the assets
it invests in and the cost of its funds.
[E]
2. Banks use secondary reserves to meet the Fed’s reserve requirements.
[M]
3. Money center banks are more active in global banking.
[E]
4. Depository institutions are highly regulated at both the state and federal level.
[E]
5. A bank cannot invest $1 for every $1 it obtains in deposit because it must maintain a
specified percentage of its deposits in a non-interest bearing account at one of the 12
Federal Reserve Banks.
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ESSAY QUESTIONS
1. Explain the major differences between commercial banks and savings and loan
associations.
Key Issues:
2. Explain why banks cannot invest $1 for every $1 it obtains in deposits.
Key Issues:
3. What are the requirements for banks to borrow from the Fed’s discount window?