(Test Bank) Bank Management

Koch,MacDonald, 8

Business

Test Bank

8th Edition

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Test Bank for Bank Management, The downloadable file consists of 178 pages, and the total size of the file is 2.16 MB. Purchase now only for highly discounted price.

Author(s): Koch, MacDonald

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1 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 1 Banking and the Financial Services Industry Multiple Choice 1. Which act separated commercial banking, investment banking and insurance into three separate industries? a. Glass -Steagall Act b. Bank Holding Company Act c. McFadden Act d. Federal Reserve Act e. Competitive Equality Banking Act Answer: a 2. Which act limited the activities a company could engage in if it owned a bank? a. Federal Reserve Act b. Bank Holding Company Act c. McFadden Act d. Glass -Steagall Act e. Competitive Equality Banking Act Answer: b 3. Which of the following mortgage types were offered to “subprime” borrowers? a. Interest Only b. Option Adjustable -Rate c. Principal Only d. All of the above e. a. and b. only Answer: e 4. The U.S. government took all of the following action s to address the credit crisis in 2008 except : a. putting Fannie Mae into conservatorship. b. passed the Troubled Asset Relief Program (TARP). c. created the Keep Banks Solvent (KBS) agency. d. authorized large non -financial firms to sell bonds that were FDIC -insured. e. temporarily increased FDIC domestic deposit coverage to $250,000. Answer: c 2 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 5. At the end of 2008, which of the following investment banks remained independent? a. Bear Stearns b. Goldman Sachs c. Lehman Brothers d. Merrill Lynch e. a. and b. Answer: b 6. In 2008, the U.S. Treasury financial supported financial institutions by: a. purchasing troubled assets. b. buying preferred stock in some financial institutions. c. issuing guarantees on money market funds. d. increasing the deposit insurance limit. e. all of the above. Answer: e 7. Which of the following is false regarding community banks? a. They typically have extensive operations in specific regions of the country . b. They typically operate in a limited geographic area. c. They often focus on lending to small busi nesses. d. The bulk of their funding comes from deposits. e. They tend to grow at a modest rate. Answer: a 8. __________ have a large international presence. a. Global banks b. Nationwide banks c. Super regional banks d. Regional banks e. Specialty Banks Answer: a 3 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 9. An “independent” bank is: a. an “independent” subsidiary of a multi -bank holding company. b. another name for a one -bank holding company. c. a bank that is exempt from paying federal income taxes. d. a bank that is specifically created to underwrite corporate debt issues . e. not controlled by a multi -bank holding company or any other outside interest. Answer: e 10. At the end of 2013 , there were approximately ______ independent banks and thrifts in operation in the United States. a. 300 b. 1,800 c. 4,200 d. 4,500 e. 6,300 Answer: b 11. What i s the primary motivation today of forming a financial holding company? a. To increase speculation. b. To branch across state lines. c. To engage in activities not permitted in a bank holding company. d. To branch within a particular states boundaries. e. To reduce the ri sk of bank failures. Answer: c 12. Bank holding companies and financial holding companies generally do not pay income tax because: a. they are always chartered as non -profit corporations. b. most of their income is subsidiary paid dividends, of which 80% is tax -exempt. c. the subsidiaries always operate at a net loss. d. bank holding companies must carry deposit insurance. e. bank holding companies are not subject to Internal Revenue Service regulations. Answer: b 4 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 13. Controlling interest in a bank is defined as ownership or indirect control of ____ of the voting shares in the bank. a. 15% b. 20% c. 25% d. 30% e. 51% Answer: c 14. Today , the primary motivation behind forming a bank holding company is: a. to reduce competition. b. the ability to circumvent restrictions on branching. c. to broaden the scope of products the bank can offer. d. to increase deposit concentration. e. All of the above are motivating factors today for forming a bank holding company. Answer: c 15. A __________ control s at least two commercial banks. a. one-bank holding company b. state holding company c. national holding company d. multibank holding company e. financial holding company Answer: d 16. The _________ gave regulatory responsibility over financi al holding companies to the Federal Reserve. . a. Riegle -Neal Interstate Banking and Branching Efficiency Act b. Gramm -Leach -Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository In stitutions Deregulation and Monetary Control Act Answer: b 5 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 17. Many insurance companies have formed __________ to operate banks as part of their financial services efforts. a. one-bank holding companies b. multibank holding companies c. retail subsidiaries d. finance companies e. financial holding companies Answer: a 18. Banks create d Section 20 affiliates to: a. engage in investment banking activities . b. make international loans. c. purchase savings and loans. d. invest in junk bonds. e. compete with general -purpose finance companies. Answer: a 19. The __________ _____ repealed the restriction on banks affiliating with securities firms under the Glass -Steagall Act. a. Sarbanes -Oxley Act b. Bank Holding Company Act c. Competitive Equality Banking Act d. Gramm -Leach-Bliley Act e. Financial Institutions Reform, Recovery and Enforcement Act Answer: d 20. The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries: a. received an unsatisfactory in its most recent Community Reinvestment Act exam . b. has branches across state lines . c. is part of a bank holding company. d. makes subprime loans . e. is well capitalized . Answer: a 6 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 21. A financial holding company cannot own which of the following ? a. A bank. b. A bank holding company. c. A thrift. d. A thrift holding company. e. A financial holding company may own all of the above. Answer: e 22. The parent bank holding company assists bank subsidiaries with all of the following except : a. asset and liability management. b. strategic planning. c. loan review. d. deposit insurance. e. business development. Answer: d 23. ___-corp s have favorable tax treatment because a qualifying firm does not pay corporate income taxes. a. C b. Q c. S d. V e. Z Answer: c 24. S-corp s must have no more than ___ shareholders. a. 10 b. 50 c. 100 d. 500 e. 1,000 Answer: c 25. Deposits at credit unions are insured by the: a. National Credit Union Association. b. Federal Credit Union Administration. c. Federal Reserve. d. Federal Deposit Insurance Corporation. e. Credit Union Insurance Corporation. Answer: a 7 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 26. In 2010, Congress passed the ______________ which addressed a wide range of problems associated with the financial crisis, including Too Big to Fail banks. a. Sarbanes -Oxley Act b. Troubled Asset Relief Program c. Glass -Steagall Act d. Gramm -Leach -Bliley Act e. Dodd -Frank Act Answer: e 27. ______________ refers to the process of pooling a group of assts with similar features and issuing securities that are collateralized by the assets. a. Originate -to-Resell b. Securitization c. Mortgage C ollateralization d. Deposit Origination e. Loan -to-Distribute Answer: b 28. Deposit insurance was increased to __________ per depositor in 2008 . a. $100,000 b. $150,000 c. $250,000 d. $300,000 e. $500,000 Answer: c 29. The primary appeal of online banking is: a. prevention of identity theft. b. high -volume traffic. c. lack of face -to-face interaction. d. its convenience. e. the ability to make small dollar purchases. Answer: d 8 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 30. Which of the following is not a channel for delivering banking services? a. Mobile banking. b. Online banking. c. Automated Teller Machines. d. Branch banking. e. Retail banking. f. Answer: e True/False 31. Mortgage defaults were greatest in geographic markets that had experienced the greatest run-up in real estate prices. Answer: True 32. Smaller banks tended to have more subprime mortgage defaults than larger banks. Answer: False 33. To help keep people in their homes, the SEC promoted loan modifications for troubled home -loan borrowers. Answer: False 34. In 2008, the U.S. Treasury committed over $50 trillion dollars in financia l support for financial institutions. Answer: False 35. Community banks tend to operate in a limited geographic region. Answer: True 36. Super -regional banks typically have limited global operations. Answer: True 37. During the past 20 years, the number of distinct U.S. banking organizations has increased. Answer: False 38. An independent bank operates a single organization that accepts deposits and makes loans. Answer: True 39. Thrifts are supervised by the Office of Thrift Supervision. Answer: True 9 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 40. It is more difficult for multibank holding companies to realize economies of scale if they allow subsidiary banks to retain key decision -making authority. Answer: True 41. Financial holding company and bank holding company are different names for the same type of entity . Answer: False 42. The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized. Answer: True 43. Securitization refers to the process of splitting a single loan into several smaller loans. Answer: False 44. Transaction banking emphasizes the personal relationship between the banker and customer. Answer: False 45. Universal banks were originally centered in Western Europe. Answer: True Essay 46. Briefly describe three things the government did in response to the failure of several large financial institutions in 2008. 47. What are the advantages of forming a financial holding company versus forming a bank holding company? 48. Briefly explain the differences between transactions banking and relationship banking . 49. Briefly explain how securitization led contributed to the credit crisis of 2007 – 2009. 50. Describe three of the various channels for delivering bank products. 1 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 2 Government Policies and Regulation Multiple Choice 1. Historically, a commercial bank was defined as a firm that: a. accepted NOW accounts and made consumer loans. b. accepted demand deposits and made business loans. c. accepted government deposits and made public loans. d. accepted demand deposits and made consumer loans. e. is regulated by the Federal Reserve. Answer: b 2. Which of the following is not a purpose of bank regulation? a. Guarantee minimal profitability of the banking system. b. Provide monetary stability. c. Ensure safety and soundness of banks. d. Provide a competitive financial system. e. Protect consumers from abuses by banks. Answer: a 3. A primary purpose of maintaining the safety and soundness of banks is to: a. encourage loan growth. b. protect depositors. c. ensure liquidity for the stock market. d. prevent discrimination. e. minimize bank losses. Answer: b 4. Which of the following is not represented in the CAMELS ratings. a. Cash adequacy b. Asset quality c. Management quality d. Liquidity e. Sens itivity to market risk. Answer: a 2 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 5. A formal regulatory document that prescribes corrective action for a problem institution is called a: a. cease and desist order . b. capital request. c. memorandum of understanding. d. quality assurance directive. e. national bank order. Answer: c 6. A legal document that orders a firm to sop an unfair practice under full penalty of law is a: a. cease and desist order. b. capital request. c. memorandum of understanding. d. quality assurance directive. e. national bank order. Answer: a 7. A new charter to start a state bank must be obtained from the: a. Federal Reserve. b. Federal Deposit Insurance Corporation. c. Office of the Comptroller of the Currency. d. Office of Thrift Supervision. e. State banking department. Answer: e 8. A ne w charter to start a federal savings association is obtained from the: a. Office of the Comptroller of the Currency. b. National Credit Union Administration. c. Office of Thrift Supervision. d. State banking department. e. Federal Reserve Answer: c 9. National and state charters are available for all of the following except : a. credit unions. b. commercial banks. c. savings associations. d. Federal Reserve banks. e. National and state charters are available for all of the above. Answer: d 3 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 10. The primary federal regulato r of state banks that are not members of the Fed is the: a. FDIC. b. Office of the Comptroller of the Currency. c. Office of Thrift Supervision. d. State’s banking department. e. National Credit Union Administration. Answer: a 11. The primary federal regulator of state banks that are members of the Fed is the: a. Resolution Trust Corporation b. Federal Reserve c. Office of the Comptroller of the Currency d. State Banking Authorities. e. Federal Deposit Insurance Corporation. Answer: b 12. Commercial banks mostly specialize in: a. mortgages. b. mutual loans. c. short -term business credit. d. savings accounts. e. share draft accounts. Answer: c 13. Savings and loans have historically specialized in: a. commercial loans. b. auto loans. c. mutual loan. d. real estate loans. e. demand deposit accounts. Answer: d 14. Savings institutions must maintain what percent of their assets in housing -related assets to be considered a “Qualified Thrift Lender”? a. 100% b. 15% c. 70% d. 85% e. 65% Answer: e 4 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 15. Many insurance companies have organized as a _____________ in order to own a depository institution and bypass prohibitions in the Glass -Steagall Act and the Bank Holding Company Act. a. unitary thrift holding company b. commercial bank c. mortgage company d. savings bank e. credit union Answer: a 16. Which of the following institutions’ customers h ave a “common bond”? a. credit union b. commercial bank c. mortgage company d. savings bank e. thrift Answer: a 17. Originally, the FDIC insured deposits up to: a. $100,000 b. $50,000 c. $25,000 d. $10,000 e. $5,000 Answer: e 18. Which of the following is not a component of the Farm Credit System? a. Farm Credit Banks b. Agricultural Credit Associations c. Federal Land Credit Associations d. Farm Credit Administration e. Agricultural Lending Office Answer: e 19. Which of the following officially designates a bank as insolvent? a. Office of the Comptroller of the Currency b. Federal Reserve c. Office of Thrift Supervision d. Office of National Charters e. Resolution Trust Corporation Answer: a 5 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 20. Which of the following is the receiver of a failed depository institution ? a. Federal Reserve b. Federal Deposit Insurance Corporation c. Office of the Comptroller of the Currency d. Office of Thrift Supervision e. Federal Savings and Loan Insurance Corporation Answer: b 21. The Federal Deposit Insurance Reform Act of 2005 created which of the following ? a. Bank Insurance Fund b. Deposit Insurance Fund c. Savings Association Insurance Fund d. National Credit Union Shares Insurance Fund e. Federal Savings and Loan Insurance Fund Answer: b 22. Bank regulations: a. can prevent bank failures. b. can eliminate economic risk for banks. c. serve as guidelines for sou nd operating policies. d. guarantee bankers will make sound management decisions. e. guarantee bankers act in an ethical manner. Answer: c 23. Which of the following is not a fundamental function of the Federal Reserve? a. Conduct the nation’s monetary policy. b. Provide an effective payments system. c. Regulate banking operations. d. Ensure bank profitability. e. All of the above are fundamental functions of the Federal Reserve. Answer: d 24. The Federal Reserve has Reserve Banks and branches in ___ districts across the country. a. 10 b. 12 c. 14 d. 16 e. 18 Answer: b 6 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 25. Which of the following is not one of the Fed’s monetary policy tools? a. Open market operations b. Changes in the fed funds rate c. Changes in the discount rate d. Changes in the required reserve ratio e. All of the above are monetary p olicy tools of the Fed Answer: b 26. Which of the following is the most flexible of the Fed’s tools for implementing monetary policy? a. Changes in the fed funds rate b. Changes in the required reserve ratio c. Changes in the discount rate d. Open market operations e. Private placements Answer: d 27. Currently, the Fed sets the discount rate __________ the target fed funds rate. a. 1% - 1.5% below b. 2% - 2.5% below c. 3% - 3.5% above d. 2% - 2.5% above e. 1% - 1.5% above Answer: e 28. Which of the following allows depository institutions to borrow for a fixed term against a variety of collateral that is normally accepted for discount window loans ? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recove ry Facility Answer: a 7 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 29. Which of the following loans Treasury securities to primary dealers in exchange for other securities held by the dealers? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recovery Facility Answer: b 30. Which of the following is an overnight collateralized loan facility that provides loans for up to 120 days to primary dealers in exchange for a broad range of collateral? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recovery Facility Answer: c 31. Which type of financial inst itution has seen the largest drop in their share of U.S. financial assets? a. Depository institutions b. Mutual funds c. Insurance companies d. Pension plans e. Finance companies Answer: a 32. Federal Reserve Reg. ____ makes it illegal for any lender to discriminate on the basis of national origin. a. AA b. BB c. Z d. C e. B Answer: e 8 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 33. Federal Reserve Reg. ____ requires disclosure of as to why a costumer was denied credit. a. AA b. BB c. Z d. C e. B Answer: c 34. Which of the following was a goal of the Depository Institutions Deregulation and Monetary Control Act of 1980? a. To reduce the range of banking services offered. b. To allow banks to pay market rates on deposits. c. To allow banks to make long -term mortgage loans. d. To allow banks to offer Money Market Deposit Accounts. e. To reduce the number of l everaged buyouts. Answer: b 35. The _________ authorized money market deposit accounts. a. Depository Institutions Act (Garn -St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer: a 36. The _________ expanded the FDIC’s authority for open bank assistance. a. Depository Institutions Act (Garn -St. Germain) b. Competitive Equality Bankin g Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer: b 37. The _________ created the Office of Thrift Supervision. a. Deposit ory Institutions Act (Garn -St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer : c 9 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 38. The _________ mandated that the FDIC take prompt corrective action in dealing with bank failures. a. Depository Institutions Act (Garn -St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer: a 39. FASB 115 requires historical costs to be used for: a. trading account securities. b. available -for-sale securities. c. retained earnings. d. held -to-maturity securities. e. net income. Answer: d 40. The _________ allows adequately capitalized bank holding companies to acquire banks in any state. a. Riegle -Neal Interstate Banking and Branching Efficiency Act b. Competitive Equality Banking Act c. Financial Ins titutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer: a 41. The _________ requires disclosure of a bank’s privacy policy. a. Riegle -Neal Intersta te Banking and Branching Efficiency Act b. Gramm -Leach -Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act Answer: b 42. The _________ repealed the Glass -Steagall Act . a. Riegle -Neal Interstate Banking and Branching Efficiency Act b. Gramm -Leach -Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository I nstitutions Deregulation and Monetary Control Act Answer: b 10 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 43. The _________ established to Public Company Oversight Board to regulate public accounting firms that audit publicly -traded companies. a. Riegle -Neal Interstate Banking and Branching Efficiency Act b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Sarbanes -Oxley Act e. Depository Institutions Deregulation and Monetary Control Act Answer: d 44. _________ allowed any institution to “truncate” the paper check at any point in the check clearing process . a. Riegle -Neal Interstate Banking and Branching Efficiency Act b. Fair and Accurate Credit Transactions Act c. Troubled Asset Relief Program d. Sarbanes -Oxley Act e. Check 21 Act Answer: e 45. The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions . a. Capital Purchase Program b. Foreclosure Prevention Act c. Troubled Asset Relief Program d. Primary Dealer Credit Facility e. Check 21 Act Answer: c 46. The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock. a. Treasury Emergency Authority Provisions b. Foreclosure Prevention Act c. Troubled Asset Relief Program d. Prima ry Dealer Credit Facility e. Check 21 Act Answer: a 11 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 47. Which of the following statements is/are correct? a. Higher capital requirements often result in a higher cost of capital for banks. b. Small banks have greater access to the equity markets than large banks. c. Higher capital requirements encourage small banks to consolidate into larger banks. d. All of the above are correct. e. Only a. and c. are correct. Answer: e 48. The Helping Families Save Their Homes Act of 2009 included provisions: a. intended to prevent mortgage foreclosures. b. to enhance the availability of mortgage credit . c. to protect renters living in foreclosed homes . d. All of the above are correct. e. Only a. and b. are correct. Answer: d 49. The Consumer Financial Protection Bureau was created as p art of the: a. Hope for Homeowners Act b. Dodd -Frank Act c. Fair and Accurate Credit Transactions Act d. Gramm -Leach -Bliley Act e. Sarbanes -Oxley Act Answer: b 50. The lack of incentive to guard against risk where one is protected from it is known as: a. risk aversion b. too big to fail c. protection guarantee d. incentive failure e. moral hazard Answer: e True/False 51. A dual banking system means that both the federal government and individual states charter banks and credit unions. Answer: True 52. A memorandum of understanding is a leg al document that orders a firm to stop an unfair practice. Answer: False 12 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 53. A function of investment banking is to facilitate corporate mergers and acquisitions. Answer: True 54. Most banks have the ability to easily raise new capital by issuing new equity. Answer: False 55. Credit union membership is based upon a strict common bond that defines the members. Answer: False 56. Bank regulations can guarantee that bankers will make sound management decisions . Answer: False 57. State -chartered banks must be members of the Federal Reserve System. Answer: False 58. The Dodd -Frank Act eliminates “Too -Big-To-Fail” bailouts. Answer: True 59. The Federal Reserve serves as the lender of last resort . Answer: True 60. The FDIC insures credit union accounts up to $ 250,000. Answ er: False Essay 61. Discuss the limits on the types of products and services a commercial bank can offer . 62. Briefly explain the components of the CAMELS system . 63. Discuss why several investment banks choose to become financial holding companies in 2008 . 64. Discuss how the degree of regulation is different for depository institutions versus non - depository institutions. 65. Discuss two of the shortcomings of restrictive bank regulation. 1 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 3 Analyzing Bank Performance Multiple Choice 1. Which of the following led to the sharp decline in bank profits in 2008 ? a. Record high loan loss provisions b. Record gains in trading activities c. Significant goodwill impairment expenses d. All of the above. e. a. & c. only. Answer: e 2. Which of the following is not a characteristic of a typical commercial bank? a. Most banks own few fixed assets. b. Most banks have a high degree of operating leverage. c. Most banks have few fixed costs. d. Many bank liabilities are payable on demand. e. Banks generally operate with less equity capital than non -financial firms. Answer: b 3. Bank assets fall into each of the following categories except : a. loans. b. investment securities. c. demand deposits. d. noninterest cash and due from banks. e. other assets. Answer: c 4. Typically, “c all loans” are: a. residential mortgages. b. farm loans. c. demand deposits. d. payable on demand. e. automobile loans. Answer: d 2 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 5. A loan to an individual to purchase a home would be considered a: a. consumer loan. b. commercial loan. c. agricultural loan. d. construction loan. e. real estate loan. Answer: e 6. Which of the following would not be considered a commercial loan? a. An interim construction loan b. A working capital loan c. A loans to another financial institution d. A loan to purchase a piece of industrial equipment e. A loan to expand a factory Answer: a 7. Banks generate their largest portion of income from: a. loans. b. short -term investment. c. demand deposits. d. long -term investments. e. certificates of deposit. Answer: a 8. Loans typi cally fall into each of the following categories except : a. real estate. b. individual. c. commercial. d. agricultural. e. municipal. Answer: e 9. Which of the following adjustments are made to gross loans and leases to obtain net loans and leases? a. The loan and lease loss allowance is subtracted from gross loans b. Unearned income is subtracted from gross interest received c. Investment income is added to gross interest received d. a. and b. e. a. and c. Answer: d 3 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 10. An example of a contra -asset account is: a. the loan and lease loss allowance. b. unearned income. c. buildings and equipment. d. revenue bonds. e. the provision for loan loss. Answer: a 11. Which of the following bank assets is the most liquid? a. Long -term investments b. Short -term investments c. Loans d. Demand deposits e. Unearned income Answer: b 12. Which of the following would a bank generally classify as a short -term investment? a. Demand deposits b. Deposits at the Federal Reserve c. Repurchase agreements d. Fed Funds purchased e. Vault cash Answer: c 13. All other things constant, securities that are extremely liquid: a. earn higher rates of return than securities that are less liquid. b. have a longer maturity than less liquid securities. c. have lower risk than less liquid securities. d. a. and b. e. b. and c. Answer: c 14. Which of the f ollowing would a bank generally classify as a long -term investment? a. Treasury bill b. Vault cash c. Cash items in process of collection d. Municipal bond e. Repurchase agreements Answer: d 4 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 15. Securities that are “held -to-maturity” are: a. trading account securities. b. recorded on the balance sheet at amortized cost. c. marked -to-market. d. a. and b. e. a. and c. Answer: b 16. Securities that require unrealized gains or losses to be recorded as a change in stockholder’s equity are called: a. held -to-maturity securities. b. trading account securities. c. available -for-sale securities. d. revenue securities. e. repurchase agreements Answer: c 17. Securities that require unrealized gains or losses to be recorded on the income statement are called: a. held -to-maturity securities. b. trading account securities. c. available -for-sale securities. d. revenue securities. e. repurchase agreements Answer: b 18. A negotiable instrument often used in trading goods that guarantee s payment to the owner the instrument is known as (a) : a. bankers acceptance . b. payment guarantee. c. commercial paper . d. bankers payment . e. repurchase agreemen t. Answer: a 19. The largest component of “non - interest cash and due from banks” is: a. cash items in process of collection. b. deposits held at other financial institutions. c. federal funds sold. d. vault cash. e. loans from the Federal Reserve. Answer: a