Questions from Kidwell, Blackwell, Whidbee, Peterson: Financial Institutions, Markets, and Money, 10th Edition
Chapter 2 COMPLETION QUESTIONS
1. The primary purpose of a central bank is to control a nation’s:_______ .
2. The Fed’s largest single liability is the: _____________
3. A Fed asset not related to monetary policy is _______________.
4. The Federal Reserve controls
5. The FOMC or ____________ has ______members.
6. The document by which the FOMC instructs the trading desk is called a ______ .
7. Among U.S. commercial banks, all ______banks are members of the Federal Reserve System while some _________ banks are members.
8. Total reserves equal required reserves plus _________ ___________ .
9. There are _______federal reserve banks.
10. Borrowing from the Fed is called “__________ ”.
Chapter 3 MULTIPLE-CHOICE QUESTIONS
1. Which of the following powers or tools of the Fed impacts the monetary base most significantly?
a. discount rate b. Reg Q c. open market operations d. Bank examination
2. The monetary base excludes which Fed balance sheet items?
a. U.S. Treasury securities b. “Agency” securities”
c. “DACI” d. all of the above
3. M2 includes:
a. currency in circulation b. demand deposits
c. both of the above d. none of the above
4. Which of the following is not a channel of transmission of monetary policy?
a. Reg Q interest rate ceilings b. consumer spending for durable goods and
c. net exports d. business investment in real assets
5. “Easing” monetary policy would have what impact on the value of the dollar against other currencies?
c no effect
d. none of the above
Chapter 7 MULTIPLE-CHOICE QUESTIONS
1. The money market security with the lowest yield to the investor is likely to be:
a. a Treasury bill.
b. commercial paper.
c. agency issues.
d. negotiable CDs.
2. All of the following represents a characteristic of money market instruments except:
a. low default risk b. guaranteed marketability
c. debt obligation d. short term
3. The fed funds rate is very important to the economy because
a. it measures the return on the most liquid of all the financial assets traded
b. it is closely related to the conduct of monetary policy
c. it measures directly the availability of excess reserves in the banking system
d. all of the above
4. All of the following money market participants are major investors in money market securities except:
a. Federal Reserve banks. b. the U.S. Treasury.
c. commercial banks. d. corporate business.
5. A competitive bid in the Treasury securities auction market has all of the following characteristics except:
a. the bidder specifying the quantity of bills desired
b. the price the investor wishes to pay
c. large, institutional investors
d. bids for a maximum of $5,000,000
Chapter 8 TRUE-FALSE QUESTIONS
T F 1. Capital market securities can be either debt or equity; all money market instruments are debt securities.
T F 2. The bond contract is called a debenture.
T F 3. Households are generally surplus sectors; business and governments are usually deficit sectors.
T F 4. The money market is a dealer only market whereas the capital market trading is dominated by exchanges.
T F 5. The money market provides liquidity; the capital market finances economic growth.
Chapter 10 COMPLETION QUESTIONS
1. A majority shareholder group will win all the board seats in a board of directors’ election using _____________voting.
2. Securities are first issued in the _________market; subsequent trading is in the __________ market.
3. While the money market is a _____ ________market, the capital market finances ______ _________.
4. The largest amount outstanding of any one capital market security is ______ _______ followed by _______ _______.
Chapter 12 MULTIPLE-CHOICE QUESTIONS
1. A British importer of U.S. computer equipment would take which action in the foreign exchange markets?
a. supply dollars b. demand dollars
c. demand pounds d. both a and c above
e. none of the above
2. Capital accounts transactions are all of the following except they:
a. are made with the expectation of a future gain or to settle a debt.
b. are reversible.
c. represent a flow of income.
d. represent a geographic repositioning of wealth.
3. Under freely floating exchange rates a government would
a. do nothing.
b. sell assets to foreign investors for foreign exchange to buy the domestic currency.
c. buy assets to foreign investors for domestic currency.
d. intervene in the markets for the benefit of its exporters.
4. The Eurocurrency market serves as a place to store excess liquidity for multinational corporations, countries and individuals because of all of the following except:
a. Lack of regulation allows investors to hold debt securities in bearer form.
b. The presence of a withholding of tax.
c. Investments earn higher returns.
d. Eurocurrency deposits are highly liquid because of very short maturities with nearly 90 percent of deposits being less than 180 days.
5. A __________ draft would be paid on demand; whereas a bank would pay a __________ draft at maturity as stated in the __________.
a. time; sight; bill of lading
b. sight; time; bill of lading
c. time; sight; letter of credit
d. sight; time; letter of credit
Chapter 13 COMPLETION QUESTIONS
1. In commercial banks SAVINGS deposits are the most important source of funds; ___________ loans represent the major investment category.
2. ______________deposits represent about two thirds of M1.
3. Though interest payments have been prohibited on demand deposits in the past, banks have paid ____ _____interest by offering "free" checking accounts, convenience, and other “perks”.
4. Several money market securities are listed below. Indicate whether each security represents a bank asset, a bank liability, or neither.
a. Banker's Acceptance
b. Negotiable Certificate of Deposit
c. Treasury Bill
d. Federal Funds Purchased
5. The bank investment portfolio provides both __________ and _______to the bank.
Chapter 15 TRUE-FALSE QUESTIONS
T F 1. U.S. regulators have attempted to separate domestic banking risks and international banking risks.
T F 2. The FDIC is the principal U.S. regulator of international banking activity.
T F 3. International banking facilities (IBFs) operate as subsidiaries of bank holding companies.
T F 4. Expropriation and nationalization are two methods of guaranteeing payment of U.S. bank loans to developing countries.
T F 5. Pooling risk entails lending by several banks to a foreign borrower.
Chapter 16 COMPLETION QUESTIONS
1.Bank regulation is intended to provide a trade-off between bank ________and bank __________.
2.Historically, when banks have failed, government has responded with increased _____.
3.Banks are regulated to protect the ________ and maintain a _______economy.
4.Many banks that failed in the 1930s did so because the central bank did not supply sufficient _____and did not prevent bank ________
5. Bank failures of the 1980s stemmed more from regional economic distress in the areas of __________and _________.
Chapter 18 MULTIPLE-CHOICE QUESTIONS
1.Which of the following affects the level of insurance premiums?
a. probability of loss b. value of loss
c. expected operating expenses d.all of the above
2. Which of the following is likely to be a material component of an insurer’s revenue?
a. interest on bonds b .interest on mortgages
c. dividends on stocks d. all of the above
3. “Objective risk” is
a. synonymous with “pure risk”
b. determined according to principles of probability and statistics
d. synonymous with “speculative risk”
4. The “Law of Large Numbers” is
a. a statistical principle relied on by insurers in managing objective risk
b. an informal rule of thumb for valuing pure risks
c. a principle of portfolio diversification that helps manage interest rate risk
d. none of the above
5. “Qualified” pension plans would have an incentive to invest in all the following except
a. municipal bonds b. corporate bonds
c. preferred stocks d. mortgages
Chapter 19 TRUE/FALSE QUESTIONS
T F 1. The Banking Act of 1933, known as the Glass-Steagall Act, has effectively kept commercial banks out of the commercial lending area.
T F 2. Investment banking firms provide both financing and investment services for borrowers and lenders, respectively.
T F 3. The 40% margin rule requires the buyer/seller of a security to provide at least 60% of the funds necessary to cover the transaction, borrowing 40%.
T F 4. Venture capital firms compete with commercial banks for new business loans.
T F 5. Discount brokers offer investment advice at prices below full service security brokerage houses.
Questions from Financial Institutions Management : A Risk Management Approach, 6e
2-26 All commercial banks must be members of the Federal Reserve
2-27 The Federal Reserve System has regulatory supervision over all
holding company banks whether they include national- or state-
2-28 The primary objective of the 1927 McFadden Act was to restrict
interstate bank branching.
2-29 The primary objective of the 1933 Glass-Steagall Act was to prevent
commercial banks from competing directly with commercial insurance
2-30 The DIDMCA of 1980 and the DIA of 1982 were the initial acts to
begin the deregulation of the commercial banking industry.
The Financial Services Industry: Insurance Companies
3-1 In recent years, the total assets of insurance companies in the U.S. have
3-2 The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.
3-3 Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.
3-4 Term life insurance includes a savings element as well as the pure insurance element.
3-5 In group life insurance, lower rates can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs.