Chap #11

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FIN 201
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In this type of arrangement, any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as a

  1. A) sweep account.
  2. B) share draft account.
  3. C) removed-repo account.
  4. D) stockman account.

Answer: A


New computer technology has

  1. A) increased the cost of financial innovation.
  2. B) increased the demand for financial innovation.
  3. C) reduced the cost of financial innovation.
  4. D) reduced the demand for financial innovation.

Answer: C


The presence of so many commercial banks in the United States is most likely the result of

  1. A) consumers' strong desire for dealing with only local banks.
  2. B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks.
  3. C) prior regulations that restricted the ability of these financial institutions to open branches.
  4. D) consumers' preference for state banks.

Answer: C


Currency circulated by banks that could be redeemed for gold was called

  1. A) junk bonds.
  2. B) banknotes.
  3. C) gold bills.
  4. D) state money.

Answer: B


Which regulatory body charters national banks?

  1. A) the Federal Reserve
  2. B) the FDIC
  3. C) the Comptroller of the Currency
  4. D) the U.S. Treasury

Answer: C


Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side.

  1. A) federal government; municipalities
  2. B) state governments; municipalities
  3. C) federal government; states
  4. D) municipalities; states

Answer: C


The McFadden Act of 1927

  1. A) effectively prohibited banks from branching across state lines.
  2. B) required that banks maintain bank capital equal to at least 6 percent of their assets.
  3. C) effectively required that banks maintain a correspondent relationship with large money center banks.
  4. D) separated the commercial banks and investment banks.

Answer: A


The modern commercial banking system began in America when the

  1. A) Bank of United States was chartered in New York in 1801.
  2. B) Bank of North America was chartered in Philadelphia in 1782.
  3. C) Bank of United States was chartered in Philadelphia in 1801.
  4. D) Bank of North America was chartered in New York in 1782.

Answer: B


The development of money market mutual funds contributed to the growth of ________ since the money market mutual funds need to hold liquid, high-quality, short-terms assets.

  1. A) the commercial paper market
  2. B) the municipal bond market
  3. C) the corporate bond market
  4. D) the junk bond market

Answer: A


Financial instruments whose payoffs are linked to previously issued securities are called

  1. A) grandfathered bonds.
  2. B) financial derivatives.
  3. C) hedge securities.
  4. D) reversible bonds.

Answer: B


The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the

  1. A) central bank.
  2. B) commercial bank.
  3. C) bank of settlement.
  4. D) monetary fund.

Answer: A


Before 1863

  1. A) federally-chartered banks had regulatory advantages not granted to state-chartered banks.
  2. B) the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War.
  3. C) banks acquired funds by issuing banknotes.
  4. D) banks were required to maintain 100% of their deposits as reserves.

Answer: C


Prior to 1863, all commercial banks in the United States

  1. A) were chartered by the U.S. Treasury Department.
  2. B) were chartered by the banking commission of the state in which they operated.
  3. C) were regulated by the Federal Reserve.
  4. D) were regulated by the central bank.

Answer: B


Disintermediation resulted from

  1. A) interest rate ceilings combined with inflation-driven increases in interest rates.
  2. B) elimination of Regulation Q (the regulation imposing interest rate ceilings on bank deposits).
  3. C) increases in federal income taxes.
  4. D) reserve requirements.

Answer: A


Prior to 1980, the Fed set an interest rate ________, a maximum limit, on the interest rate that could be paid on time deposits.

  1. A) floor
  2. B) ceiling
  3. C) wall
  4. D) window

Answer: B