Deck 1: The Business of Banking

Question 1

Generally speaking, banks offer customers fewer services today than they did 20 years ago.

Answer 1

False

Question 2

Record keeping is an important part of securing your money in a bank.

Answer 2

True

Question 3

Which of the following is NOT a source of income for a bank?

A)the interest earned by depositors
B)investments
C) loan income
D) fees for services

Answer 3

A

Question 4

Which of the following is a nondepository intermediary?

A)commercial bank
B)insurance company
C) savings and loan association
D) credit union

Question 5

Banks that manage, regulate, and protect both the money supply and other banks are

A)retail banks.
B)central banks.
C) commercial banks.
D) credit unions.

Question 6

A credit union is a not-for-profit organization.

Question 7

Interest on home-equity loans often is tax-deductible for consumers.

Question 8

It is illegal for banks to charge higher interest rates for loans than they pay depositors.

Question 9

A bank is a not-for-profit organization.

Question 10

Which of the following is considered a liability for a bank?

A)loans
B)investments
C) deposits
D) none of the above; banks are prohibited by law from carrying liabilities

Question 11

Return on equity is the ratio of net income to total assets.

Question 12

A loan company is not a financial intermediary because it does not receive deposits.

Question 13

Banks move money between

A)other banks.
B)banks and individual customers.
C) governments.
D) all of the above.

Question 14

All federally chartered banks must be corporations.

Question 15

Commercial banks offer their services only to businesses.

Question 16

In the United States, banks and ____________________ work together to form the banking system and to ensure the money supply is adequate, appropriate, and trustworthy.

A)consumers
B)industry
C) savings and loans
D) the government

Question 17

One result of competition among banks is that

A)more services are available to consumers.
B)more banks exist now than a decade ago.
C) the trend toward mergers in the banking industry has slowed.
D) all of the above.

Question 18

Which of the following statements about banks is NOT true?

A)Banks distribute the medium of exchange.
B)All banks are organized as corporations.
C) Banks may be chartered by either federal or state governments.
D) Banks are essential to maintaining the economy.

Question 19

The difference between what a bank pays in interest and what it receives in interest is called

A)profit.
B)spread.
C) gross interest income.
D) loss.

Question 20

Issuing credit cards is a form of bank lending.

Question 21

A(n) ____________________ asset is anything that can readily be exchanged.

Question 22

Assume that a bank receives a $10,000 deposit from a customer and lends it to another customer to buy a used car. The bank pays a straight 6% per year interest to the customer. The spread for one year is $300. What is the interest rate the bank is charging for the loan?

Question 23

A(n) ____________________ is a cash obligation.

Question 24

A(n) ____________________ occurs when one or more banks join or acquire another bank or banks.

Question 25

Regina's bank charges $1 for each ATM transaction, 50 cents for each online bill payment, and a $10 monthly maintenance fee for her checking account. Last month, Regina used an ATM five times and paid seven bills online. What did she incur in banking fees for the month?

Question 26

A bank evaluates the ____________________ of all customers who apply for loans.

Question 27

Revenue minus ____________________ equals profit.

Question 28

Assume that a bank receives a $5,000 deposit from a customer and lends it to another customer to start a small business. The bank pays a straight 5% per year interest to the customer and charges 10% per year for the loan. Calculate the spread for one year.

Question 29

Profit, or net ____________________, is what is left of revenue after expenses are deducted.

Question 30

Goliath Bank has net income of $20,000 and total equity of $80,000. Find the return on equity.

Question 31

One big difference between a commercial bank and a mutual savings bank is that

A)a commercial bank is a nondepository intermediary.
B)a mutual savings bank is a not-for-profit organization.
C) a commercial bank is owned by depositors, not stockholders.
D) a mutual savings bank is owned by depositors, not stockholders.

Question 32

Last year, profits for Fidelity Bank totaled $1.1 million; spread was $5.6 million. Find the bank's costs for the year.

Question 33

A bank is a financial ____________________ for the safeguarding, transferring, exchanging, or lending of money.

Question 34

Total assets minus total liabilities equals

A)return on equity.
B)return on assets.
C) equity.
D) loss.

Question 35

People who put money into banks are called ____________________.

Question 36

A(n) ____________________ intermediary is a financial institution that obtains funds from the public and uses them to finance its business.

Question 37

This month costs for SafeCo Bank were $750,000; the bank collected $970,000 in revenue. Find the bank's profit for the month.

Question 38

Last year, First National Bank of Springfield paid $5.1 million in interest to depositors; it collected $7.8 million in interest from loans. Calculate the spread.

Question 39

A commercial bank that specializes only in business banking is sometimes called a(n) ____________________ bank.

Question 40

A(n) ____________________ bank serves as the government's banker.

Question 41

What are three primary differences between a credit union and a commercial bank?

Question 42

Explain how a bank's sound business practices safeguard depositors' money.

Question 43

Why are bank deposits not considered a form of bank income?

Question 44

Describe the effects of mergers on the banking industry.

Question 45

Are a bank's liabilities more liquid or less liquid than its assets? Explain.

Question 46

The ability to transfer sums of money between financial institutions safely and effectively depends on what two factors?

Question 47

What is a currency exchange?

Question 48

Briefly explain why retail banks developed in the United States.

Question 49

What activities are involved in a bank's enforcement function?

Question 50

What does the term medium of exchange ​mean?