Deck 3: Banks and Other Financial Institutions

Question 1

A mortgage-backed security is a loan for by real property in the form of buildings and houses backed by stocks, bonds, or other securities.

Answer 1

False

Question 2

Savings and loan associations are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Answer 2

False

Question 3

Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Answer 3

True

Question 4

The Economic Stabilization Act of 2008 had a primary focus of allowing the U.S. Treasury to purchase up to $700 billion of "troubled" or "toxic" assets held by financial institutions.

Question 5

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

Question 6

Insurance companies receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years.

Question 7

Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees.

Question 8

Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

Question 9

Investment banking firms sell shares in their firms to businesses and invest the pooled proceeds in corporate and government securities.

Question 10

Investment banking firms sell or market new securities issued by businesses to individual and institutional investors.

Question 11

Commercial banks accept deposits and makes loans to individuals and businesses.

Question 12

The Economic Stabilization Act of 2008 created the TARP program. TARP stands for Troubled Asset Recovery Program.

Question 13

Depository institutions include commercial banks, savings and loans, mutual savings banks, and credit unions.

Question 14

Major types of financial institutions in the U.S. include commercial banks, mutual funds, insurance companies, and pension funds.

Question 15

Mortgage banking firms provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.

Question 16

Commercial banks provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes.

Question 17

A mortgage is a loan backed by real property in the form of buildings and houses.

Question 18

Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities.

Question 19

Mutual funds are open-end investment companies that can issue an unlimited number of shares to its investors and use the pooled proceeds to purchase corporate and government securities.

Question 20

In the U.S., housing prices peaked in 2008 and home values then began a sharp decline leading to the 2008 financial crisis.

Question 21

The National Banking Act of 1864 made it possible for banks to receive federal charters.

Question 22

During the colonial period, small unincorporated banks issued their own paper money.

Question 23

The main provisions of the Monetary Control Act of 1980 are deregulation and monetary control.

Question 24

Banks accept and invest individual savings and also facilitate the sale and transfer of securities between investors.

Question 25

Investment banks accept deposits and makes loans to individuals and businesses.

Question 26

Savings and loan institutions collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.

Question 27

Finance firms provide loans directly to consumers and businesses, as well as help borrowers obtain mortgage loans on real property.

Question 28

The Glass-Steagall Act of 1933 was also known as the Great Depression Recovery Act of 1933.

Question 29

Part of the reason that the Banking Act of 1933 was passed was in response to the large numbers of bank failures.

Question 30

A corporate bank is a bank that engages in both commercial banking and investment banking activities.

Question 31

Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.

Question 32

Savings and loans were first known as building societies.

Question 33

The First Bank of the United States was the first federally chartered bank in the U.S.

Question 34

Depository institutions accept deposits or savings from businesses, governments, and individuals and then lend these pooled savings to individuals.

Question 35

The U.S. banking system as it exists today is relatively unchanged since just before the Civil War.

Question 36

An investment bank accepts deposits, makes loans, and issues checking accounts.

Question 37

Financial diversification is the process by which individual savings are accumulated in depository institutions and, in turn, lent or invested.

Question 38

The Second Bank of the United States was the second federally chartered bank in the U.S.

Question 39

Investment banking firms assist individuals to purchase new or existing securities issues or to sell previously purchased securities.

Question 40

The Glass-Steagall Act of 1933 provided for separation of commercial banking and investment banking activities in the United States.

Question 41

The principal assets of all depository institutions are cash, securities, and loans.

Question 42

For a discount loan, the percent annual rate is calculated as the discount amount divided by the amount borrowed times 100.

Question 43

The Monetary Control Act prohibited the Federal Reserve from controlling thrift institutions.

Question 44

Branch banking is permitted on an interstate basis by all state banks.

Question 45

The primary type of liability on a bank's balance sheet is deposits.

Question 46

The Glass-Steagall Act was repealed with the passage of the Gramm-Leach-Bliley Act of 1999.

Question 47

Branch banks are those banking offices that are controlled by a single parent bank.

Question 48

The bank holding company may not engage in direct banking activities.

Question 49

The Federal Reserve Act of 1913 created a system of central banks in the United States.

Question 50

The prime rate of interest has been relatively stable during the past twenty-five years.

Question 51

Today, reserve requirements imposed by the Federal Reserve apply only to member banks.

Question 52

For a standard loan, the percent annual rate is calculated as the interest paid divided by the amount borrowed all times 365.

Question 53

The primary types of assets on a bank's balance sheet include cash, securities, and loans.

Question 54

The primary types of assets on a bank's balance sheet include cash and deposits.

Question 55

Primary capital consists of owners' capital, preferred stock, debt convertible into common stock, and loan loss reserves.

Question 56

The Federal Savings and Loan Insurance Corporation (FSLIC) when bankrupt in 1988.

Question 57

The 2007-08 financial crisis and the 2008-09 Great Recession led to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Question 58

The United States is a tri-banking system.

Question 59

The effective rate of interest is generally lower on a standard loan than an otherwise equivalent discount loan.

Question 60

An unsecured loan represents a general claim against specific assets of the borrower.

Question 61

Credit risk is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.

Question 62

A loan backed by real property in the form of buildings and houses.

A) Mortgage-backed security
B) Serial mortgage
C) Mortgage
D) Secured mortgage
E) Unsecured loan

Question 63

International banking exists when banks operate in more than one country.

Question 64

A bank's common equity capital ratio is calculated as common equity divided by total assets all times 12.

Question 65

The Bretton Woods Agreement was an agreement between major central banks to adopt capital adequacy requirements for internationally involved banks.

Question 66

Bank solvency reflects the ability to keep the value of a bank's assets greater than its liabilities.

Question 67

Credit unions are

A) for profit organizations.
B) made up of individuals who possess common bonds of association.
C) institutions that derive funds from investment activities.
D) generally larger than most commercial banks.

Question 68

Credit risk is the chance of nonpayment or delayed payment of interest or principal.

Question 69

The total capital ratio can be computed as total capital divided by total assets times 100.

Question 70

Which of the following are not thrift institutions?

A) credit unions
B) savings and loan institutions
C) commercial banks
D) mutual savings banks

Question 71

Another name for an open-end investment company is a

A) brokerage firm.
B) finance company.
C) mutual fund.
D) investment bank.

Question 72

Secondary reserves are vault cash and deposits held at other depository institutions and at Federal Reserve Banks.

Question 73

Bank solvency reflects the ability to meet depositor withdrawals and to pay off other liabilities when due.

Question 74

A debt security created by pooling together a group of mortgage loans.

A) Mortgage-backed security
B) Serial mortgage
C) Mortgage package
D) Secured mortgage

Question 75

Which of the following institutions is not part of the modern banking system?

A) credit unions
B) savings and loan associations
C) mutual funds
D) mutual savings banks

Question 76

Financial institutions include all of the following except

A) banks.
B) pension funds.
C) insurance companies.
D) pawn shops.

Question 77

A bank's tier 1 ratio is calculated as its tier 1 capital divided by its risk-adjusted assets all times 100.

Question 78

Bank solvency is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.

Question 79

Commercial banks are aggressive and often assume large amounts of risk.

Question 80

Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates.