Deck 1: Functions and Forms of Banking

Question 1

Banks can be uniquely defined in terms of offering transactio accounts and making commercial loans.

Answer 1

False

Question 2

The payments role of commercial banks include both offering transactio accounts and being ready to make wire transfers.

Answer 2

True

Question 3

A wholesale bank is one that both draws funds from businesses an makes loans primarily to businesses.

Answer 3

True

Question 4

Equity capital is bank's major source of funds.

Question 5

Since banks rely upon the trust of their customers many banks are ofte referred to as "trust" banks.

Question 6

The Glass-Steagall Act authorized banks to engage in securitie activities.

Question 7

The standby letter of credit is one of the best known of the various off-balance sheet activities of commercial banks.

Question 8

Risk management is an important though peripheral activity for mos commercial banks.

Question 9

Most regulatory constraints on bank behavior are designed either to reduce the risk of failure or to affect the price and allocation of bank credit.

Question 10

Commercial banks have experienced a substantial increase in thei market share.

Question 11

Securitization refers to the process of making some of the loa portfolio marketable by establishing pools of loans and selling interest (i.e., securities) in the pool.

Question 12

The effects of despecialization of financial services have been more evident at nonbank firms than at commercial banks.

Question 13

Commercial bank assets exceed 50 percent of all financial secto assets.

Question 14

The largest type of bank assets is in the form of securities

Question 15

The largest source of banks funds is the demand deposit accounts of individuals, businesses, and governments

Question 16

In the past 20 years, the range of financial service has:

A) expanded considerable
B) remained relatively constant
C) declined considerable
D) decline slightly

Question 17

Which of the following is NOT a function of commercial banks?

A) intermediation
B) payments
C) deposit insurance
D) real estate related activities

Question 18

Commercial banks offer fiduciary services in order to:

A) increase the amount of assets on their balance sheet without adding risk
B) comply with federal regulations
C) service employee pension and profit sharing programs
D) maximize interest income

Question 19

Commercial banks do not engage in which of the following securities related services?

A) discount brokerage services
B) underwriting corporate stocks and bonds
C) underwriting U. S. Treasury securities
D) facilitating mergers and acquisitions

Question 20

Off-balance sheet risk taking involves:

A) underwriting U. S. Treasury securities
B) offering fiduciary services
C) seeking capital gains from corporate stocks
D) generating fee income by assuming contingent liabilities

Question 21

Which of the following is prohibited for commercial banks?

A) real estate investment
B) insurance underwriting
C) corporate bond underwriting
D) all of the above

Question 22

The largest use of funds for a commercial bank is:

A) savings deposits
B) loans
C) time deposits
D) securities

Question 23

Which of the following is most important to commercial bank management?

A) increasing the bank's total size
B) maintaining a minimum amount of risk
C) profits from financial services (adjusted for risk)
D) out-performing other depository institutions

Question 24

Which of the following is NOT included in the total risk of a commercial
Bank?

A) depository risk
B) credit risk
C) interest rate risk
D) reputation risk

Question 25

Which of the following is an example of fraud risk?

A) a bank officer falsifying records
B) a customer writes several bad checks and leaves town
C) a depositor fails to report a clerical error in his favor
D) all of the above

Question 26

The social constraints imposed on banks are:

A) exemplified by the Community Reinvestment Act
B) due to the historical position of the bank as the core of the financial system
C) regulated by the federal reserve bank
D) regulated by the FDIC

Question 27

Which of the following is NOT a legal constraint placed on commercial
Banks?

A) constraints on entry
B) constraints on loan composition
C) constraints on balance sheet composition
D) constraints on geographic expansion

Question 28

The constraints on commercial banks:

A) are the result of the banking collapse of the 1930's
B) affect the price and allocation of bank credit
C) are designed to reduce risk of failure
D) all of the above

Question 29

The approximate number of banks in the United States is:

A) 12,000
B) 10,000
C) 8,000
D) 6,000

Question 30

Banks are regulated in order to do all of the following EXCEPT.

A) achieve desired social goals
B) achieve concentration of banks
C) prevent monopoly
D) prevent banking market failure

Question 31

Economies of scale are evident in:

A) credit card lending
B) farm lending
C) wholesale banking
D) universal banking

Question 32

Which of the following is NOT a reason for the increased competition
Between financial institutions?

A) the increased concentration among nonbank institutions
B) all depository institutions are now allowed to offer transactions accounts
C) the expansion of services offered by financial and nonfinancial conglomerates
D) the elimination of deposit rate ceilings

Question 33

Low levels of interest rates in the late 1990s forced banks to increase profitably by:

A) reducing the size of the bank's loan portfolio
B) making investments in stocks and bonds
C) increasing fee income
D) raising the efficiency ratio

Question 34

The decline in market share for commercial banks is the result of:

A) growing competition from nonbank institution
B) securitization
C) a fractured banking structure
D) a, b

Question 35

Globalization of the financial system involves:

A) the expanding number of services offered by banks
B) the increasing links between U. S. and foreign markets
C) the increasing competition in the U. S. among domestic banks
D) b, c

Question 36

Bank managers today operate in an environment of ______risk and
Face a more ________________ financial world than in the past.

A) credit; globalized
B) greater; complicated
C) less; stabilized
D) greater; stabilized

Question 37

Profitability ___________ in the banking industry, while the number of bank failures________________ in the 1990s.

A) declined; stabilized
B) increased; declined
C) declined; increased
D) declined; declined

Question 38

Which of the following is not a function generally provided by commercial banks?

A) provide a means of payment
B) provide management services for commercial real estate
C) provide for intermediation between savings and borrowers
D) provide trust services

Question 39

Which of the following is not a component of total risk for a bank?

A) credit risk
B) capital risk
C) systematic risk
D) interest rate risk

Question 40

Which of the following accurately describes the process of securitization?

A) the process of substituting securities for deposits in bank balance sheets
B) the process of making some or all of the loan portfolios marketable by establishing pools of loan interest (securities) in the pool
C) the process of buying securities
D) none of the above

Question 41

The two largest categories of bank loans are:

A) business and real estate loans
B) consumer loans and real estate loans
C) loans to purchase securities and business loans
D) business and consumer loans