Question 1

Fortunately, the Troubled Assets Relief Program (TARP) took care of the looming bankruptcy problems of major financial services institutions, and taxpayers were not hit with additional bailouts.

Accepted Answer

The answer of Fortunately, the Troubled Assets Relief Program (TARP)...

Question 2

The interest paid on time deposits, today, represents the main difference between time and demand deposits.

Accepted Answer

The answer of The interest paid on time deposits, today,...

Question 3

Brokerage firms now compete with commercial banks by offering high-yield combination savings and checking accounts.

Accepted Answer

Brokerage firms have started offering high-yield combination savings and checking accounts as a way to compete with commercial banks. This allows customers to manage their money in one account while earning higher interest rates than traditional checking or savings accounts.

Question 4

The U.S. government's lack of regulation alone caused the banking crisis and collapse of banks that had been in business for several decades.

Accepted Answer

The banking crisis and collapse of banks were caused by a combination of factors, including deregulation, risky lending practices, and the housing market collapse. While lack of regulation played a role, it was not the sole cause of the crisis.

Question 5

After years of banking with Quality Bank and Trust, Saul decided to switch to a competing institution. Thanks to changes in government regulation, his search will uncover a variety of options; however, he will also learn that banks and nonbanks have merged in order to be more competitive in the banking and financial services industries, which may or may not increase his options.

Accepted Answer

This statement accurately reflects the current state of the banking industry, where both bank and nonbank entities have merged in order to remain competitive.

Question 6

Commercial and consumer finance companies specialize in making low-interest loans to individuals and businesses with strong credit ratings.

Accepted Answer

Commercial and consumer finance companies may offer both low-interest loans for those with strong credit ratings, but they are not necessarily specialized in this area. They may also offer loans to those with weaker credit ratings with higher interest rates.

Question 7

Today's consumers have fewer options and less flexibility as a result of increased regulation of the banking industry.

Accepted Answer

This statement is incorrect. Increased regulation of the banking industry has actually led to more options and flexibility for consumers, such as improved transparency and protection against fraudulent activity. It has also made the banking system more stable and secure.

Question 8

Due to federal regulations limiting their investment opportunities, pension funds play a minor role in U.S. financial markets.

Accepted Answer

Pension funds are major institutional investors in U.S. financial markets, with assets exceeding $9 trillion in 2020. While there may be some regulations that limit their investment options, they still have significant influence on the markets.

Question 9

Due to the fact that investors did not individually purchase MBSs (mortgage-backed securities) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

Accepted Answer

The answer of Due to the fact that investors did...

Question 10

According to the Spotlight on Small Business box, merchant cash advance providers often charge much lower interest rates than traditional banks.

Accepted Answer

Merchant cash advance providers typically charge much higher interest rates than traditional banks due to the higher risk associated with lending to small businesses.

Question 11

In the early 2000s, banks took the mortgages that they owned, created mortgage-backed securities out of them, and sold them as safe investments.

Accepted Answer

This is commonly referred to as the process of securitization, and was a common practice leading up to the 2008 financial crisis.

Question 12

Persons with deposits less than $100,000 in banks, savings and loans, and credit unions run the risk of losing their money in an economic downturn.

Accepted Answer

The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage up to $250,000 per depositor, per insured bank for deposits in banks and savings and loans. The National Credit Union Share Insurance Fund (NCUSIF) provides similar coverage up to $250,000 per individual depositor, per insured credit union. Therefore, deposits up to this amount are protected even in an economic downturn.

Question 13

One thing is for certain, the average borrower's risk-averse behavior did not contribute to the problems that spiraled out of control and caused the recent banking crisis.

Accepted Answer

The average borrower's risk-averse behavior played a significant role in the causes of the recent banking crisis. Many borrowers took out loans they couldn't afford, and in turn, banks made risky loans to borrowers with poor credit histories, contributing to the housing market crash and subsequent financial crisis.

Question 14

When a commercial bank fails, depositors lose all of their money.

Accepted Answer

When a commercial bank fails, depositors are typically protected by government deposit insurance programs, such as the Federal Deposit Insurance Corporation (FDIC) in the United States, which insures depositors up to a certain amount per account. Therefore, depositors may not necessarily lose all of their money if a bank fails.

Question 15

As a response to a rise in savings and loan failures, the federal government no longer insures holders of accounts in savings and loan associations.

Accepted Answer

This statement is false. In response to the savings and loan crisis of the 1980s, the federal government actually increased the insurance coverage for savings and loan accounts through the creation of the Resolution Trust Corporation. The RTC insured deposits up to $100,000 per account and helped to manage and resolve failing savings and loan institutions.

Question 16

The FDIC exists to maintain the public's confidence in the banking system.

Accepted Answer

The FDIC, or Federal Deposit Insurance Corporation, was created in 1933 in response to the Great Depression to provide deposit insurance to protect the public's confidence in the banking system. Its mission is to maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.

Question 17

Last week Dave was looking for a place to deposit a $30,000 inheritance from his Great Aunt Martha, who passed away three months ago. He does not plan to spend his money frivolously. He will need part of the funds from time to time for his college education, which he promised Great Aunt Martha he would complete. After speaking with several sales consultants in banking and nonbank institutions, he likes the fact that he can open a stock brokerage account and a money-market account at Goodman Stacks Investment Company (a nonbank company), and will be issued checks for paying bills. You remind him that with the recent mergers between banking and nonbank institutions, he may be able to find a company that provides (both) the convenience of banking services (ATM, cash availability) and low-risk/high-risk securities products.

Accepted Answer

With recent mergers between banking and nonbank institutions, it is possible to find a company that provides both banking services and securities products, including low-risk/high-risk options.

Question 18

Because they charge higher interest rates, commercial and consumer finance companies often fail to attract borrowers.

Accepted Answer

The answer of Because they charge higher interest rates, commercial...

Question 19

The ability to access funds without a penalty helps to explain why certificates of deposit (CDs) have gained popularity among conservative investors and savers.

Accepted Answer

The answer of The ability to access funds without a...

Question 20

The FDIC traditionally protects depositors up to $250,000 per account.

Accepted Answer

The FDIC (Federal Deposit Insurance Corporation) does indeed protect depositors up to $250,000 per account. This means that if a bank fails and is unable to return its customers' deposits, the FDIC will reimburse them up to $250,000 per account.

Quiz 20: Money, Financial Institutions, and the Federal Reserve