Question 1

As of December 2014,which of the following accounts for the highest volume of noncash transactions in the United States?

Accepted Answer

According to the Federal Reserve Payments Study 2016, card payments (credit and debit) account for the highest volume of noncash transactions in the United States, followed by checks and then ACH (automated clearinghouse) transfers. E-money payments, such as mobile payments and online wallets, account for a smaller volume of noncash transactions.

Question 2

Which of the following best describes economies of scope?

Accepted Answer

Economies of scope occur when cost savings are realized from using many of the same inputs to produce multiple products. This can happen when a company can leverage its resources and capabilities to produce multiple products, thereby spreading its fixed costs over a larger output volume. As a result, the average cost of production decreases, leading to economies of scope.

Question 3

Which of the following best describes economies of scale?

Accepted Answer

Economies of scale refer to the cost advantages that a firm experiences when it increases its scale of production, resulting in a decrease in the average cost of production. As the level of output increases, a firm can spread its fixed costs over a larger number of units, resulting in lower per-unit costs. This is known as economies of scale. Hence, option A is the correct answer. Option B refers to intangible factors that affect cost, option C refers to economies of scope, and option D refers to diseconomies of scale.

Question 4

Which of the following implies reduced unit costs as the range of products offered increases inputs in producing multiple products?

Accepted Answer

Economies of scope refer to the cost savings that occur when producing multiple products together rather than separately. As the range of products offered increases, the firm can benefit from sharing resources and increasing specialization, which can result in reduced unit costs. Therefore, economies of scope imply reduced unit costs as the range of products offered increases.

Question 5

Which of the following is a centralized collection service for corporate payments that helps reduce the float?

Accepted Answer

A wholesale lockbox is a centralized collection service that processes payments quickly, reducing the time it takes for funds to become available, thus minimizing the float.

Question 6

Large-scale investment projects that lead to excess capacity and integration problems that create cost overruns and control problems are examples of

Accepted Answer

Diseconomies of scale occur when a company or business grows so large that the costs per unit increase. Large-scale investment projects can lead to excess capacity and integration problems, which are indicative of diseconomies of scale, as they result in inefficiencies and increased costs.

Question 7

As banks have increased the use of technology over the past 20 years,

Accepted Answer

The increased use of technology has allowed banks to increase their noninterest income, such as fees for online banking and ATM usage, which has led to a growth in noninterest income as a percent of total operating income.

Answer: B
 Fedwire and CHIPS are still important payment systems for banks, and the increased use of technology has only made them more efficient and effective.

Answer: C
 The increased use of technology has led to faster replication of innovations, which can lead to a decrease in net present value if competitors are able to quickly adopt and offer similar technologies or services.

Answer: D
 The increased use of technology has allowed banks to reach customers worldwide through internet services, but it has not eliminated the need for banks to consolidate. Consolidation can still provide cost savings and improved efficiency for banks.

Question 8

Which of the following wholesale services offered by FIs allows businesses to transfer and transact invoices,purchase orders,and shipping notices automatically?

Accepted Answer

Electronic data exchange (EDI) is a wholesale service offered by FIs that enables businesses to transfer and transact invoices, purchase orders, and shipping notices automatically in a standardized electronic format. EDI allows for more efficient and accurate communication between businesses involved in the transaction process.

Question 9

Which of the following occur when managers undertake growth-oriented investments to increase an FI's size that may be inconsistent with stockholders' value-maximizing objectives?

Accepted Answer

When managers undertake growth-oriented investments to increase the size of an FI that may be inconsistent with stockholders' value-maximizing objectives, it can lead to agency conflicts. This is because managers may prioritize their own growth objectives over the maximization of shareholder value.

Question 10

What is float?

Accepted Answer

Float refers to the time it takes for a check to clear at a bank.

Question 11

Which of the following are potential benefits of technology for an FI?

Accepted Answer

All of the options are potential benefits of technology for an FI. Improved service quality, increased innovation, cross-marketing opportunities, and improved flexibility in financial transactions are all ways that technology can improve the operations and customer experience of financial institutions.

Question 12

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the e-mail capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

Accepted Answer

Electronic billing combines email capabilities with electronic payment processing, allowing businesses to send invoices and receive payments through interbank networks.

Question 13

Which of the following occurs if the costs of joint production of FI services are higher than they would be if they were produced independently?

Accepted Answer

If the costs of joint production of FI services are higher than they would be if they were produced independently, it indicates the presence of diseconomies of scope. This means that producing multiple products or services together leads to higher costs instead of providing cost savings.

Question 14

Which of the following is NOT a source of operational risk for an FI?

Accepted Answer

Positive duration gap is a source of interest rate risk for an FI, not operational risk. Operational risk sources include capital assets, customer relationships, technology, employees, and other external factors such as legal and regulatory compliance.

Question 15

Which of the following implies reduced unit costs as size or volume of assets increases?

Accepted Answer

Economies of scale generally imply that as an organization grows and increases its volume of production or assets, it will enjoy lower unit costs due to improved efficiencies, reduced duplication, and better capacity utilization.

Question 16

As banks and other FIs increase the use of technology,an unintended consequence may be that

Accepted Answer

As banks and other FIs increase the use of technology, some customers may still prefer to interact with a human for certain transactions. This may lead to customers feeling dissatisfied or driven away, resulting in potential lost revenue for the bank or FI.

Question 17

Which of the following partially explains why cash management services have not attracted customers in Europe to the degree that they have in the U.S.?

Accepted Answer

The prevalence of nationwide branching and banking in Europe means that customers have easier access to cash management services through their existing bank rather than seeking out a specialized provider.

Question 18

As of December 2014,which of the following represented the highest percent of the dollar value of noncash transactions in the United States?

Accepted Answer

The answer of As of December 2014,which of the following...

Question 19

Which of the following implies that small FIs are more cost efficient than large FIs,and that in a freely competitive environment for financial services,small FIs may outperform their larger counterparts?

Accepted Answer

Diseconomies of scale occur when a firm becomes too large, causing it to experience increasing costs per unit of output. This suggests that smaller FIs may be more cost-efficient than larger ones. In a competitive environment, small FIs may be able to use their cost advantage to offer better prices, more personalized services, or better innovation, resulting in better performance compared to their larger counterparts.

Question 20

The expenses relating to increased technological improvements made by FIs during the last several years has the most impact on which of the following?

Accepted Answer

Technological improvements require investments in new hardware, software, and systems infrastructure, which increase non-interest expenses such as salaries, training, maintenance costs, and other related costs. This can decrease the FI's net income and increase the provision for loan losses due to potential operational risks associated with new technology. Therefore, the most impact is on noninterest expenses.

Quiz 17: Technology and Other Operational Risks