Deck 1: An Overview of the Changing Financial-Services Sector

Question 1

_______________________ refers to when a financial institution trades one form of currency for another.An example of this would be when the bank trades dollars for yen.

Answer 1

Currency exchange

Question 2

The ___________________________ is a landmark act which allows financial service providers to offer an expanded menu of financial services for the customer.This law allows banks to truly become conglomerate financial service providers.

Answer 2

Financial Services Modernization Act (Gramm-Leach-Bliley Act

Question 3

Companies such as Merrill Lynch and Sears which offered some but not all banking services in the 1980s were called ______________________.

Answer 3

nonbank financial firms

Question 4

The loosening of government regulation and control of financial institutions is called ______________________.

Question 5

_______________________ is a traditional service provided by banks in which the banks store the valuables of their customers and certify their true value.

Question 6

Banks which function under a federal charter through the Comptroller of the Currency in the United States are known as ____________ banks.

Question 7

The _______________________ of a bank is a traditional service where the bank manages the financial affairs and property of individuals (and in some cases businesses).

Question 8

A bank which spans regions,nations,and continents,offering the widest menu of financial services is known as a _________ bank.

Question 9

A(n)_______________________ is a traditional service which permits a depositor to write a draft in payment for goods and services.

Question 10

Banks which serve primarily households and small firms are known as ____________ banks.

Question 11

According to Congress,a ____________ is defined as any institution that can qualify for deposit insurance administered by the FDIC.

Question 12

The country with the most banks is ______________________.

Question 13

Banks which underwrite issues of new securities on behalf their corporate customers are known as ________ banks.

Question 14

A bank that offers its services only over the Internet is known as a(n)_______.

Question 15

_____________ refers to the movement of businesses across industry lines in order to broaden its base.

Question 16

_______________________ is a service provided by banks where the bank lends money to individuals for the purchase of durable and other goods.

Question 17

The fact that financial institutions monitor the financial condition of their borrowers by serving only as an agent on behalf of depositors is the _______________________ theory of banking.

Question 18

___________________________ is an alternative to lending in which the financial institution purchases the equipment and rents it to its customers.

Question 19

Banks that sell deposits and make loans to businesses,individuals,and institutions are known as _____________ banks.

Question 20

Banks which supply both debt and equity capital to businesses are known as _________ banks.

Question 21

The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry.

Question 22

Lending institutions act as delegated monitors and can diversify and reduce their risk exposure,resulting in increased safety for savers' funds.

Question 23

When a bank agrees to handle the cash collections and disbursements for a company and invest any temporary cash surpluses in interest bearing assets,they are providing ________ services to their customers.

Question 24

When a local merchant sells the accounts receivables they hold against their customer to a bank this generally known as _______.

Question 25

A(n)________ offers loans to commercial enterprises (such as appliance dealers)and to individuals and families using funds borrowed in the open market or from other financial institutions.

Question 26

According to the delegated monitoring theory,the bank serves as an agent on behalf of its depositors,monitoring the financial condition of those customers who receive loans from them.

Question 27

A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market.

Question 28

According to the textbook,high-volume transactions are required to make efficient use of automation and other technological innovations.

Question 29

When banks serve as conduits for government policy this is referred to as their agency role.

Question 30

Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services.

Question 31

The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role.

Question 32

According to the textbook,the largest banks tend to offer the widest range of services of any financial-service firm today.

Question 33

A(n)________ sells shares mainly to upscale investors in a broad group of different kinds of assets including nontraditional investments in commodities,real estate,loans to new and ailing companies,and other risky assets.

Question 34

Money-center banks usually service local communities,towns,and cities,offering a narrow menu of services to the public.

Question 35

A(n)________ buys and sells securities on behalf of their customers and for their own accounts.Examples of this type of financial service provider include Merrill Lynch and Charles Schwab.

Question 36

Nonbank financial-service institutions can offer deposits to the public,but these deposits are not eligible for insurance coverage by the FDIC.

Question 37

The role performed by banks in which they guarantee to make payments on behalf of their customers when those customers are unable to pay a debt obligation is known as the guarantor role.

Question 38

The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table".

Question 39

Under U.S.federal law,an institution making only loans to households and offering uninsured checkable deposits and savings deposits qualifies as a commercial bank.

Question 40

The number of independently owned banks has risen in the United States over the last decade.

Question 41

A bank that wires funds for the purchase of a beach house in South Carolina for a customer in Oklahoma is carrying out the __________ of banks.

A)intermediation role
B)payment role
C)guarantor role
D)agency role
E)policy role

Question 42

Examples of imperfections in the financial system which allow banks to exist include which of the following?

A)Informational asymmetry
B)Efficiency of markets
C)Divisibility of assets
D)Adequate liquidity
E)All of the examples are of the imperfections that exist.

Question 43

A study of history shows that one of the first services offered by banks was:

A)equipment leasing.
B)currency exchange.
C)security brokerage and underwriting.
D)sale of real estate.
E)None of the options are correct

Question 44

Included among leading structural trends in the U.S.banking industry in recent years are:

A)the number of independently owned banks has declined.
B)the average size of individual banking firms has increased.
C)entry across state lines from neighboring states has increased.
D)the mergers among some of the largest banks in the industry.
E)All of the options are correct.

Question 45

In the United States,a commercial bank qualifies as a "bank" under federal law if it offers:

A)consumer installment loans,CDs.
B)trust services,commercial loans.
C)checking accounts,commercial loans.
D)security investments,inventory loans to business customers.
E)commercial deposit accounts,consumer savings plans.

Question 46

The banking services that include marketing new securities to raise funds for corporations and other institutions is referred to:

A)comprehensive packaging.
B)wrap-around accounts.
C)investment banking.
D)professional banking.
E)None of the options are correct.

Question 47

Current theory suggests that banks exist because of imperfections in our financial system.

Question 48

Which of the following is not a current trend in the banking industry?

A)The number of banks is declining
B)The number of bank branches is declining
C)The number of bank services is increasing
D)The number of bank competitors is increasing
E)Bank industry convergence

Question 49

Which of the following has been an important trend regarding consolidation and geographic expansion in banks?

A)Increased bank branching activity
B)The formation of more holding companies to purchase smaller banks
C)Mergers among some of the largest banks in the industry
D)Significant rise in the average size of individual banks
E)All of the options are correct

Question 50

According to the textbook,traditional banking may be on the decline.

Question 51

Convergence refers to the fact that the number of bank mergers has increased in recent years.

Question 52

J.C.Penney,and Sears provided are among leading firms that in the 1980s organized competitors with banks that are known as:

A)nonbank financial-service institutions.
B)discount security companies.
C)savings institutions.
D)credit unions.
E)commercial banks.

Question 53

The phenomenon of convergence refers to:

A)financial service firms expanding into other product lines.
B)firms reducing their product lines.
C)bank merger activity.
D)globalization in banking.
E)technological innovation in banking.

Question 54

Which of the following types of banks would most likely offer the largest number of financial services virtually?

A)A retail bank
B)A community bank
C)A commercial bank
D)A universal bank
E)An international bank

Question 55

A bank which manages the investment portfolio and pays the bills of an elderly customer who is unable to do it for him or herself is carrying out the __________ of banks.

A)intermediation role
B)payment role
C)guarantor role
D)agency role
E)policy role

Question 56

The view that depositors hire banks to analyze the financial condition of prospective borrowers and continually evaluate the condition of outstanding loans is referred to as:

A)delegated monitoring.
B)the concept of financial intermediation.
C)the liquidity function in banking.
D)market imperfection theory.
E)the efficiency contribution of banking.

Question 57

Smaller,locally focused commercial and savings banks that offer narrower but more personalized menu of financial services are known as:

A)money-center banks.
B)community banks.
C)mutual funds.
D)state banks.
E)fringe banks.

Question 58

Banks have now expanded their service offerings into providing investment banking,insurance protection,financial planning,and other services rather than restricting themselves to traditional financial services.

Question 59

Banks perform the indispensable task of:

A)creating money without making loans.
B)absorbing the excess liquidity created by other financial institutions.
C)intermediating between surplus-spending parties and deficit-spending parties.
D)issuing risky deposits.
E)None of the options are correct

Question 60

Banks which offer virtually all financial services are known as universal banks.

Question 61

Early European banks were places for safekeeping of wealth because:

A)loans to the poor often carried high interest rates.
B)loans and deposits were primarily for wealthy customers.
C)the industrial revolution demanded new methods of making payments and obtaining credit.
D)savings and wealth were lost due to war,theft,and expropriation by governments.
E)All of the options are correct.

Question 62

Which of the following is considered a fringe bank?

A)Community Bank
B)Wholesale Bank
C)Merchant Bank
D)Payday Lender
E)None of the options are correct.

Question 63

Jonathan Robbins has an account in a bank that does not have a physical branch.Jonathan does all of his banking business over the Internet.What type of bank does Jonathan have his account at?

A)Virtual Bank
B)Mortgage Bank
C)Community Bank
D)Minority banks
E)None of the options are correct.

Question 64

Drew Davis goes to his local bank to get help developing a financial plan and making investment decisions.Which of the more recent services banks offer is Drew taking advantage of?

A)Getting a consumer loan
B)Getting financial advice
C)Managing cash
D)Getting venture capital services
E)Buying a retirement plan

Question 65

The First National Bank of Lakeland makes risky loans to businesses to expand and grow their businesses while at the same time issuing low-risk securities to their depositors and other fund providers.Which of the following services is this bank offering to their customers?

A)Risky arbitrage services
B)Liquidity services
C)Delegated monitoring services
D)Divisibility of money services
E)Credit services

Question 66

The Bank,N.A.accepts deposits from thousands of individuals and lends that money to (among others)the Stillwater Body Shop to expand their work bays.Which of the following roles is the bank performing?

A)The intermediation role
B)The payments role
C)The risk management role
D)The guarantor role
E)The policy role

Question 67

The Charleston Southern Bank makes loans for families to purchase new and existing homes but does not take deposits.What type of bank is this most likely to be?

A)Virtual Bank
B)Mortgage Bank
C)Community Bank
D)Merchant banks
E)None of the options are correct.

Question 68

Bank equipment leasing activity involves:

A)a bank leasing its office facilities instead of buying.
B)a bank buying equipment and then leasing the item to a customer.
C)a customer buying equipment and then leasing it to a bank.
D)a bank leasing computer equipment.
E)None of the options are correct.

Question 69

Jonathan Wynn knows that if he wanted to purchase a Treasury Bill,the minimum amount he would spend would be close to $10,000.He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest.Jonathan does not have $10,000 to invest in a Treasury Bill.If Jonathan puts his money in the bank,which service that a bank can provide,is he taking advantage of?

A)Risky arbitrage services
B)Liquidity services
C)Delegated monitoring services
D)Divisibility of money services
E)Credit services

Question 70

Chris Jones gets a cashier's check from Wachovia Bank to make his down payment on a new home.Which of the following roles is the bank performing?

A)The intermediation role
B)The payments role
C)The risk management role
D)The guarantor role
E)The policy role

Question 71

Major trends affecting the performance of financial firms today include all of these except:

A)greater product-line diversification.
B)reduced branching.
C)geographic diversification.
D)convergence.
E)increasing automation.

Question 72

Wholesale banks are those banks that:

A)sell at a discount relative to all commercial banks.
B)only make loans to the wholesale industry.
C)lend almost exclusively to farmers.
D)serve corporations and government.
E)have only retail customers.

Question 73

Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator for his condo.What service that a bank provides is he taking advantage of?

A)Risky arbitrage services
B)Liquidity services
C)Delegated monitoring services
D)Divisibility of money services
E)Credit services

Question 74

Banks like the Medici Bank in Italy and the Hochstetter Bank in Germany were successful because __________ and they responded well to these new needs.

A)the poor needed loans at high interest rates
B)primarily wealthy customers needed loans and deposits
C)the Industrial Revolution demanded new methods of making payments and obtaining credit
D)people needed to protect their savings and wealth from the government
E)All of the options are correct.

Question 75

The U.S.government wants to prevent money laundering by drug cartels.To promote this goal,they have asked banks to report any cash deposits greater than $10,000 to the government.Which of the following roles is the bank performing?

A)The intermediation role
B)The payments role
C)The risk management role
D)The guarantor role
E)The policy role

Question 76

Alexander Phua goes to his local bank and gets an insurance policy that protects him against loss in case he is in a car accident.Which of the following roles is the bank performing?

A)The intermediation role
B)The payments role
C)The risk management role
D)The guarantor role
E)The policy role

Question 77

The Edmond National Bank serves only the City of Edmond,Oklahoma and concentrates on providing the best possible service to this city.What type of bank is this most likely to be?

A)Virtual Bank
B)Mortgage Bank
C)Community Bank
D)Bankers' banks
E)None of the options are correct.

Question 78

The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit.Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan,Bank of America will.Which of the following roles is the bank performing?

A)The intermediation role
B)The payments role
C)The risk management role
D)The guarantor role
E)The policy role

Question 79

Religious opposition decreased during the Renaissance because:

A)loans to the poor often carried high interest rates.
B)loans and deposits primarily consisted of wealthy customers.
C)the Industrial Revolution demanded new methods of making payments and obtaining credit.
D)savings and wealth were lost due to war,theft,and expropriation by governments.
E)All of the options are correct.

Question 80

During the middle ages,banks encountered religious opposition because:

A)loans to the poor often carried high interest rates.
B)loans and deposits were primarily for wealthy customers.
C)the Industrial Revolution demanded new methods of making payments and obtaining credit.
D)savings and wealth were lost due to war,theft,and expropriation by governments.
E)All of the options are correct.