Question 1

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

Accepted Answer

Banks offer a wide range of services beyond transaction accounts and commercial loans, including savings accounts, mortgages, personal loans, and investment services, making their definition broader than just those two functions.

Question 2

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

Accepted Answer

Commercial banks offer transaction accounts, which allow for the deposit and withdrawal of funds by account holders, and they also facilitate wire transfers, enabling the electronic transfer of funds between accounts.

Question 3

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

Accepted Answer

Wholesale banks primarily deal with large transactions in the business sector, including drawing funds from and making loans to businesses, rather than dealing with individual retail customers.

Question 4

Equity capital is bank's major source of funds.

Accepted Answer

Banks primarily rely on deposits from customers as their major source of funds, not equity capital. Equity capital is used, but it is not the primary source.

Question 5

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

Accepted Answer

Banks are often referred to as "trust" banks not simply because they rely on the trust of their customers, but because they offer trust services, managing assets for the benefit of others.

Question 6

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

Accepted Answer

The Glass-Steagall Act, specifically the Banking Act of 1933, actually separated commercial banking from investment banking, thereby prohibiting banks from engaging in securities activities.

Question 7

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

Accepted Answer

The standby letter of credit is indeed one of the most well-known off-balance sheet activities of commercial banks, as it represents a commitment by the bank to pay a beneficiary in case the bank's client defaults on an agreement, without this commitment being recorded on the bank's balance sheet as an asset or liability until the letter of credit is drawn upon.

Question 8

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

Accepted Answer

Risk management is a central and critical function in commercial banks, as it helps in identifying, assessing, and managing financial risks to ensure financial stability and compliance with regulatory requirements.

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.

Accepted Answer

Regulatory constraints on bank behavior, such as capital requirements, liquidity requirements, and lending standards, are primarily designed to reduce the risk of bank failures by ensuring banks operate in a safe and sound manner. Additionally, some regulations aim to influence the price and allocation of bank credit to support policy goals, such as promoting lending to underserved sectors or managing economic cycles.

Question 10

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

Accepted Answer

Commercial banks have faced increased competition from non-bank financial institutions, which has led to a diversification of the financial services industry rather than a substantial increase in market share for commercial banks.

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.

Accepted Answer

Securitization is the process of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations, and selling their related cash flows to third-party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs), depending on the structure of the securitization. This process helps in making illiquid assets more marketable.

Question 12

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

Accepted Answer

Despecialization in financial services has led to a blurring of lines between different types of financial institutions. Nonbank firms, such as investment firms and insurance companies, have increasingly offered services traditionally associated with banks, such as lending and payment services. This trend is more pronounced in nonbank firms as they venture into new financial activities, whereas commercial banks have generally continued to focus on their traditional banking roles, albeit with some diversification.

Question 13

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

Accepted Answer

The answer of Commercial bank assets exceed 50 percent of...

Question 14

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

Accepted Answer

The largest type of bank assets is typically in the form of loans, not securities. Loans to individuals and businesses constitute the primary asset category for most banks.

Question 15

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

Accepted Answer

the largest source of funds for banks is indeed the demand deposit accounts of individuals, businesses, and governments. These accounts, also known as checking accounts, allow customers to deposit money and withdraw funds on demand. The bank uses these deposits to fund loans and investments, generating income through interest and fees. This is the primary way banks make money. Therefore, demand deposit accounts are crucial to a bank's operations and profitability.

Question 16

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

Accepted Answer

The range of financial services has expanded considerably in the past 20 years due to technological advancements, globalization, and evolving customer needs, leading to new financial products, services, and fintech innovations.

Question 17

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

Accepted Answer

Deposit insurance is typically provided by a government agency or a deposit insurance corporation, not directly by commercial banks. Commercial banks engage in intermediation, payments, and real estate related activities, but deposit insurance is designed to protect depositors against the loss of their deposits if a bank fails, and it is not a function performed by the banks themselves.

Question 18

Commercial banks offer fiduciary services in order to:

Accepted Answer

Commercial banks offer fiduciary services to manage and administer assets on behalf of clients, such as employee pension and profit-sharing programs, rather than to increase balance sheet assets or maximize interest income.

Question 19

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

Accepted Answer

Commercial banks are generally not involved in underwriting corporate stocks and bonds, which is typically the role of investment banks.

Question 20

Off-balance sheet risk taking involves:

Accepted Answer

Off-balance sheet risk taking often involves generating fee income by assuming contingent liabilities, which are not recorded on the balance sheet until the contingent event occurs. This can include activities like issuing letters of credit, derivatives, or guarantees, which do not appear as assets or liabilities until the contingent event happens.

Quiz 1: Functions and Forms of Banking