Question 1

The legislation that separated investment banking from commercial banking was the

Accepted Answer

The Glass-Steagall Act separated commercial banking from investment banking by prohibiting banks from engaging in both activities at the same time. This legislation was enacted in 1933 as a response to the stock market crash and the failure of many banks during the Great Depression. The act was repealed in 1999 with the passage of the Gramm-Leach-Bliley Act, which allowed for greater consolidation and integration of the financial industry.

Question 2

The prohibition against banks underwriting corporate securities and engaging in brokerage,real estate,and insurance activities was repealed by the

Accepted Answer

The Gramm-Leach-Bliley Financial Services Modernization Act, signed into law in 1999, repealed certain provisions of the Glass-Steagall Act that prohibited banks from engaging in both commercial banking and investment banking activities, such as underwriting corporate securities and acting as brokers or dealers in securities. The Act allowed for greater integration between different types of financial institutions, leading to the creation of larger, more diversified financial conglomerates.

Question 3

In a ________ banking system,commercial banks provide a full range of banking,securities,and insurance services,all within a single legal entity.

Accepted Answer

A universal banking system refers to a financial model in which banks offer a complete array of financial services, including retail banking, commercial banking, investment banking, and insurance services, all under one roof. This comprehensive approach allows banks to provide tailored financial solutions to their customers' specific needs. The universal banking system is prevalent in many countries, including Germany, France, and Switzerland.

Question 4

A financial innovation that enables banks to avoid the "tax" from reserve requirements by taking any balances above a certain amount in a corporation's checking account at the end of the business day and investing them in overnight securities that pay interest is called a ________.

Accepted Answer

A sweep account automatically "sweeps" the balance in a corporation's checking account at the end of the business day into overnight securities, which earns interest and helps the bank avoid the tax from reserve requirements. Money market mutual funds are not specific to banks and do not necessarily address reserve requirements. Deposit rate ceiling refers to an interest rate cap set by a government or regulatory authority. Disintermediation refers to the removal of financial intermediaries, which is not directly related to reserve requirements or sweep accounts.

Question 5

An electronic machine that allows customers to make deposits,get cash,transfer funds from one account to another,and check balances is

Accepted Answer

The definition provided in the question perfectly matches with Automated Teller Machine (ATM). An ATM allows customers to make deposits,get cash,transfer funds from one account to another,and check balances electronically. Hence, option C is the correct answer. Option A is partially correct, as an Automated Banking Machine (ABM) is used in some countries instead of ATM, but C is a more specific answer that covers all regions. Option B is incorrect as Virtual Bank is an online-only financial institution, and it does not provide physical ATMs or deposit machines. Option D is also incorrect as a smart card is a plastic card embedded with a microchip that stores data, and it needs a card reader to function, which is not the case with ATMs.

Question 6

Eurodollars are

Accepted Answer

Eurodollars are dollar-denominated deposits held in banks outside the United States.

Question 7

Deposits in European banks denominated in dollars for the purpose of international transactions are known as ________.

Accepted Answer

Deposits in European banks denominated in dollars for the purpose of international transactions are known as Eurodollars.

Question 8

Which of the following is a reason for the rapid expansion of international banking?

Accepted Answer

All of the given options contributed to the rapid expansion of international banking. As international trade and multinational corporations grew, the need for international banking services also increased. Additionally, U.S. banks saw opportunities for growth and expansion in foreign markets, leading them to establish international presence.

Question 9

A major difference between the United States and Japanese banking systems is that

Accepted Answer

Japanese banks are allowed to hold substantial equity stakes in commercial firms, a practice that is generally restricted for American banks. This difference highlights a fundamental distinction in the regulatory environments of the two countries' banking systems.

Question 10

U.S.banks have most of their foreign branches in

Accepted Answer

According to data from the Federal Reserve, U.S. banks have the most foreign branches in Latin America, the Far East, the Caribbean, and London.

Question 11

A special subsidiary of a U.S.bank that is engaged in international banking is called

Accepted Answer

A special subsidiary of a U.S. bank that is engaged in international banking is called an Edge Act corporation. They are named after the Edge Act that was passed in 1919 and the subsidiaries can engage in international banking activities such as lending and deposit-taking but are limited to dealing only with non-U.S. customers.

Question 12

Since the passage of the International Banking Act of 1978,the competitive advantage enjoyed by foreign banks has been ________.

Accepted Answer

The passage of the International Banking Act of 1978 led to increased regulation and supervision of the activities of foreign banks in the US, reducing their competitive advantage. Therefore, choice A is the best answer as it correctly reflects the impact of the Act on foreign banks. Choices B, C, and D are not correct as they suggest outcomes that are not supported by the information given in the passage.

Question 13

There are approximately how many commercial banks in the United States currently?

Accepted Answer

As of 2021, there are approximately 6,200 commercial banks in the United States, according to the Federal Reserve. This number includes national banks, state-chartered banks, and foreign-owned banks operating in the US.

Question 14

Major differences between the United States and Japanese banking systems include:

Accepted Answer

The major differences include that Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks are restricted from doing so. Additionally, bank holding companies, which are common in the United States, are not permitted in Japan.

Question 15

In a ________ banking system,commercial banks engage in securities underwriting,but separate subsidiaries conduct the different activities.Also,banking and insurance are not typically undertaken together in this system.

Accepted Answer

The British-style universal banking system allows commercial banks to engage in securities underwriting through separate subsidiaries, but typically keeps banking and insurance activities separate, distinguishing it from other banking systems.

Question 16

In 1975,financial institutions developed financial derivatives that included ________.

Accepted Answer

Financial derivatives refer to various types of contracts whose value is tied to underlying assets or financial instruments. Futures contracts are one of the earliest and most common types of financial derivatives, and they were first introduced in the 1970s as a way for investors to hedge their exposure to commodity prices. While adjustable-rate mortgages and virtual banks are products that were also introduced in the 1970s and 1990s respectively, they are not typically considered financial derivatives. Financial engineering is a term used to describe the use of mathematical models and quantitative methods to create new financial products, and while it is closely related to financial derivatives, it is not a specific product or contract in itself.

Question 17

The main center of the Eurodollar market is ________.

Accepted Answer

London is known as the main center of the Eurodollar market, where most of the transactions and trading take place.

Question 18

In recent years,commercial banks have been allowed to

Accepted Answer

Commercial banks have been allowed to expand their services in recent years, including investing in real estate, entering certain insurance markets, and underwriting stocks, making "do all of the above" the correct choice.

Question 19

The Riegle-Neal Act of 1994

Accepted Answer

The Riegle-Neal Act of 1994 overturned prohibitions on interstate banking and branching, allowing banks to operate across state lines and engage in branching activities. This led to significant changes in the banking industry and increased competition among banks.

Question 20

A form of electronic money used on the Internet to pay for goods and services is

Accepted Answer

E-cash is a form of electronic money used on the Internet to pay for goods and services. E-money, smart cards, and virtual banks are all related to electronic transactions but do not specifically refer to a form of digital currency like e-cash.

Quiz 19: Banking Industry: Structure and Competition