Chapter 3: Banks and Other Financial Institutions
Multiple Choice
1. ____________ is the process by which individual savings are accumulated in depository
institutions where the funds are then loaned out to consumers or invested in businesses.
a. Savings/investment
b. Financial intermediation
c. Contractual savings
d. Mortgage banking
Answer: b
Level: easy
Section: Types and Roles of Financial Institutions
2. Contractual savings organizations provide all of the following services with the exception of
__________.
a. collecting premiums on insurance policies
b. accepting deposits or savings from individuals and then lending these pooled savings to
businesses.
c. providing retirement benefits and insurance against major financial losses.
d. collecting employee or employer contributions from pension fund participants.
Answer: b
Level: easy
Section: Types and Roles of Financial Institutions
3. ________________ ________________ receive contributions from employees or their
employers and invest the proceeds on behalf of the employees.
a. Pension funds
b. Insurance companies
c. Credit unions
d. Savings banks
Answer: a
Level: medium
Section: Depository Institutions
4. All of the following are characteristics of a commercial bank EXCEPT
a. A commercial bank accepts deposits.
b. A commercial bank issues check writing accounts to facilitate purchases and pay bills.
c. A commercial bank helps businesses sell their new debt and equity securities to raise
financial capital.
d. A commercial bank makes loans to individuals and businesses.
Answer: c
Level: difficult
Section: Overview of the Banking System
5. Which legislative act provided for the separation of commercial banks and investment banks
in the United States?
a. Glass-Steagall Act of 1933
b. Gramm-Leach-Bliley Act of 1999
c. Hudson-Glenna Act of 1942
d. Van Buren-Cline Act of 1938
Answer: a
Level: easy
Section: Commercial Investment and Universal Banking
6. Who established the first incorporated bank in North America?
a. Alexander Hamilton
b. Andrew Jackson
c. Robert Morris
d. John Jacob Astor
Answer: c
Level: medium
Section: Historical Development of the U.S. Banking System
7. The Federal Reserve Act of 1913
a. gave more powers to state banks.
b. brought a system of central banks.
c. made it possible for banks to receive federal charters for the first time.
d. separated commercial banks and investment banks.
Answer: b
Level: medium
Section: Regulation of Banking System
8. When federal deposit insurance was increased from $40,000 to $100,000 for each account, the
U.S. Treasury stated that _________________________.
a. it undermined market discipline and enabled depository institutions to make high risk loans
loans for which the taxpayers in the long run have become liable.
b. it amended the Home Owners’ Loan Act of 1933.
c. it expanded the uses of the funds of S&L’s.
d. it established interest rate ceilings on time and savings deposits.
Answer: a
Level: difficult
Section: Regulation of the Banking System
9. What allows commercial banks to obtain charters from either the federal government or a state
government?
a. reserve requirements set by the Fed for member banks extended to state nonmember banks
b. dual banking system
c. reducing insurable deposit limits to protect only the small deposits
d. eliminating all deposit insurance
Answer: b
Level: easy
Section: Structure of Banks
10. The policies of banks controlled by a holding company are determined by _____________.
a. the placement of branches.
b. the parent company and coordinated for the purposes of that organization.
c. both OBHCs and MBHCs.
d. limited branch banking.
Answer: b
Level: medium
Section: Structure of Banks
11. ______________ are the financial debts and obligations owed by the bank.
a. Liabilities
b. Owners’ capital
c. Financial equity
d. Assets
Answer: a
Level: easy
Section: The Bank Balance Sheet
12. The interest rate charged by banks for short term unsecured loans to their highest quality
business customers is referred to as what rate?
a. unsecured
b. industrial
c. prime rate
d. secured
Answer: c
Level: medium
Section: The Bank Balance Sheet
13. ___________ reflects the ability to keep the value of a bank’s assets greater than its
liabilities.
a. Bank solvency
b. Bank safety
c. Bank liquidity
d. Capital adequacy management
Answer: a
Level: difficult
Section: Bank Management
14. What is necessary to ensure that banks remain solvent, meet depositor demands, and pay
their debts as they come due?
a. owners’ capital
b. underlying debt instruments
c. adequate capital
d. an inverse relationship between the price or value and interest rates
Answer: c
Level: difficult
Section: Bank Management
15. The purpose of the Basel Accord has been to
a. establish capital adequacy requirement for banks with international operations.
b. increase short term liquidity positions of key international banks.
c. try to stem capital flight to offshore tax havens.
d. improve the monetary coordination between the main economies of western Europe.
Answer: a
Level: difficult
Section: International Banking and Foreign System