Beruflich Dokumente
Kultur Dokumente
True/False
1) In the past, excessive competition led to a low rate of innovation within the
banking industry.
(F, easy, section 1)
3) Unit banks and national banks comprise all the banks in the United States.
(F, easy, section 1)
6) Unit banks often had local monopolies, meaning they had little incentive to
innovate.
(T, easy, section 1)
9) One of the 3s in the 3-6-3 rule refers to the interest rate on assets.
(F, easy, section 1)
10) The Great Inflation led to a decline in the size of the traditional commercial
bank industry.
(T, easy, section 2)
11) The increase in nominal interest rates during the 1970s led to an increase in the
size of the traditional banking industry.
(F, easy, section 2)
12) Regulation Q (the restriction on interest paid on deposits) was responsible for
the rise in nominal interest rates in the 1970s.
(F, easy, section 2)
15) SWEEP accounts allow deposit rate to adjust with market rates.
(F, easy, section 3)
17) Adjustable rate mortgages are a financial innovation appearing in the 1990s.
(F, easy, section 3)
18) Junk bonds are a financial innovation that took business away from traditional
banks.
(T, easy, section 1)
19) The introduction of mutual funds has made reserve requirements largely
ineffective.
(F, easy, section 3)
20) Regulation Q (the restriction on interest paid on deposits) and rising nominal
interest rates during the Great Inflation were responsible for an increase the size of
the mutual fund industry.
(T, medium, section 3)
21) Interest payments from commercial loans are an increasingly important source
of bank profits.
(F, easy, section 2)
24) According to the Herfindahl index, the United States has one of the most
concentrated banking industries in the world.
(F, easy, section 5)
25) According to the Herfindahl index, the U.S. banking industry has become
increasingly concentrated in the last few decades.
(T, easy, section 5)
27) Commercial banks are the only institutions in the United States that take
transactions deposits.
(F, easy, section 5)
28) The process of bundling loans and selling pieces of the group is known as
securitization.
(T, easy, section 3)
31) ARMs allow lenders to pass the default risk on to the borrower.
(F, medium, section 2)
1) Unit banks
a) have no branches.
b) have a local monopoly.
c) had little incentive to innovate.
d) all of the above.
(d, easy, section 1)
2) Unit banks
a) have no branches.
b) are highly competitive.
c) are an increasingly common type of financial institution.
d) all of the above.
(a, easy, section 1)
5) The Great Inflation affected the banking industry through the following channels.
a) higher nominal interest rates
b) decline in deposits
c) increase in disintermediated borrowing
d) all of the above
(d, easy, section 2)
6) The Great Inflation affected the banking industry through the following channels.
a) lower nominal interest rates
b) decline in deposits
c) decreased competition among banks
d) all of the above
(b, easy, section 2)
7) ARMs
a) force borrowers to assume interest rate risk.
8) ARMs
a) force lenders to assume interest rate risk.
b) became more prevalent during the Great Inflation.
c) both of the above.
d) neither of the above.
(b, medium, section 2)
11) Technology has helped to make possible which of the following innovations?
a) ATMs
b) credit cards
c) mortgage backed securities
d) all of the above
(d, easy, section 4)
22) According to the Herfindahl index, the U.S banking industry is _____
concentrated than that of most developed economies.
a) more
b) less
c) equally
d) The Herfindal index is not a measure of concentration.
(b, easy, section 5)
23) The biggest reason for the consolidation of the banking industry in the 1980s
was
a) mergers.
b) bankruptcy.
c) bailouts.
d) all of the above.
(b, easy, section 5)
(easy, section 1)
(easy, section 1)
Commercial paper are loans between businesses that don’t involve a bank or
financial institution.
(easy, section 2)
(medium, section 3)
(medium, section 3)
6) Why does the lack of a prepayment clause matter to the interest rate risk involved
in taking a fixed rate mortgage?
Without the clause, if interest rates fall, the homeowner can refinance the
loan at the lower rate, so there is less interest rate risk.
(medium, section 2)
7) How did a lack of competition among banks give rise to mutual funds?
(medium, section 1)
8) Explain how a lack of competition gave rise to the commercial paper market.
The lack of competition among banks meant they could charge high interest
rates for business loans, which gave firms incentive to lend to each other at lower
rates.
(medium, section 1)
(easy, section 3)
(difficult, section 5)
(easy, section 5)
Larger banks might be considered too big to fail, so they have incentive to
take excessive risks.
(medium, section 5)
13) A small bank in a rural community proposes to merge with a large national
bank. Give one reason customers of the small bank might object to the proposal.
Give a reason they might be in favor.
(medium, section 5)
14) Why have some argued that securitization has increased risk across the whole
economy, increasing the severity of the recession in 2009?
Loans are no longer held by a single bank. Now many financial institutions
have exposure to many more loans, so defaults have a broader impact.
(difficult, section 5)
15) Explain how the combination of Regulation Q and the high inflation of the
1970s led to an increase in the use of mutual funds and junk bonds.
(medium, section 2)