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Exam 20: Money, Financial Institutions, and the Federal Reserve

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Question 1

True/False

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Commercial banks attempt to profit by using funds deposited by customers to make interest-bearing loans to borrowers.

A) True
B) False

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Question 2

Multiple Choice

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Which of the following represents the technical name for a checking account?

A) Free deposit
B) Variable annuity
C) Demand deposit
D) Certificate of deposit

E) All of the above
F) A) and B)

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Question 3

Multiple Choice

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Originally, savings and loan associations:

__________ includes anything that people generally accept as payment for goods and services

A banker's acceptance represents a promise that a bank will pay a specified amount at a specified time if certain conditions are met.

A letter of credit represents a promise that a bank will disburse a specified amount of funds at a particular time if certain conditions are met.

Typically, banks impose a service charge for check-writing privileges or demand a minimum deposit.

Many S&Ls failed due to the inflation of the 1970s, deregulation, regulatory failure, and fraud.

Pleased with the service provided by a national brokerage house when he bought and sold stocks and bonds, Ted would like to have this brokerage firm handle more of his financial needs. If Ted explores the services offered by such firms in more depth, he will find that:

Mini-Case The Bank of Bramblewood survived the Great Depression through the dedication, hard work, and conservative practices of its first president, Red E. Kash. Indeed, Red's personal drive and business skills helped the Bank of Bramblewood thrive during his 50-year tenure as president. After his retirement his granddaughter, Patty, took a position with the bank. Patty inherited her grandfather's business skills and by 1994 she had risen to become the second member of the Kash family to head the bank. Patty admits she owes a great deal to her grandfather's leadership and advice, but she also quickly points out that the banking industry has changed significantly since Red retired. Patty graduated from college with a degree in finance, and also holds several certifications with the American Institute of Banking. "What Granddad achieved during his era was truly remarkable," Patty points out. "But times have changed, and banking regulations and bank competitors have certainly changed. If we hope to prosper in this century we have to adjust to new competition, learn to work with new technologies, and take advantage of new opportunities. The Bank of Bramblewood has always operated for the benefit of our customers and we will continue to do so. But we must serve them more efficiently and creatively than in the past." -Since the Great Depression and still today, the Bank of Bramblewood has the FDIC designation. This means:

Pension funds are monies put aside by corporations, nonprofit organizations, or unions to fund the financial needs of their employees, upon retirement.

The ___________ represents one of the Fed's most powerful monetary policy tools

Alan works as a loan officer for a major U.S. commercial bank, specializing in international loans. When considering loans to governments and businesses in other nations, Alan:

A significant decrease in the money supply tends to:

Historically, savings and loans always paid lower interest rates on time deposits.

A debit card is better than a credit card because it allows the purchaser to float a short-term loan, until the credit card company sends the bills at the end of the month.

Depositors represent a bank's primary responsibility, while borrowing customers are secondary.

All federally chartered banks are members of the Federal Reserve.

The Megabux National Bank currently has deposits of $200 million. If the Fed establishes a reserve requirement of 12 percent, Megabux National must hold reserves of _______ against its deposits

An increase in the discount rate produces a decrease in money supply.