FIN 350 Week 9 Quiz – Strayer



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Quiz 8 Chapter 18 and 19

Bank Regulation

     1.   Deposit insurance has a limit of:
a.
$10,000.
b.
$25,000.
c.
$100,000.
d.
$250,000.


                                          
          
          

     2.   The opening of a commercial bank in the United States
a.
does not require a charter.
b.
always requires a charter from a state government.
c.
always requires a charter from the federal government.
d.
requires a charter from a state or the federal government.
e.
requires a charter from both the state and federal government.


                                          
          


     3.   Commercial banks that are not members of the Federal Reserve System ____ borrow from the Fed, and ____ subject to the Fed's reserve requirements.
a.
may; are
b.
may; are not
c.
may not; are not
d.
may not; are


                                          
          


     4.   National banks are regulated by ____, and state banks are regulated by ____.
a.
the Comptroller of the Currency; their state agency
b.
the Comptroller of the Currency; the Comptroller of the Currency
c.
their state agency; their state agency
d.
their state agency; the Comptroller of the Currency


                                          
          
          

     5.   All Fed member banks must hold
a.
private insurance on deposits.
b.
FDIC insurance on deposits.
c.
both FDIC and private insurance on deposits.
d.
none of the above


                                          
          
          

     6.   Commercial banks ____ restricted to a maximum percentage of their capital to loan to a single customer, and ____ allowed to use borrowed or deposited funds to purchase common stock.
a.
are; are
b.
are; are not
c.
are not; are
d.
are not; are not


                                          
          


     7.   Banks commonly use depositor funds to invest in stocks.
a. True
b. False

                                          
          
          

     8.   An "off-balance-sheet commitment" that provides the bank's guarantee on the financial obligations of a borrower to a specific party is a
a.
standby letter of credit.
b.
federal funds agreement.
c.
repurchase agreement.
d.
discount window agreement.


                                          
          
          

     9.   The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed banks to set their own
a.
reserve requirements.
b.
capital ratios.
c.
interest rates on savings deposits.
d.
corporate loan interest rates.


                                          
          
          

   10.   The Glass-Steagall Act of 1933 prevented
a.
any firm that accepts deposits from underwriting stocks and bonds of corporations.
b.
any firm that accepts deposits from underwriting general obligation bonds of states and municipalities.
c.
any firm that accepts deposits from holding any corporate bonds in its asset portfolio.
d.
state-chartered banks from offering commercial loans.


                                          
          


   11.   Which of the following is not a main deregulatory provision of Depository Institutions Deregulation and Monetary Control Act of 1980?
a.
phase-out of deposit rate ceilings
b.
allowance of checkable deposits for all depository institutions
c.
new lending flexibility of depository institutions
d.
allowance of interstate banking for depository institutions in most states


                                          
          


   12.   The Financial Reform Act was intended to:
a.
prevent another credit crisis.
b.
reduce capital ratios.
c.
impose interest rate ceilings on deposits.
d.
prevent banks from offering securities services.


                                          
          


   13.   The Garn-St. Germain Act of 1982
a.
permitted depository institutions to offer money market deposit accounts.
b.
prevented depository institutions from acquiring problem institutions across geographical boundaries.
c.
required the Fed to explicitly charge depository institutions for its services.
d.
allowed the Fed to provide check clearing to depository institutions at no charge.


                                          
          


   14.   Which of the following is not a specific criterion the FDIC uses to monitor banks?
a.
capital adequacy
b.
dollar value of fixed assets
c.
asset quality
d.
earnings
e.
sensitivity to financial market conditions


                                          
          


   15.   The potential risk that financial problems can spread through financial institutions and the financial system is referred to as:
a.
systemic
b.
systematic
c.
unsystematic
d.
market


                                          
          
          

   16.   The Basel framework recommends capital requirements in proportion to:
a.
mortgages
b.
commercial paper
c.
liabilities
d.
risk-weighted assets


                                          
          
          

   17.   The Basel Accord
a.
forces banks with greater risk to maintain more deposits.
b.
forces banks with greater risk to maintain more capital.
c.
forces banks with greater risk to maintain less capital.
d.
none of the above


                                          
          
          

   18.   In general, a bank defines its value-at-risk as the estimated potential loss from its traditional businesses that could result from adverse movements in market prices.
a. True
b. False

                                          
          
          

   19.   Which of the following statements is incorrect?
a.
The validity of a bank's estimated VAR is assessed with backtests in which the actual daily trading gains or losses are compared to the estimated VAR over a particular period.
b.
Some banks supplement the VAR estimate with stress tests.
c.
In general, the VAR model does not lend itself to determine capital requirements.
d.
All of the statements above are correct.


                                          
          


   20.   Which of the following is an "off-balance-sheet commitment?"
a.
long-term debt
b.
additional paid-in capital
c.
notes payable
d.
guarantees backing commercial paper issued by firms


                                          
          
          

   21.   The liquidity component of the CAMELS rating refers to
a.
regulators' concern about how a bank's earnings would change if economic conditions change.
b.
how well the bank's management would detect its own financial problems.
c.
a bank's sensitivity to financial market conditions.
d.
monitoring the type of loans that are given, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases.
e.
excessive borrowing by banks from outside sources, such as the discount window.


                                          
          


   22.   Which of the following is not a corrective action taken by regulators when a bank is identified as a problem bank?
a.
Regulators may examine such banks frequently and thoroughly.
b.
Regulators may request that a bank boost its capital level or delay its plans to expand.
c.
Regulators can require that additional financial information be periodically updated to allow continued monitoring.
d.
Regulators have the authority to take legal action against a problem bank if the bank does not comply with their suggested remedies.
e.
All of the above are possible corrective actions taken by bank regulators.


                                          
          


   23.   The fee banks pay to the FDIC for deposit insurance is now
a.
a fixed dollar amount for all banks.
b.
a fixed percentage of the bank's deposit level for all banks.
c.
a fixed percentage of the bank's loan volume for all banks.
d.
based on the risk of the bank.


                                          
          


   24.   Generally, the failure of small banks
a.
causes more widespread concern about the safety of the banking system than the failure of large banks.
b.
causes equal concern about the safety of the banking system as the failure of large banks.
c.
causes less concern about the safety of the banking system than the failure of large banks.
d.
Either A or B can be true, depending on the type of business cycle that exists while the failures occur.


                                          
          


   25.   The Sarbanes-Oxley Act was enacted to make corporate managers, board members, and auditors more accountable for the accuracy of the financial statements that their respective firms provide.
a. True
b. False

                                          
          
          

   26.   Bank A has a 10 percent capital ratio and uses a significant proportion of its assets to invest in very highly-rated bonds. Bank B has an 12 percent capital ratio and uses a significant proportion of its assets to invest in highly leveraged transactions. How would Bank A rate versus Bank B using the capital and asset quality criteria?
a.
Bank A is perceived as safer by both criteria.
b.
Bank B is perceived as safer by both criteria.
c.
Bank A is perceived as safer according to capital, but more risky according to asset quality.
d.
Bank B is perceived as safer according to capital, but more risky according to asset quality.


                                          
          
          

   27.   The key reason for regulatory examinations (such as CAMELS ratings) is to
a.
rate past performance.
b.
detect problems of a bank in time to correct them.
c.
check for embezzlement.
d.
monitor reserve requirements.


                                          
          


   28.   Deposit insurance now covers all bank deposits without imposing any limit.
a. True
b. False


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