Finance Chapter 1: Overview of Changing Financial-Services Sector
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Questions and Answers

What percentage of assets in the financial system do banks hold in other nations?

  • Less than 20%
  • Half or more (correct)
  • About 30%
  • Almost 100%

    • What is one way to define a bank?

  • By the type of products it sells
  • By the economic functions it performs (correct)
  • By the number of employees it has
  • By the location of its headquarters

    • What is a characteristic of money-center banks?

  • They offer a narrow range of financial services
  • They are small and localized
  • They are industry leaders and offer a wide range of financial services (correct)
  • They are only found in rural areas

    • What is a characteristic of community banks?

    <p>They are smaller and service local communities</p> Signup and view all the answers

    What is one of the services that banks are expanding to offer?

    <p>Investment banking and insurance protection</p> Signup and view all the answers

    What is the role of banks in the economy?

    <p>They are important to the economy and the community</p> Signup and view all the answers

    What is one way that banks are different from traditional financial-services providers?

    <p>They are becoming general financial-services providers</p> Signup and view all the answers

    What is a characteristic of the services offered by banks?

    <p>They are expanding rapidly</p> Signup and view all the answers

    What is a current trend affecting financial-service firms?

    <p>Consolidation and Geographic Expansion</p> Signup and view all the answers

    What is happening to banking's share of the financial marketplace?

    <p>It is decreasing</p> Signup and view all the answers

    What is a type of professional that works inside financial firms?

    <p>Loan Officers</p> Signup and view all the answers

    What is a force shaping financial markets and institutions today?

    <p>Technological Change</p> Signup and view all the answers

    What is a reason why banks are reaching out to become one-stop financial-service conglomerates?

    <p>To expand their services</p> Signup and view all the answers

    What is a type of service that banks offer?

    <p>Loans</p> Signup and view all the answers

    What is a trend that affects all financial-service firms?

    <p>Service Proliferation</p> Signup and view all the answers

    What is a type of professional that works in the Trust Department of a financial firm?

    <p>Trust Department Specialist</p> Signup and view all the answers

    What is the primary source of credit for millions of individuals and families?

    <p>Banks</p> Signup and view all the answers

    What is the approximate percentage of total assets held by U.S. banks?

    <p>One-fifth</p> Signup and view all the answers

    What type of loans do banks grant to consumers more than any other financial-service provider?

    <p>Installment loans</p> Signup and view all the answers

    What is the role of banks in providing working capital to businesses?

    <p>Short-term working capital</p> Signup and view all the answers

    What is the main purpose of banks in the financial system?

    <p>To provide credit and financial services</p> Signup and view all the answers

    What is the relationship between banks and governments?

    <p>Banks provide loans to governments</p> Signup and view all the answers

    What is the significance of banks in the economy?

    <p>They are vital to our well-being and the well-being of our communities</p> Signup and view all the answers

    What is the role of banks in funding new investments?

    <p>They provide long-term loans</p> Signup and view all the answers

    What is the primary purpose of the financial system?

    <p>To encourage saving and transfer those savings to individuals and institutions planning to invest</p> Signup and view all the answers

    What is a bank, according to its legal basis?

    <p>Any business offering deposits subject to withdrawal on demand and making loans of a commercial or business nature</p> Signup and view all the answers

    What is one of the supporting services provided by the financial system?

    <p>Risk protection services</p> Signup and view all the answers

    What is the result of the financial system's process of encouraging savings and transforming savings into investment spending?

    <p>The economy grows, new jobs are created, and living standards rise</p> Signup and view all the answers

    What is the role of the Federal Deposit Insurance Corporation (FDIC) in the banking system?

    <p>To provide deposit insurance to qualified institutions</p> Signup and view all the answers

    What is one of the ways the financial system provides liquidity services?

    <p>By making it possible to convert property into immediately available spending power</p> Signup and view all the answers

    What is the main purpose of a bank, according to its definition?

    <p>To offer deposits subject to withdrawal on demand</p> Signup and view all the answers

    What is one of the services provided by the financial system to support individuals and institutions?

    <p>Credit services</p> Signup and view all the answers

    What is one of the traditional services offered by banks for centuries?

    <p>Offering Savings Deposits</p> Signup and view all the answers

    What is one of the services banks began offering in the past century?

    <p>Financial Advising</p> Signup and view all the answers

    What is one of the services banks offer to support government activities?

    <p>Supporting Government Activities with Credit</p> Signup and view all the answers

    What is one of the services banks offer to manage cash?

    <p>Managing Cash</p> Signup and view all the answers

    What is one of the services banks offer to help individuals plan for retirement?

    <p>Selling and Managing Retirement Plans</p> Signup and view all the answers

    What is one of the services banks offer to help businesses grow?

    <p>Making Venture Capital Loans</p> Signup and view all the answers

    What is one of the services banks offer to help individuals manage risk?

    <p>Offering Risk Management and Hedging Services</p> Signup and view all the answers

    What is one of the services banks offer to help individuals invest?

    <p>Offering Mutual Funds, Annuities, and Other Investment Products</p> Signup and view all the answers

    What are the three ways to define a bank?

    <p>The economic functions it performs, the services it offers its customers, and the legal basis for its existence.</p> Signup and view all the answers

    What is the significance of banks in the economy and communities?

    <p>They are important to the economy as a whole and to the communities.</p> Signup and view all the answers

    What is the primary difference between money-center banks and community banks?

    <p>Money-center banks are larger and offer a wider range of financial services, while community banks are smaller and more personalized.</p> Signup and view all the answers

    What is the trend in the services offered by banks today?

    <p>Their service menus are expanding rapidly to include a wide range of innovative financial products.</p> Signup and view all the answers

    How do banks differ from traditional financial-services providers?

    <p>Banks are no longer limited to traditional services, but have become general financial-services providers.</p> Signup and view all the answers

    What is the role of banks in terms of financial services?

    <p>They offer a wide range of financial services, including investment banking, insurance, and risk management.</p> Signup and view all the answers

    What is the characteristic of the services offered by banks today?

    <p>They offer a wide range of innovative financial products and services.</p> Signup and view all the answers

    How do banks acquire and expand their services?

    <p>They acquire smaller businesses and face tough global competition.</p> Signup and view all the answers

    What is the reason behind the declining market share of traditional banking?

    <p>The emergence of other financial institutions that offer similar services and products, making traditional banking change and adapt to the new market environment.</p> Signup and view all the answers

    What is the significance of the banking industry's largest customers finding alternative ways to obtain funds?

    <p>It shows that traditional banking is no longer the sole provider of financial services, and customers are finding alternative ways to meet their financial needs.</p> Signup and view all the answers

    What are some of the competitors that are posing a challenge to traditional banking?

    <p>Savings Associations, Credit Unions, Fringe Banks, Money Market Funds, Mutual Funds, Hedge Funds, Security Brokers and Dealers, Investment Banks, Finance Companies, Financial Holding Companies, and Life and Property/Casualty Insurance Companies.</p> Signup and view all the answers

    What is the response of the banking industry to the decline in its market share?

    <p>The banking industry is adapting to the changing market environment by offering new services and changing its form.</p> Signup and view all the answers

    What is the implication of the banking industry's declining market share on traditional measures of its importance?

    <p>Traditional measures of the industry's importance, such as total assets, may no longer reflect the industry's true importance and competitiveness.</p> Signup and view all the answers

    What is the current trend in the financial services market?

    <p>The financial services market is becoming increasingly competitive, with traditional banking facing competition from other institutions.</p> Signup and view all the answers

    What is the significance of the banking industry's need to adapt to the changing market environment?

    <p>The banking industry needs to adapt to the changing market environment to remain competitive and relevant.</p> Signup and view all the answers

    What is the impact of the emergence of other financial institutions on traditional banking?

    <p>The emergence of other financial institutions has forced traditional banking to change and adapt to the new market environment.</p> Signup and view all the answers

    What is one of the traditional services offered by banks for centuries?

    <p>Carrying Out Currency Exchange, Discounting Commercial Notes and Making Business Loans, Offering Savings Deposits, Safekeeping of Valuables and Certification of Value, Supporting Government Activities with Credit, Offering Checking Accounts (Demand Deposits), Offering Trust Services</p> Signup and view all the answers

    How do banks support government activities?

    <p>With credit</p> Signup and view all the answers

    What is one of the services banks offer to manage cash?

    <p>Managing Cash</p> Signup and view all the answers

    How do banks help individuals plan for retirement?

    <p>By selling and managing retirement plans</p> Signup and view all the answers

    What is one of the services banks offer to help businesses grow?

    <p>Making Venture Capital Loans</p> Signup and view all the answers

    How do banks help individuals manage risk?

    <p>By offering risk management and hedging services</p> Signup and view all the answers

    What is one of the services banks began offering in the past century?

    <p>Granting Consumer Loans, Financial Advising, Managing Cash, Offering Equipment Leasing, Making Venture Capital Loans, Selling Insurance Policies, Selling and Managing Retirement Plans, Dealing in Securities, Offering Mutual Funds, Annuities, and Other Investment Products, Offering Merchant Banking Service, Offering Risk Management and Hedging Services</p> Signup and view all the answers

    What is one of the services banks offer to support individuals and institutions?

    <p>Providing liquidity services</p> Signup and view all the answers

    What is the primary purpose of the financial system?

    <p>To encourage saving and to transfer those savings to individuals and institutions planning to invest and needing credit to do so.</p> Signup and view all the answers

    What services do banks offer to support individuals and institutions?

    <p>Payment services, risk protection services, liquidity services, and credit services.</p> Signup and view all the answers

    What is the legal basis for banking?

    <p>A bank is any institution that could qualify for deposit insurance administered by the Federal Deposit Insurance Corporation (FDIC).</p> Signup and view all the answers

    What are the results of the financial system's process of encouraging savings and transforming savings into investment spending?

    <p>The economy grows, new jobs are created, and living standards rise.</p> Signup and view all the answers

    What is the main purpose of a bank according to its definition?

    <p>To accept deposits subject to withdrawal on demand and make loans of a commercial or business nature.</p> Signup and view all the answers

    What is one of the supporting services provided by the financial system?

    <p>Payment services.</p> Signup and view all the answers

    What is the role of the financial system?

    <p>To transfer savings to individuals and institutions planning to invest and needing credit to do so.</p> Signup and view all the answers

    What is the result of the financial system's process of encouraging savings and transforming savings into investment spending?

    <p>Economic growth, job creation, and rising living standards.</p> Signup and view all the answers

    What is the primary purpose of banks in the financial system?

    <p>To provide hundreds of different services to millions of people, businesses, and governments.</p> Signup and view all the answers

    What do banks provide to millions of individuals and families?

    <p>Credit (loanable funds)</p> Signup and view all the answers

    What do banks grant to consumers more than any other financial-service provider?

    <p>Installment loans</p> Signup and view all the answers

    What percentage of total assets are held by U.S. banks?

    <p>About one-fifth</p> Signup and view all the answers

    What is a vital service provided by banks to businesses?

    <p>Short-term working capital</p> Signup and view all the answers

    What is the importance of banks in the economy?

    <p>Vital to our well-being and the well-being of the communities and nations where we live.</p> Signup and view all the answers

    What do banks offer to help individuals and businesses?

    <p>Hundreds of different services</p> Signup and view all the answers

    Why are banks important to governments?

    <p>They provide vital services to governments</p> Signup and view all the answers

    Study Notes

    • Crisis, reform, and change in banking and financial services
    • Service proliferation
    • Rising competition
    • Government deregulation and then reregulation
    • Increasingly interest-sensitive mix of funds
    • Technological change and automation
    • Consolidation and geographic expansion
    • Convergence
    • Globalization

    What Is a Bank?

    • A bank can be defined in terms of economic functions, services offered, and legal basis
    • Provides hundreds of services to millions of people, businesses, and governments
    • Principal source of credit (loanable funds) for individuals, families, and government units
    • Holds about one-fifth of total assets in the US, and half or more in other nations

    Types of Banks

    • Money-center banks: industry leaders, cover whole regions, nations, and continents, offer widest menu of financial services, acquire smaller businesses, and face tough global competition
    • Community banks: much smaller, service local communities and towns, offer narrower but more personalized menu of financial services

    The Financial System and Competing Financial-Service Institutions

    • Primary purpose: to encourage saving and transfer savings to individuals and institutions planning to invest and needing credit
    • Roles: payment services, risk protection services, liquidity services, credit services
    • Financial system supports economic growth, job creation, and living standards rise

    Services Offered by Banks and Competitors

    • Services banks have offered for centuries: currency exchange, discounting commercial notes, offering savings deposits, safekeeping of valuables, supporting government activities, and offering checking accounts and trust services
    • Services banks and competitors began offering in the past century: consumer loans, financial advising, managing cash, equipment leasing, venture capital loans, selling insurance policies, and offering securities and investment products

    An Overview of the Changing Financial-Services Sector

    • The financial-services sector is being reshaped by powerful forces.
    • Banks are vital to our well-being and the well-being of communities and nations.
    • Banks provide hundreds of different services to millions of people, businesses, and governments worldwide.

    What Is a Bank?

    • A bank can be defined in terms of its economic functions, services offered, and legal basis for existence.
    • Banks are the principal source of credit for millions of individuals and families and for many units of government.
    • Banks hold a significant portion of assets in the financial system, with U.S. banks holding about one-fifth of total assets and banks in other nations holding half or more.

    The Financial System and Competing Financial-Service Institutions

    • The primary purpose of the financial system is to encourage saving and transfer savings to individuals and institutions needing credit.
    • The financial system provides a variety of supporting services, including payment, risk protection, liquidity, and credit services.
    • The financial market share of banking has fallen as other financial institutions compete for the same business.
    • Banks are facing changing customer needs and preferences.
    • Banks are responding to new competitors and new technologies.
    • Banks are adapting to changing regulatory environments and global economic conditions.

    Services Banks and Their Closest Competitors Offer the Public

    • Services banks have offered for centuries include carrying out currency exchange, discounting commercial notes, and making business loans.
    • Services banks and their competitors began offering in the past century include granting consumer loans, financial advising, and managing cash.
    • Banks and their competitors also offer a range of investment products and services, including securities, mutual funds, and insurance policies.

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    Description

    This quiz covers the introduction to the financial-services sector, including powerful forces reshaping the industry, the role of banks, and key trends affecting financial-service firms.

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