Practice Questions On Banking And The Financial Industry PDF

Multiple Choice =============== 1. Which act separated commercial banking, investment banking and insurance into three separate industries? a. Glass-Steagall Act b. Bank Holding Company Act c. McFadden Act d. Federal Reserve Act e. Competitive Equality Banking Act...

Multiple Choice =============== 1. Which act separated commercial banking, investment banking and insurance into three separate industries? a. Glass-Steagall Act b. Bank Holding Company Act c. McFadden Act d. Federal Reserve Act e. Competitive Equality Banking Act Answer: a 2. Which act limited the activities a company could engage in if it owned a bank? f. Federal Reserve Act g. Bank Holding Company Act h. McFadden Act i. Glass-Steagall Act j. Competitive Equality Banking Act Answer: b 3. Which of the following mortgage types were offered to "subprime" borrowers? k. Interest Only l. Option Adjustable-Rate m. Principal Only n. All of the above o. a\. and b. only Answer: e 4. The U.S. government took all of the following actions to address the credit crisis in 2008 p. putting Fannie Mae into conservatorship. q. passed the Troubled Asset Relief Program (TARP). r. created the Keep Banks Solvent (KBS) agency. s. authorized large non-financial firms to sell bonds that were FDIC-insured. t. temporarily increased FDIC domestic deposit coverage to \$250,000. Answer: c 5. At the end of 2008, which of the following investment banks remained independent? u. Bear Stearns v. Goldman Sachs w. Lehman Brothers x. Merrill Lynch y. a\. and b. 6. In 2008, the U.S. Treasury financial supported financial institutions by: z. purchasing troubled assets. a. buying preferred stock in some financial institutions. b. issuing guarantees on money market funds. c. increasing the deposit insurance limit. d. all of the above. Answer: e 7. Which of the following is *false* regarding community banks? e. They typically have assets in excess of \$1 billion. f. They typically operate in a limited geographic area. g. Community banks often focus on lending to small businesses. h. A bulk of their funding comes from deposits. i. They tend to grow at a modest rate. Answer: a 8. Banks with less than [ ] in assets are generally called community banks. j. more than \$1 billion k. less than \$1 billion l. more than \$5 million m. less than \$1 trillion n. more than \$1 trillion Answer: b 9. [ ] have a large international presence. o. Global banks p. Nationwide banks q. Super regional banks r. Regional banks s. Specialty Banks Answer: a 10. An "independent" bank is: t. an "independent" subsidiary of a multi-bank holding company. u. another name for a one-bank holding company. v. a bank that is exempt from paying federal income taxes. w. a bank that is specifically created to underwrite corporate debt issues. x. not controlled by a multi-bank holding company or any other outside interest. Answer: e 11. At the end of June 2008, there were approximately [ ] FDIC--insured banking organizations in the United States. y. 1,400 z. 3,400 a. 5,400 b. 7,400 c. 9,400 12. What is the primary motivation today of forming a financial holding company? d. To increase speculation. e. To branch across state lines. f. To engage in activities not permitted in a bank holding company. g. To branch within a particular states boundaries. h. To reduce the risk of bank failures. Answer: c 13. Bank holding companies and financial holding companies generally [do not] pay income tax because: i. they are always chartered as non-profit corporations. j. most of their income is subsidiary paid dividends, of which 80% is tax-exempt. k. the subsidiaries always operate at a net loss. l. bank holding companies must carry deposit insurance. m. bank holding companies are not subject to Internal Revenue Service regulations. Answer: b 14. Controlling interest in a bank is defined as ownership or indirect control of [ ] of the voting shares in the bank. n. 15% o. 20% p. 25% q. 30% r. 51% 15. Today, the primary motivation behind forming a bank holding company is: s. to reduce competition. t. the ability to circumvent restrictions on branching. u. to broaden the scope of products the bank can offer. v. to increase deposit concentration. w. All of the above are motivating factors today for forming a bank holding company. Answer: c 16. [ ] control at least two commercial banks. x. One-bank holding company y. State holding company z. National holding company a. Multibank holding company b. None of the above Answer: d 17. The [ ] gave regulatory responsibility over financial holding companies to the Federal Reserve.. c. Riegle-Neal Interstate Banking and Branching Efficiency Act d. Gramm-Leach-Bliley Act e. Financial Institutions Reform, Recovery and Enforcement Act f. Federal Deposit Insurance Corporation Improvement Act g. Depository Institutions Deregulation and Monetary Control Act Answer: b 18. Many insurance companies have formed [ ] to operate banks as part of their financial services efforts. h. one-bank holding companies i. multibank holding companies j. retail subsidiaries k. finance companies l. financial holding companies Answer: a 19. Banks created Section 20 affiliates to: m. engage in investment banking activities. n. make international loans. o. purchase savings and loans. p. invest in junk bonds. q. compete with general-purpose finance companies. Answer: a 20. The [ ] repealed the restriction son banks affiliating with securities firms under the Glass-Steagall Act. r. Sarbanes-Oxley Act s. Bank Holding Company Act t. Competitive Equality Banking Act u. Gramm-Leach-Bliley Act v. Financial Institutions Reform, Recovery and Enforcement Act Answer: d 21. The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries: w. received an unsatisfactory in its most recent Community Reinvestment Act exam. x. has branches across state lines. y. is part of a bank holding company. z. makes subprime loans. a. is well capitalized. Answer: a 22. A financial holding company *cannot* own which of the following? b. A bank. c. A bank holding company. d. A thrift. e. A thrift holding company. f. A financial holding company may own all of the above. Answer: e 23. The parent bank holding company assists bank subsidiaries with all of the following *except*: g. asset and liability management. h. strategic planning. i. loan review. j. deposit insurance. k. business development. Answer: d 24. [ ] -corporations have favorable tax treatment because a qualifying firm does not pay corporate income taxes. l. C m. Q n. S o. V p. Z Answer: c 25. S-corporations must have no more than [ ] shareholders. q. 10 r. 50 s. 100 t. 500 u. 1,000 26. Deposits at credit unions are insured by the: v. National Credit Union Association. w. Federal Credit Union Administration. x. Federal Reserve. y. Federal Deposit Insurance Corporation. z. Credit Union Insurance Corporation. Answer: a 27. [ ] refers to the process of pooling a group of assts with similar features and issuing securities that are collateralized by the assets. a. Originate-to-Resell b. Securitization c. Mortgage Collateralization d. Deposit Origination e. Loan-to-Distribute Answer: b 28. Deposit insurance was temporarily increased to [ ] per depositor through 2009. f. \$100,000 g. \$150,000 h. \$250,000 i. \$300,000 j. \$500,000 29. The primary appeal of online banking is: k. prevention of identity theft. l. high-volume traffic. m. lack of face-to-face interaction. n. its convenience. o. the ability to make small dollar purchases. Answer: d 30. Which of the following is not a channel for delivering banking services? p. Mobile banking. q. Online banking. r. Automated Teller Machines. s. Branch banking. t. Retail banking. Answer: e True/False ========== 31. Mortgage defaults were greatest in geographic markets that had experienced the greatest run-up in real estate prices. 32. Smaller banks tended to have more subprime mortgage defaults than larger banks. Answer: False 33. To help keep people in their homes, the SEC promoted loan modifications for troubled home-loan borrowers. 34. In 2008, the U.S. Treasury committed over \$50 trillion dollars in financial support for financial institutions. 35. Community banks tend to operate in a limited geographic region. Answer: True 36. Super-regional banks typically have limited global operations. Answer: True 37. During the past 20 years, the number of distinct U.S. banking organizations has increased. Answer: False 38. An independent bank operates a single organization that accepts deposits and makes loans. Answer: True 39. Thrifts are supervised by the Office of Thrift Supervision. Answer: True 40. It is more difficult for multibank holding companies to realize economies of scale if they allow subsidiary banks to retain key decision-making authority. 41. Financial holding company and bank holding company are different names for the same type of entity. 42. The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized. 43. Securitization refers to the process of splitting a single loan into several smaller loans. Answer: False 44. Transaction banking emphasizes the personal relationship between the banker and customer. 45. Universal banks were originally centered in Western Europe. Answer: True Essay ===== 46. Briefly describe three things the government did in response to the failure of several large financial institutions in 2008. The government took several actions in response to the failure of large financial institutions during the 2008 financial crisis: - **Conservatorship:** Placed Fannie Mae and Freddie Mac into conservatorship. - Financial Support: Loaned AIG over \$150 billion and insured money market mutual funds. - **Increased FDIC Coverage:** Temporarily increased FDIC insurance coverage to \$250,000 per depositor. - **Programs and Investments:** Established the Troubled Asset Relief Program (TARP) and Term Asset-Backed Securities Loan Facility (TALF) and invested \$125 billion in nine large U.S. banks. 47. What are the advantages of forming a financial holding company versus forming a bank holding company? - **Wider Range of Activities:** FHCs can engage in a broader range of financial activities not allowed for BHCs, such as underwriting and selling insurance and securities, commercial and merchant banking, and insurance company portfolio investments. - **Ownership Flexibility:** An FHC can own a bank, BHC, thrift, or thrift holding company, giving it more structural flexibility. 48. Briefly explain the differences between transactions banking and relationship banking. - **Transactions Banking:** Focuses on providing standardized services like checking accounts, credit card loans, and mortgages. These services are highly automated and require minimal human input. - **Relationship Banking:** Emphasizes personalized relationships between bankers and customers. The lender adds value during the credit process, often holding loans in the portfolio and providing additional services like accounting or tax planning advice. 49. Briefly explain how securitization led contributed to the credit crisis of 2007 -- 2009. - **Originate-to-Distribute Model:** Lenders originated loans without intending to hold them long-term, leading to less concern about loan quality. - **Pooling and Selling of Loans:** Loans were pooled and sold as securities, with the process repeated frequently. When underlying assets defaulted at higher rates, investors didn\'t receive promised payments, leading to a liquidity crisis as securitizations dried up. 50. Describe three of the various channels for delivering bank products. **Branch Banking:** Traditional method, now declining. **Automated Teller Machines (ATMs):** Allows customers to perform transactions without a teller. **Internet (Online) Banking:** Increasingly popular, allowing customers to manage accounts and perform transactions online. **Call Centers:** Provide customer service and support over the phone. **Mobile Banking:** Allows customers to access banking services via smartphones, reflecting the growing trend towards digital banking.