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

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Question 91

True/False

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In the early 2000's, banks took the mortgages that they owned, created mortgage backed securities out of them, and sold them as safe investments.

A) True
B) False

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Question 92

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Commercial banks offer services to depositors and borrowers.

A) True
B) False

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Question 93

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When the Federal Reserve wants to increase the money supply, they decrease the reserve requirement.

Single handedly, the U.S. government's lack of regulation caused the banking crisis and collapse of banks that had been in business for several decades.

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." -During Red's time as head of the Bank of Bramblewood, the bank offered three services: time deposits, demand deposits, and home and business loans. Under Patty's leadership, the bank offers those services, a variety of investment opportunities such as mutual funds and bonds, and they are set-up to provide through the Internet which may involve a number of services such as paying bills directly from one's account, or transferring money from one account to another.

The problem with bartering is:

A significant increase in the money supply creates inflationary pressures in the economy.

Bank crises tend to correlate with economic recessions.

Economic events in other nations seldom impact the powerful U.S. economy.

Which of the following is included in the M-2 definition of the money supply but not the M-1 definition?

Damian has played supporting roles in a number of movies and is also passionate about his craft to the point where he created a home theatre inside his house. He has a satellite dish where he receives an unlimited number of movies, and he also has an online account with Netflix™ and Blockbuster™. For added convenience, he has set-up direct payment to these companies. This means when his statement arrives each month, he will get online and tell his bank how much to pay these vendors.

High startup costs cause Internet banks to have higher operating costs than traditional banks.

Commercial banks offer creditworthy customers automatic loans to cover checks written in excess of their checking account balance.

When the Fed increases the reserve requirement, banks make fewer loans.

persuaded Congress to establish the first central bank in the United States.

The Small Business Administration has reduced its guaranteed home loan program.

Which of the following represents a benefit of coins over paper money?

Everything else held constant, an international bank based in New York would prefer to loan money to an efficient firm operating in San Paulo, Brazil than an inefficient firm operating in southern California.

The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to:

A savings account represents a demand deposit.