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  1. An important trend in the financial services industry in recent years has been the increasing penetration of traditional commercial bank markets by nonbank thrift institutions.

    a) True
    b) False
    a) True

    Nonbank thrift institutions-such as credit unions, savings and loan associations, savings banks, and money market mutual funds-play a major role in the global financial system and must be studied along with commercial banks to get an accurate picture of our financial sector.
  2. In recent years, savings and loan associations have shifted the majority of their assets from home mortgage loans to consumer credit.

    a) True
    b) False
    b) False

    Residential mortgage loans are still the principal type of asset of S&Ls.
  3. Advances from the Federal Home Loan Bank System and securitization of loans are key nondeposit sources of funds for savings and loan associations.

    a) True
    b) False
    a) True

    • These sources along with loan sales and equity capital are the most popular nondeposit sources of funds.
    •  
  4. Deposits in federally chartered savings and loan associations are insured by the Savings Association Insurance Fund, which is managed by the FDIC.

    a) True
    b) False
    a) True

    The Savings Association Insurance Fund is currently managed by the FDIC.
  5. The GAP is the difference between a thrift's volume of interest rate-sensitive assets and liabilities.

    a) True
    b) False
    a) True

    It is a measure of the mismatch. A negative gap means there are more interest rate-sensitive liabilities (deposits) than assets.
  6. Some savings and loan associations have recently become holding companies with ownership and control of commercial banks, retail-oriented consumer banks, and mortgage banking firms.

    a) True
    b) False
    a) True  

    In the diversified model, some S&Ls have become holding companies in an attempt to remedy their financial problems.
  7. Most savings banks are along the East Coast.
    a) True
    b) False
    a) True

    Most savings banks are in New England and the Middle Atlantic states.
  8. The principal type of asset on the balance sheet of the typical savings bank is mortgage loans.

    a) True
    b) False
    a) True

    Mortgage-related loans account for the largest share of the industry's total assets.
  9. Despite the trend toward deregulation of savings banks, they are still prohibited from selling life insurance.

    a) True
    b) False
    b) False

    For many years, savings banks in some states have been authorized to sell life insurance.
  10. Recently, most savings banks have seen their deposits shift from fixed-maturity time deposits and toward passbook savings accounts.

    a) True
    b) False
    b) False

    Most savings banks have experienced a shift out of regular passbook savings accounts and into fixed-maturity time deposits and money market accounts that carry interest that floats with the rates in the marketplace.
  11. Savings banks must be more concerned with the increased volatility of their funds-flow positions now than has been true in the past.
    a) True
    b) False
    a) True  

    The volatility of checkable NOW accounts and money market accounts has made savings banks pay close attention to their liquidity needs.
  12. Since 1990 the total assets of credit unions have shown no significant increase.

    a) True
    b) False
    b) False

    Credit unions have grown rapidly in the past decade. Total assets rose from about $441 billion in 2000 to about $885 billion in 2009.
  13. Credit unions are owned by their members.

    a) True
    b) False
    a) True

    Credit unions are cooperative, self-help associations that are owned by their members.
  14. Credit unions always require a larger spread between their loans and deposit interest rates than do commercial banks.

    a) True
    b) False
    b) False

    Because their operating costs are low, credit unions often accept a smaller spread between their loans and deposit interest rates.
  15. Credit unions are tax-exempt for federal income tax purposes.

    a) True
    b) False
    • a) True
    •  
    • Credit unions are nonprofit associations and are tax exempt for federal income tax purposes.  
  16. Money market mutual funds typically invest mostly in high-quality, long-term securities.

    a) True
    b) False
    b) False

    Money market mutual funds typically invest in short-term instruments such as U.S. Treasury bills, bank CDs, bankers' acceptances, commercial paper, and securities of federal government agencies.
  17. There are no statutorily mandated penalties for early withdrawals from a money market mutual fund.

    a) True
    b) False
    a) True

    There are no statutory penalties for early withdrawal from money market mutual funds. However, an early withdrawal penalty could be imposed by the fund itself.
  18. The Depository Institutions Deregulation and Monetary Control Act of 1980 prohibited the issuance of checkable deposits and home mortgage loans by S&Ls.

    a) True
    b) False
    b) False

    The Depository Institutions Deregulation and Monetary Control Act of 1980 authorized federally chartered savings and loan associations to offer checkable deposits and home mortgage loans.
  19. The FDICIA allows a bank or thrift to operate indefinitely as long as its ratio of tangible equity to total assets exceeds one percent.

    a) True
    b) False
    b) False

    The bank or thrift may be closed down if the ratio falls below 2 percent for more than 90 days and must be closed down or sold to a healthy institution if the condition lasts for more than 270 days.
  20. Which of the following statements concerning savings and loan associations is correct?

    A) In almost all cases they are federally chartered.   
    B) They are the major source of mortgage loans to finance single-family and multifamily dwellings.   
    C) They lack nondeposit sources of funds to draw upon to meet loan demand.  
    D) They are forbidden to make consumer loans, issue credit cards, or invest in corporate debt securities.   
    B) They are the major source of mortgage loans to finance single-family and multifamily dwellings.   

    About half the associations have state characters.
    These activities are now permitted for savings and loan associations.
    These institutions can borrow funds from the Federal Home Loan Bank Board, sell securitized assets, and sell loans (mortgages) in the secondary market.
    (this multiple choice question has been scrambled)
  21. Characteristics of money market mutual funds include which of the following? I. Account balances can normally be accessed by writing checks. II. Account balances are insured by the FDIC. 

    (A) I only   
    (B) II only   
    (C) Both I and II   
    (D) Neither I nor II
    (A) I only  II is incorrect because money market mutual fund accounts are not insured by the FDIC.
     
    (this multiple choice question has been scrambled)
  22. Which of the following statements concerning the characteristics of credit unions is (are) correct? I. Credit union assets have remained flat for the last several decades. II. Credit union compete with banks by offering share-drafts or interest-bearing checkbook deposits.  

    A) Neither I nor II
    B) Both I and II   
    C) I only   
    D) II only   
    D) II only   

    I is incorrect because credit unions have been among the fastest-growing financial intermediaries in recent decades. The assets in credit unions have nearly tripled since 1990.
    (this multiple choice question has been scrambled)
  23. Characteristics of money market mutual funds include which of the following?

    I. They are exempt from SEC regulation.

    II. They are required by law to impose penalties for early withdrawal.

    A) I only   
    B) II only   
    C) Both I and II   
    D) Neither I nor II
    • D) Neither I nor II 
    •   
    • I is incorrect because money market mutual funds are subject to SEC regulation over the amount they may invest in lower-quality securities and in the securities of any one issuer. II is incorrect because money market mutual funds are not required to impose penalties for early withdrawal.
  24. Which of the following types of nonbank thrift institutions is (are) regulated by the Office of Thrift Supervision?

    I. savings and loan associations

    II. credit unions  

    (A) Both I and II   
    (B) I only   
    (C) II only   
    (D) Neither I nor II
    (B) I only   

    II is incorrect because credit unions are regulated by the National Credit Union Administration or by state agencies, not by the Office of Thrift Supervision.
     
    (this multiple choice question has been scrambled)
  25. Provisions of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 include which of the following?

    I. replacement of the Federal Savings and Loan Insurance Corporation (FSLIC) by the Resolution Trust Corporation as the principal agency insuring deposits in savings and loan associations

    II. imposition of minimum capital requirements on banks and thrift institutions

    A) II only   
    B) Neither I nor II
    C) I only   
    D) Both I and II   
    A) II only   

    I is incorrect because FIRREA did not establish the Resolution Trust Corporation as a deposit-insuring agency. RTC was created by FIRREA to liquidate the assets of failed depository institutions. FIRREA transferred the deposit insurance function for S&Ls from the bankrupt FSLIC to the Savings Association Insurance Fund (SAIF) under the administration of the FDIC.
     
    (this multiple choice question has been scrambled)
  26. Credit unions are subject to regulation in all the following areas EXCEPT   

    A) rates they charge borrowers   
    B) number of branch offices they may open C) dividends they pay on members' deposits   
    D) duration of loans they may make
    B) number of branch offices they may open

    • No regulatory approval is needed for a credit union to set up branch offices.
    •  
  27. All the following statements concerning savings banks are correct EXCEPT   

    A) They can be chartered by either the state or federal government.   
    B) Their depositors own them.   
    C) They are located primarily in the Northeastern region of the United States.    D) They are allowed to offer savings deposit accounts but not checking accounts.
    D) They are allowed to offer savings deposit accounts but not checking accounts.

    • Most savings banks offer NOW checking accounts to customers, as well as savings accounts.
    •  

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