Quiz 3

  1. The largest type of depository institution in the United States is p. 219
  2. savings-and-loansc. credit unions
  3. commercial banksd. mutual funds
  1. The McFadden Act was passed to preventp. 232
  2. Banks from competing on the basis of deposit rates
  3. Foreign banks from operating in the United States
  4. Large nationwide banks from forming.
  5. Banks from holding corporate stock as an asset.
  1. After the repeal of Regulation Q, a problem for savings-and-loan associations (S&Ls) was that most of their assets were at ______interest rates while their deposits were at ______interest rates. P. 207
  1. low; lowc. high; low
  2. low; highd. high; high
  1. In the 1980s, banks lost many of their ______borrowers, because these borrowers were able to sell their commercial paper to ______.
  1. small; savings-and-loan associationsp. 208
  2. small; money market mutual funds
  3. large; saving-and-loan associations
  4. large; money market mutual funds
  1. The Gramm-Leach-Bliley Financial Services Modernization Actp. 213
  2. Effectively repealed the Glass-Steagall Act of 1933.
  3. Increased restrictions on cross-ownership of different types of financial institution.
  4. Allowed mergers between commercial banks and investments banks, but not between commercial banks and insurance companies.
  5. All of the above.
  1. Credit unions made it through the 1980s in relatively good shape because p. 243
  2. Most of their depositors were individuals
  3. Most of their depositors were businesses
  4. They held many mortgages among their assets
  5. They held no mortgages among their assets
  1. Relative to life insurance companies, the liabilities of property and casualty insurance companies are p. 253
  2. Longer-termc. Less risky
  3. More unpredictabled. Subject to higher taxes
  1. Assume that a no-load open-end mutual fund holds securities with a total market value of $12 million, has no liability, and has 500,000 shares outstanding. The net asset value per share of this fund is p. 253
  2. $24 c. $24 million
  3. $60 d. $60 million
  1. Unlike dealers, brokersp. 256
  2. Deal in the primary market
  3. Deal in equity and not in debt
  4. Do not buy or sell for their own account
  5. Get most of their funds from consumer deposits
  1. Moral hazard is, in general, the asymmetric information problem that occursp. 199

a. After a transaction is consummated.c. Before a transaction is consummated

b.Due to a size difference in the parties to a transaction.d. With equity financing

11. A clause in a loan contract disallowing the borrower from acquiring other companies during the term of the loan is an example of a p. 271

a. Guarantee.c. Restrictive covenant.

b. Collateral agreement.d. Moral hazard.

12. Private placements avoidp. 272

a. Restrictive agreements.c. The need for collateral.

b. SEC registration costs.d. The primary market.

  1. Our “dual” banking system refers to p. 295
  2. Commercial banks and thrifts
  3. Federal and state chartering and supervision of commercial banks.
  4. Stockholder-ownership and depositor-ownership of depository institutions.
  5. Banks that are members and non-members of the Fed.
  1. Margin requirements on stocks are set by p. 294
  2. The New York Stock Exchange
  3. The National Association of Securities Dealers
  4. The Federal Reserve
  5. The Securities Exchange Commission
  1. Regulatory forbearance in dealing with weak banks is opposed by the ______policy. p. 304
  2. Prompt corrective actionc. Risk-based capital ratio
  3. Too-big-faild. Leverage ratio

Part II:

1. The following is a list of banks located in Plano, Texas. Match each to its primary regulator. Put your answer in the column to the left of the bank. (7 points)

ANSWER / BANK / REGULATOR
Beal Bank, s.s.b. / FDIC
Benchmark Bank / OCC
OCC / First Independent National Bank / FED
First International Bank / SEC
Legacy Bank of Texas / OTS
OCC / Parkway Bank, National Association
OTS / Share Plus Federal Savings Bank

If you cannot tell who the regulator is from the information given, explain why.

The primary regulator of national banks is the Office of the Comptroller of the Currency. National banks always have the word national in their name. State banks are regulated by the FED if they are members of the FED and by the FDIC if non members of the FED. Most state banks are non-members – so the best guess would be FDIC. Beal Bank and Share Plus are savings & loans – one is federal and the other state. The state s&l is probably regulated by the FDIC.

  1. What is the key feature of the Riegel Neal Act of 1994? (5 points)

It repealed the McFadden Act.

  1. The following mutual fund has a 5.75% front end load.

AMERICAN BALANCED FUND, INC; CLASS A SHARESABALX
/ / As of 10/28/04
NAV: 17.68 / 1-Day Net Change
0.03 / 1-Day Return
0.17% / YTD Total Return
3.86% / Category
Balanced
  1. If I invest $10,000 in the fund, how many shares can I buy? (5 points)

After you take out the load, you invest 9475. $9425/17.68 = 533.0882

  1. If I had invested $10,000 at the beginning of the year, how much would I currently have? (3 points)

You invest 9425 and it has grown 3.86% = $9788.81.

  1. What is Check 21? (5 points)

Check Clearing for the 21st century. Banks can clear checks electronically – they don’t have to receive the physical paper check.