Exam 3 Money & Banking

An easy way to insure deposits above the $250,000 limit of the FDIC is to spread money around at different banks. For example, you can insure $1 million by opening four checking or savings accounts at four different banks with $250,000 each. 

True

False

True

Suppose you have a checking account and a savings account at your bank. The maximum amount of FDIC insurance coverage you will receive is:

a.$400,000

b.$250,000

c.$200,000

d.$500,000

e.$600,000

b.$250,000

The ______ deposit insurance of the FDIC is believed to play an important role in preventing banks from failing due to reckless behavior.

a.uniform rate

b.tax based

c.declining rate

d.risk based

e.non-risk based

d.risk based

Under the CAMELS rating system, banks are evaluated according to their capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

True

False

True

The standard insurance amount of National Credit Union Administration is _____ per depositor, per insured credit union, for each account ownership category. 

a.$300,000

b.$250,000

c.$150,000

d.$100,000

e.$200,000

b.$250,000

Agencies that examine banks include the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, and state banking commissions.

True

False

True

An FDIC examining team has visited First National Bank and gave it a CAMELS rating of 5. If you were an investor in the bank, how would you likely react to this rating?

a.sell your stock ownership of other manufacturing corporations 

b.wait for the FDIC to revise its CAMELS-rating criteria

c.liquidate your investment in the bank as quickly as possible

d.invest more in the bank by purchasing additional stock

e.sell your stock ownership of other banks

c.liquidate your investment in the bank as quickly as possible

To cover its operating costs, the FDIC receives monthly appropriations from the U.S. government, charges premiums that banks pay for deposit insurance, and earns interest income from its portfolio of Treasury securities.

True

False

False

When a bank has failed or is failing, it is up to the FDIC to decide what to do with the bank. What method might the FDIC use to deal with the failing bank? 

a.subsidize the bank with revenues provided by the U.S. Comptroller of the Currency

b.close the bank, pay off some or all of the depositors, and liquidate the bank’s assets

c.arrange a merger between the failing bank and another failing bank

d.make heavily discounted, long-term loans to the failing bank

e.mandate that the failing bank issue more stock to obtain additional capital

b.close the bank, pay off some or all of the depositors, and liquidate the bank’s assets

Concerning the FDIC’s examination of a bank, if a bank is holding securities or loans that are considered too risky, the FDIC can force the bank to get rid of them. Also, if the FDIC decides that a loan is unlikely to be repaid, it can force the bank to declare the loan worthless by writing off the loan, which reduces the bank’s capital.

True

False

True

The creation of the Federal Reserve in 1913 was mainly motivated by the desire to:

a.reduce occurrences of bank panics and runs on banks 

b.eliminate commercial banks that were chartered by state governments

c.defend the dollar’s exchange value in the foreign currency market

d.finance the United States’ participation in World War I

e.moderate fluctuations in short-term and long-term interest rates

a.reduce occurrences of bank panics and runs on banks 

Since 1977, the Federal Reserve has operated under a “dual mandate” from Congress to promote the goals of

a.balance-of-trade equilibrium and high per-capita gross domestic product.

b.maximum employment and stable prices.

c.exchange rate stability and moderate long-run interest rates.

d.environmental quality and sustainability.

e.long-run economic growth and an equitable distribution of income.

b.maximum employment and stable prices.

There are twelve regional Federal Reserve Banks throughout the United States, and each of these banks is owned and operated by the U.S. Treasury.

True

False

False

Functions of the Board of Governors of the Federal Reserve System include setting reserve requirements, regulating bank holding companies, establishing margin requirements on purchases of stock, and approving bank mergers.

True

False

True

The president of the United States can influence the Federal Reserve’s conduct through their nominations to the Board of Governors, as approved by the U.S. Senate.

True

False

True

The Federal Reserve has a dual mandate that states that exchange rate stability and maximum employment are co-equal objectives.  

True

False

False

How are the seven Federal Reserve Board of Governors appointed? They are nominated by the:

a.president of the United States and confirmed by the House of Representatives

b.president of the United States and confirmed by the Senate

c.Senate and confirmed by the commercial bank presidents

d.Secretary of the U.S. Treasury and confirmed by the president of the United States

e.Federal Reserve Bank presidents and confirmed by the House of Representatives

b.president of the United States and confirmed by the Senate

The Federal Reserve System is owned by:

a.the World Bank

b.investment banks that are members of the Federal Reserve System

c.commercial banks that are members of the Federal Reserve System

d.the U.S. Treasury

e.the Office of the Comptroller of the Currency

c.commercial banks that are members of the Federal Reserve System

The president of the Federal Reserve Bank of _____ is a permanent member of the Federal Open Market Committee.

a.New York

b.Chicago

c.San Francisco 

d.Philadelphia

e.Boston

a.New York

The case for Federal Reserve independence from the president and Congress is that a politically insulated Federal Reserve will be more concerned with long-run objectives, such as promoting maximum employment and a stable price level. 

True

False

True