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

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Question 71

True/False

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Coins and bills are portable and durable.

A) True
B) False

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Question 72

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The wave of bank failures during the Great Depression prompted the government to establish federal deposit insurance to protect the public from bank failures.

A) True
B) False

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Question 73

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A demand deposit is the technical name for a checking account.

After years of banking with Bigbux Bank, Samuel decided to switch to a competing institution. Thanks to changes in government regulation, his search will uncover a variety of options; however, he will also learn that banks and nonbanks have merged in order to be more competitive in the banking and financial services industries, which may or may not increase his options.

The Federal Reserve, which was established in 1907 and was to be a "lender of last resort," loans money to small businesses that are unable to obtain loans through private banks.

Which of the following institutions primarily finances economic development projects in less-developed countries?

Newspapers in the nation of Hasalot report a significant increase in money supply during the past few months. This information indicates that Hasalot may experience a serious recession in the near future.

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." -The Bank of Bramblewood promotes a sustainability initiative encouraging all transactions increasingly to be paperless. Each time the bank issues checks or sends out a paper statement, it includes a promotion asking customers to support methods that eliminate paperwork. The bank encourages customers to use debit cards, smart cards, direct deposit, and direct payments, as well as online statement retrieval. All of these tools are used in conjunction with the bank's

The redesign of and new colors added to U.S. paper money are intended to

To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

Which of the following statements most accurately represents the history of U.S. banking?

________ replace the typical magnetic strip on a credit or debit card with a microprocessor.

Bigbux Bank holds $300 million in deposits from their customers. If the Fed sets the reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

Persons with deposits less than $100,000 in banks, savings and loans, and credit unions run the risk of losing their money in an economic downturn.

Due to the fact that investors did not individually purchase mortgage-backed securities (MBSs) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

Bigbux Bank currently has deposits of $300 million. If the Fed establishes a reserve requirement of 12 percent, Bigbux must hold reserves of ________ against its deposits.

The practices of several participants (for-profit companies, government regulators, and customers) came together to create the crisis that caused the collapse of several banks, financial services companies, and corporations.

When traveling in other countries, tourists can use their MasterCard or Visa bankcards to obtain foreign currencies at ATMs.

Ricardo has an authorized work permit issued by the U.S. government to work in the U.S. Each day, he travels from Mexico to El Paso, TX, to work in the construction trade. At the time that he was first employed, his U.S. employer issued him a(n) ________. Each week, the employer scans his work stipend onto it. Ricardo can purchase with it, access cash through an ATM with it, and transfer funds with it. The risk for Ricardo is ________.

The ________ represents one of the Fed's most powerful monetary policy tools.