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

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Question 151

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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 would like to increase its loans to customers, but it is currently mandated by a high reserve rate. As a Federal Reserve member bank, it will borrow additional funds from the Fed and charge its customers an interest rate that is higher than the .

A) reserve rate
B) federal funds rate
C) discount rate
D) prime rate

E) A) and D)
F) All of the above

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Question 152

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Yesterday it was reported that the U.S. is clearly experiencing an economic downturn. A strategy the Fed may enact if the nation is facing recession is to buy government securities in open-market operations.

A) True
B) False

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Question 153

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By the time of the Civil War, the efficient banking system of the United States was the envy of the rest of the world.

Trading internationally by using money appears easy and almost effortless, but the fact is there is a very complex banking system that makes it happen.

They say "hindsight is 20/20", meaning, you can usually see things more clearly, with a much better understanding, after it has occurred. And, we can say the same for the banking crisis of 2008-2009. The practices of several participants (for-profit companies, government regulators, and customers) came together to create the situation that caused the collapse of several banks, financial services companies, and corporations.

In an electronic funds transfer (EFT) system, the information of a transaction is communicated from one computer to another.

President Dude, the leader of the island nation of Jaylo, refuses to raise taxes, but wants to expand many government services and increase the size of the Jaylo armed forces. He plans to pay for all of the desired expenditures by printing more money. If President Dude carries out his plan by rapidly increasing the supply of money, Jaylo will likely experience:

In the early 1800s, the United States allowed banks to issue different kinds of currencies.

One thing is for certain, the average borrower's risk-averse behavior did not contribute to the problems that spiraled out of control and caused the banking crisis of 2008-2009.

Technically, a bank can require depositors to give prior notice before they withdraw funds from time deposits.

occurs when goods are traded directly for other goods.

Because they charge higher interest rates, commercial and consumer finance companies often fail to attract borrowers.

The strength of the U.S. dollar depends on the strength of the U.S. economy relative to the economies of other nations.

International bankers prefer to invest in their own countries whenever possible.

Typically, banks impose a service charge for check-writing privileges or demand a minimum deposit.

The plays a role in making certain that checks clear, and sellers get paid.

The Federal Reserve establishes the tax policies of the U.S.

GO-tags, a new product introduced by First Data, Inc. sports a small chip with a radio-transmitter that permits the user to tap a small card against a machine and transfer funds from the card to the vendor's account.

Savings and loan company failures soared in the early 1980s because: