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Chapter 11

Chapter 11

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Published by: skwagwok on Feb 13, 2010
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Chapter 11 Commercial Banks: Industry Overview
True/False Questions
1.The merger of banks with assets of $1 billion or more in total assets is called amegamerger.Answer: True Page: 331 Level: Easy2.Business loans have dropped in importance since 1990 as measured by the proportionof these loans on the bank balance sheet.Answer: True Page: 324 Level: Medium3.Loans comprise the single largest asset category for a bank.Answer: True Page: 322-323 Level: Easy4.The major risk faced by commercial banks today is credit risk.Answer: True Page: 324 Level: Easy5.Banks are more highly leveraged than most non-financial firms.Answer: True Page: 324 Level: Easy6.Revenue economies of scale are cost reductions that occur as banks add related product lines.Answer: False Page: 331 Level: Medium7.Nontransaction deposits at banks include NOW accounts and demand deposits.Answer: False Page: 325 Level: Easy8.The majority of banks are nationally chartered and insured by the FDIC.Answer: False Page: 342 Level: Easy9.Since 1980 the number of banks in the U.S. has been increasing dramatically due toderegulation of the industry.Answer: False Page: 330-331 Level: Medium
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10.If average costs to produce a given product are lower for larger firms, cost economiesof scope exist.Answer: False Page: 331-332 Level: Medium11.The proportion of industry assets controlled by small banks has increased over the last10 years.Answer: False Page: 334 Level: Easy12.Commercial letters of credit are off balance sheet items that are used to back issues of commercial paper by corporate borrowers.Answer: False Page: 329 Level: Difficult13.The risks of issuing standby letters of credit cover are not as predictable and may be potentially more severe than the risks of commercial letters of credit.Answer: True Page: 329 Level: Medium
Multiple Choice Questions
14.Major liabilities for banks includeA)Business loansB)Interest expense paid on depositsC)DepositsD)Equity capitalE)Securities held for saleAnswer: C Page: 324-325 Level: Medium15.A decline in the average cost of producing bank services as the size of the bank expands is calledA)Cost economies of scopeB)Revenue economies of scopeC)Cost economies of scaleD)Revenue economies of scaleE)X efficienciesAnswer: C Page: 331-332 Level: Medium
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16.A decrease in unit costs after a merger due to joint use of inputs in producing multiple products is an example of:A)Cost economies of scopeB)Revenue economies of scopeC)Cost economies of scaleD)Revenue economies of scaleE)X efficienciesAnswer: A Page: 332-333 Level: Medium17.Revenue or cost reduction resulting in gains from mergers that are not due to scale or scope economies are calledA)Cost economies of scopeB)Revenue economies of scopeC)Cost economies of scaleD)Revenue economies of scaleE)X efficienciesAnswer: E Page: 331 Level: Medium18.Banks with total assets under _____ are normally called community banks.A)$50 millionB)$100 millionC)$500 millionD)$1 billionAnswer: D Page: 334 Level: Medium19.A money center bank is a bank that isA)LargeB)Operates in a major financial centeC)Rely on non-deposit sources of fundsD)A. and C. onlyE)A. B. and C.Answer: E Page: 334 Level: Medium
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