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Sample Test

CHAPTER_03_THE_FEDERAL_RESERVE_SYSTEM
 
 
1. An increase in money supply and incomes often causes
prices to go up as well.
  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.3 – LO: 3.2.3

 

2. By law, every bank in the United States must be part of

the Federal Reserve System.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

3. One of the main functions of the Federal Reserve is to

serve as a bank for other banks.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.2 – LO: 3.1.2

4. Almost all economists agree that the federal government

can effectively regulate the economy by raising or lowering
taxes and expenditures.

  a. True
  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.2 – LO: 3.2.2

5. The Truth in Lending Act prohibits bill collectors from

using deceptive or abusive tactics.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

6. Janet Yellen began her term as chair of the Federal

Reserve in 2014.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1
LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

7. The Uniform Bank Performance Report is an annual

report issued to summarize the performance of international
banks operating within the United States.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.4.1 – LO: 3.4.1

8. A fixed exchange rate ties the monetary value of one

country’s currency to the valuation of another country’s
currency.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

9. The Strength of Support Assessment (SOSA) report is a

quarterly report filed by U.S. banks to summarize how each of
the bank’s branches is performing.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

10. The International Monetary Fund (IMF) works to promote

economic growth among member countries.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.3 – LO: 3.5.3

11. Which of the following is NOT a function of the Federal

Reserve?

  a. levying a high tax on state bank notes

  b. conducting bank examinations

  c. handling the government’s central banking function

  d. determining whether banks can borrow money from the Federal Reserve

 
ANSWER:    a

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.2 – LO: 3.1.2

12. The rate of interest the Federal Reserve charges banks

for short-term loans is called the

  a. discount rate.

  b. federal funds rate.

  c. reserve requirement rate.

  d. prime rate.

 
ANSWER:    a

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

13. If the government restricts the flow of cash into the

economy too severely,

  a. businesses will have more money to invest.

  b. consumers cannot afford to borrow.

  c. employment will rise dramatically.

  d. all of the above are true.

 
ANSWER:    b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.3 – LO: 3.2.3

14. Which of the following attempts to protect the

information that credit bureaus may collect?

  a. Fair Debt Collection Act

  b. Fair Credit Reporting Act

  c. Truth in Lending Act

  d. Equal Credit Opportunity Act

 
ANSWER:    b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

15. Which of the following statements is NOT true?

  a. Credit bureaus may not report information more than one year old.

  b. A creditor may not use receipt of public assistance as a factor in determining creditworthiness.
  c. If there is a billing dispute, creditors may not take adverse action until the dispute is resolved.

  d. Bill collectors may not call debtors at odd hours.

 
ANSWER:    a

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

16. Which of the following is NOT an example of an agency

that is focused on making banking safe and mutually
beneficial across international borders?

  a. International Monetary Fund

  b. President’s Working Group on Financial Markets

  c. Asia Pacific Economic Cooperation

  d. Bank for International Settlement

 
ANSWER:    b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.2 – LO: 3.1.2

17. The “a” in CAMELS stands for

  a. adverse feedback loop

  b. annuity
  c. asset transformation

  d. asset adequacy

 
ANSWER:    d

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.4.2 – LO: 3.4.2

18. Which of the following is NOT part of the ongoing

organizational structure of the Federal Reserve?

  a. Primary Dealer Credit Facility

  b. District Reserve Banks

  c. Member Banks

  d. Board of Governors

 
ANSWER:    a

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

19. The Fair Debt Collection Practices Act includes which

principals?

  a. Third-party collectors may not use deceptive or abusive tactics as they try to collect overdue bills.

  b. Collectors may not call debtors in a harassing manner.

  c. Collectors may not reveal collection actions to employers of debtors.

  d. b and c only

  e. a and b only

  f. a and c only

  g. a, b, and c are correct.

 
ANSWER:    g

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

20. ____________________ policy involves adjusting budgetary

deficits or surpluses to achieve desired economy goals.

ANSWER:    Fiscal

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.2 – LO: 3.2.2

21. The main goals of the Federal Reserve’s

____________________ policy are to maintain economic growth, to
stabilize prices, and to keep international payments flowing
smoothly.

ANSWER:    monetary

POINTS:    1
LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

22. The policy of “priming the pump,” or cutting taxes to add

jobs and stimulate business during an economic downturn is
often referred to as ____________________ economics.

ANSWER:    Keynesian

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.2 – LO: 3.2.2

23. ____________________ laws require that the details of lending

agreements be specified in writing.

ANSWER:    Disclosure

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

24. The right of ____________________ allows a consumer to

change his or her mind about a loan until midnight of the third
business day following the signing of papers.

ANSWER:    rescission

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

25. How many District Banks are in the Federal Reserve?

ANSWER:    twelve

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

26. The ____________________ is the group that makes discount

rate decisions.

ANSWER:    Federal Open Market Committee (FOMC)

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

27. A(n) ___________________ enables a currency to fluctuate

based on market conditions.

ANSWER:    flexible exchange rate

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

28. The Federal Reserve Bank of Chicago sponsors

____________________ to provide a cross section of ideas
regarding issues that cut across many aspects of
international banking.

ANSWER:    International Banking Seminars

POINTS:    1
LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.3 – LO: 3.5.3

29. The ____________________, established in 1988, was

responsible for communicating across agencies to help
ensure a healthy stock market that inspired investor
confidence.

ANSWER:    President’s Working Group on Financial Markets (PWG)

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.3 – LO: 3.1.3

30. ____________________ are a select group of 20 dealers that

the Fed works with to buy and sell securities.

ANSWER:    Primary dealers

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

31. The auditing arm of Congress that helps ensure that

federal laws and policies are implemented properly is called
the ____________________.

ANSWER:    Government Accounting Office (GAO)

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.2 – LO: 3.3.2

 
32. If 1 euro = 1.4955 $US, how many euros will 750 $US
buy?

ANSWER:    501.50 euro

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

33. If an Australian dollar is worth 0.8815 $US, how many

Australian dollars would 900 $US buy?

ANSWER:    1020.99 $ Australian

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

34. In general, what is the goal of fiscal policies?

Fiscal policies attempt to smooth economic ups and downs by manipulating the federal budge
ANSWER:   
not so much as to cause inflation.

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.2 – LO: 3.2.2

35. Briefly explain the term balance of payments.

ANSWER:    It is a record of all of the exchanges of goods and services that occur between two cou

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.1 – LO: 3.5.1

 

36. Name the three tools developed by the Fed in 2007 to

help manage monetary policy and deal with the financial
crisis.

ANSWER:    Term Auction Facility (TAF), Term Securities Lending Facility (TSLF), Primary Deale

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

37. Name four characteristics that the Equal Credit

Opportunity Act prohibits considering when determining the
creditworthiness of a consumer.

Answers may include any four of the following characteristics: race, color, religion, national o
ANSWER:   
any consumer right against a lender.

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

38. How does the Fed try to keep consumers educated

regarding their rights?

ANSWER:    A wide variety of brochures on various topics is available on the Fed’s website. Many b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.1 – LO: 3.3.1

39. What is a charter and why is it important to banks?

ANSWER:    A charter is a legal approval to operate a business as a bank. The agency that issues a chart

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.4.1 – LO: 3.4.1

40. What agency issues a CAMELS rating and what is the

purpose of the rating?

ANSWER:    After an on-site review is completed, the Fed issues a CAMELS rating to a bank to rate th

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.4.2 – LO: 3.4.2

41. What is sterilization and why is it significant?

The Fed seeks to maintain a steady balance of Federal Reserve balances. When the Fed sells f
ANSWER:   
equivalent amount of U.S. currency. Sterilization is necessary to maintain the federal funds ra

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.5.2 – LO: 3.5.2

42. What is the Taylor rule?

ANSWER:    The Taylor rule provides ideas for how to use short-term interest rates to achieve th

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

43. Name three functions performed by the Federal Reserve

in its role as the government’s bank.

Answers may include any three of the following: Handling IRS tax payments, making payment
ANSWER:   
recipients, making payments to military personnel, making payments for other government e

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.2 – LO: 3.1.2

44. Describe how the Fed increases and decreases its

reserves using open market operations.

ANSWER:    When the Fed wants to increase reserves, it buys securities. When it wants to decre

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.1 – LO: 3.2.1

45. The Federal Reserve Board shares enforcement of

consumer protection laws with a number of other agencies.
List three of the agencies.

Answers may include any three of the following agencies: the Federal Deposit Insurance Agen
ANSWER:    Office of Thrift Supervision (OTS), the Federal Trade Commission (FTC), the National Credit Un
Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Commodity and F

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.3.2 – LO: 3.3.2

46. How does the Federal Reserve derive its income? Is any

money appropriated to the Federal Reserve by the United
States government?
 The Federal Reserve derives its income from financial services and interest on loans to its me
ANSWER:   
operation of the Federal Reserve.

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

47. Briefly explain why the government might cut spending or

raise taxes during a time when the economy is prospering.

When the economy is prospering, demand can exceed supply. This causes prices to increase a
ANSWER:    money. Under these conditions, the government might cut spending or raise taxes. This cause
demand and stabilizing prices.

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.2 – LO: 3.2.2

48. Explain how the Board of Governors is selected, the

length of each member’s term, and the purpose of the Board.
Be sure to distinguish between the terms of the chair, the
vice-chair, and governors.

The President of the U.S. selects members of the Board, subject to consent of the Senate. The
ANSWER:   
terms. Each governor serves a 14-year term. The Board of Governors is the policy-making arm

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.1.1 – LO: 3.1.1

49. Why is monetary policy easier to use than fiscal policy to

prompt adjustments to the economy?

ANSWER:    It is easier for the Fed to change bank reserve requirements than to go through the fairly
 for the Fed to adjust the amount of money flowing into the economy by buying

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.3 – LO: 3.2.3

50. If monetary policy restricts the flow of money into an

economy too severely, businesses may not be able to afford
to borrow. What are the usual economic results of this?

ANSWER:    A decline in spending and investment leading to failure to sell products, especially “big ticke

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 3.2.3 – LO: 3.2.3

 
 

CHAPTER_05_DEPOSITS_IN_BANKS
 
 
1. Most banks offer essentially the same types of accounts.
  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.1 – LO: 5.1.1

 

2. A transaction account allows transactions to occur at any

time and in any number.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.1 – LO: 5.1.1

3. Basic checking accounts always pay interest on the

balance deposited in the account.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.1 – LO: 5.1.1

4. Banks may require up to a seven-day notice from a

depositor who wants to withdraw money from a time deposit.

  a. True
  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.2 – LO: 5.1.2

5. You cannot get your money from a certificate of deposit

before the maturity date.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.2 – LO: 5.1.2

6. Principal is the price paid for using money.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.2.1 – LO: 5.2.1

 

7. Compound interest uses the same principal amount every

time it is calculated.

  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.2.2 – LO: 5.2.2

8. Money doesn’t just mean currency, but also checks, ledger

transfers, and even credit.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.3.1 – LO: 5.3.1

9. In the United States, the government plays the greatest

role in determining how money is moving.
  a. True

  b. False

 
ANSWER:    False

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.3.1 – LO: 5.3.1

10. Banks are free to change governing documents, but they

must give customers written notice of changes.

  a. True

  b. False

 
ANSWER:    True

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.4.1 – LO: 5.4.1

11. A joint tenancy checking account allows each owner to

make deposits and withdrawals independently.

  a. True

  b. False

 
ANSWER:    True
POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.1 – LO: 5.1.1

12. The most common form of a transaction account is a

  a. savings account.

  b. checking account.

  c. money market account.

  d. certificate of deposit.

 
ANSWER:    b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.1 – LO: 5.1.1

13. What term best describes companies obtaining financing

directly from capital markets (without using banks for
financing)?

  a. rate chasers

  b. interbank transactions

  c. Check 21

  d. disintermediation of funds

 
ANSWER:    d
POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.3.1 – LO: 5.3.1

14. Which of the following is NOT a time deposit?

  a. savings account

  b. checking account

  c. money market account

  d. certificate of deposit

 
ANSWER:    b

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.2 – LO: 5.1.2

15. Which of the following accounts are you LEAST likely to

encounter at a modern bank?

  a. checking account

  b. certificate of deposit

  c. money market account

  d. passbook savings account

 
ANSWER:    d
POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.2 – LO: 5.1.2

16. Which of the following accounts is the MOST liquid?

  a. money market account

  b. certificate of deposit

  c. checking account

  d. savings account

 
ANSWER:    c

POINTS:    1

LEARNING  OBJECTIVES:    BNKG.CFFT.3.LO: 5.1.2 – LO: 5.1.2