Question 1

When a consumer's personal information is stolen and used to access their bank accounts and other assets, it is referred to as "identity theft."

Accepted Answer

Identity theft occurs when someone wrongfully obtains another person's personal information in a way that involves fraud or deception, typically for economic gain, such as accessing bank accounts and other assets.

Question 2

Computers and/or phones with access to the Internet have allowed almost instantaneous transmission and reception of financial data and information, including the transfer of funds.

Accepted Answer

Computers and phones with internet access enable users to instantly send and receive financial data, including executing fund transfers, through online banking and financial services.

Question 3

Debit cards are one of the fastest growing methods of payment.

Accepted Answer

Debit cards have seen rapid growth as a payment method due to their convenience, direct access to the user's bank account for immediate transactions, and widespread acceptance among retailers.

Question 4

The Federal Reserve has no limits upon how much in total a payments-system participant can owe to everyone else who belongs to the same clearing system.

Accepted Answer

The Federal Reserve, through its Regulation J and the operating circulars governing the Federal Reserve Banks' National Settlement Service and Fedwire Funds Service, imposes limits and controls to manage risk, including caps on exposure amounts that a participant can owe within the clearing system to ensure system stability and integrity.

Question 5

When a consumer's personal information is stolen and used to access their bank accounts and other assets, it is referred to as "assuming the person's role."

Accepted Answer

This act is referred to as "identity theft," not "assuming the person's role." Identity theft involves stealing someone's personal information to commit fraud or other crimes.

Question 6

In 1999, the U.S. Congress added to restrictions in place since the 1930s and prevented banks and financial-service holding companies the power to combine menus of banking, insurance, securities underwriting services and real estate brokerage services under the same financial-service organization.

Accepted Answer

In 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act, which actually repealed parts of the Glass-Steagall Act of 1933, allowing banks, securities companies, and insurance companies to merge and offer a combination of services including banking, securities, and insurance.

Question 7

Which of the following are prospects for financial markets from breakthroughs in communications technology?
A) Reduced service delivery costs
B) Improved employee productivity
C) New financial services being brought on line more rapidly
D) Expanded effective marketing areas for both old and new services
E) All of the above

Accepted Answer

Breakthroughs in communications technology can lead to reduced service delivery costs, improved employee productivity, the rapid introduction of new financial services, and expanded marketing areas for services, benefiting the financial markets in multiple ways.

Question 8

Which of the following are the shifting characteristics and needs of today's financial-service customers?
A) Aging population
B) Larger corporate customers going directly to the open market to raise funds
C) Growing demands for retirement planning and long-term saving by millions of workers and their families not covered adequately by existing retirement plans
D) Increasing numbers of nontraditional families who have credit-access problems and a need for lower-cost financial services
E) All of the above

Accepted Answer

All the options (A through D) correctly describe the shifting characteristics and needs of today's financial-service customers, including an aging population, changes in how corporate customers access funds, increased demand for retirement planning, and the financial needs of nontraditional families.

Question 9

When any financial institution develops serious problems that reach public notice, the public's confidence in other financial institutions may be damaged as well. The result can be as follows:
A) A smaller flow of savings through all financial institutions
B) Restrictions on the availability of credit
C) Fewer jobs
D) Slowed economic growth
E) All of the above

Accepted Answer

When a financial institution faces serious problems, it can lead to a loss of public confidence in the financial system as a whole. This can result in a reduced flow of savings through financial institutions, restrictions on the availability of credit, fewer jobs due to decreased investment and spending, and ultimately slowed economic growth. All these outcomes are interconnected and can affect the economy broadly.

Question 10

One problem with government insurance that must be faced is how to avoid distorting risk-taking decisions by the managers of privately owned financial institutions. This kind of problem is an incidence of the more general type of the ______ problems encountered in the economics literature.
A) Moral hazard
B) Adverse selection
C) Risk-averse
D) Competitive
E) None of the above

Accepted Answer

Moral hazard occurs when one party in a transaction has the opportunity to assume additional risks that negatively affect the other party because the latter is partially or fully insulated from those risks, often through insurance. In the context of government insurance for financial institutions, managers might take riskier decisions knowing that losses will be covered by the government, thus illustrating a moral hazard problem.

Question 11

In order to promote public confidence, government and the private sector can provide the following remedies:
A) Establishing government insurance systems
B) Imposing minimum equity capital requirements on financial-service industries
C) Exercising market discipline
D) Encouraging the development of larger financial institutions that diversify themselves geographically and by product line
E) All of the above

Accepted Answer

All of the options listed are strategies to promote public confidence in the financial system. Establishing government insurance systems can protect consumers' deposits, imposing minimum equity capital requirements ensures that financial institutions have a buffer to absorb losses, exercising market discipline encourages institutions to manage risk effectively, and encouraging the development of larger, diversified financial institutions can reduce the risk of failure.

Question 12

Managers of successful financial institutions today must be intimately familiar with both the benefits and drawbacks of risk-management tools such as:
A) Duration analysis
B) Interest rate swaps
C) Currency swaps
D) Financial futures and option contracts
E) All of the above

Accepted Answer

All of the options listed (A: Duration analysis, B: Interest rate swaps, C: Currency swaps, D: Financial futures and option contracts) are important risk-management tools that managers of successful financial institutions must understand to effectively manage risks associated with interest rates, currency exchange rates, and other financial variables.

Question 13

According to the FDIC Improvement Act passed by the U.S. Congress in 1991, the federally insured depository institutions must:
A) Pass regular full-scope, on-site examinations
B) Supply bank regulatory agencies with annual reports, including an annual audit by an independent public accountant
C) Disclose more of auditor information and of the market values of institutional assets and capital to the public
D) None of the above
E) All of the above

Accepted Answer

The FDIC Improvement Act of 1991 requires federally insured depository institutions to undergo regular full-scope, on-site examinations, submit annual reports including audits by independent public accountants, and disclose more information about auditor assessments and the market values of assets and capital to the public.

Question 14

The previous trend toward the removal of government restrictions on the freedom of the financial markets to trade and allocate resources is called:
A) Globalization
B) Harmonization
C) Convergence
D) Consolidation
E) Deregulation

Accepted Answer

Deregulation refers to the reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. In the context of financial markets, deregulation involves removing restrictions to allow for freer trade and allocation of resources.

Question 15

According to the text, future developments in regulation and deregulation will most likely be:
A) Reduced barriers to geographic diversification in order to allow financial institutions to find new customers anywhere
B) Increased monitoring of derivatives trading
C) Reduced monitoring of mortgage backed securities
D) Both A and B
E) All of the above

Accepted Answer

Future developments in regulation and deregulation are likely to include both reduced barriers to geographic diversification, allowing financial institutions to expand their customer base, and increased monitoring of derivatives trading to prevent systemic risks.

Question 16

Regulators are likely to be looking closely in the years ahead at which of the following rules that apply to each financial institution?
A) The adequacy of owners' equity capital, loan-loss reserves, eligibility for low-cost government insurance
B) Permissible risk exposure
C) Financial disclosure
D) Financial derivatives
E) All of the above

Accepted Answer

Regulators scrutinize various aspects of financial institutions to ensure their stability and compliance with legal standards. This includes evaluating the adequacy of equity capital and loan-loss reserves, assessing permissible risk exposures, ensuring accurate financial disclosures, and overseeing the use of financial derivatives. All these areas are critical for maintaining the health and integrity of financial institutions and protecting the interests of depositors and investors.

Question 17

For the financial-services industry, the technological revolution in information analysis, storage, and transfer has not:
A) Enabled more-personalized products and services
B) Made the information available more trustworthy
C) Led to more efficient pricing and greater shopping convenience
D) Increased the need for privacy protection
E) None of the above

Accepted Answer

The technological revolution has indeed enabled more personalized products and services, led to more efficient pricing and greater shopping convenience, and increased the need for privacy protection. However, it has not inherently made the information available more trustworthy, as the quality and reliability of information depend on the sources and methods of data collection and analysis, not just the technology used to process or store it.

Question 18

The 1999 Financial Services Modernization (Gramm-Leach-Bliley) Act:
A) Allows banks, insurance companies, and securities firms to be owned by one financial holding company
B) Adopts the functional regulator model
C) Adopts a combination of the single and functional regulator models
D) A and B
E) A and C

Accepted Answer

The answer of The 1999 Financial Services Modernization (Gramm-Leach-Bliley) Act:
A)...

Question 19

Managers must take into consideration the great power the Internet provides consumers today to:
A) Evaluate their services
B) Compare their quality
C) Measure their financial product convenience
D) All of the above
E) None of the above

Accepted Answer

The Internet allows consumers to evaluate services, compare quality, and measure the convenience of financial products, thus encompassing all the options listed.

Question 20

The radiofrequency identification card (RFID):
A) Is increasing in popularity
B) Is passed in front of a scanner to pay
C) Has a signal that is susceptible to being picked up by thieves nearby
D) All of the above
E) A and B above

Accepted Answer

RFID technology is indeed growing in popularity due to its convenience and efficiency in various applications, including payments and identification. When an RFID card is passed in front of a scanner, it communicates with the scanner to complete a transaction or verify identity. However, the signals from RFID cards can be intercepted by thieves using specialized equipment, making them susceptible to unauthorized access or theft.

Quiz 25: Exploring the Complexities of Financial Services and Regulation

When a consumer's personal information is stolen and used to access their bank accounts and other assets, it is referred to as "identity theft."

Computers and/or phones with access to the Internet have allowed almost instantaneous transmission and reception of financial data and information, including the transfer of funds.

Debit cards are one of the fastest growing methods of payment.

The Federal Reserve has no limits upon how much in total a payments-system participant can owe to everyone else who belongs to the same clearing system.

When a consumer's personal information is stolen and used to access their bank accounts and other assets, it is referred to as "assuming the person's role."

In 1999, the U.S. Congress added to restrictions in place since the 1930s and prevented banks and financial-service holding companies the power to combine menus of banking, insurance, securities underwriting services and real estate brokerage services under the same financial-service organization.

Which of the following are prospects for financial markets from breakthroughs in communications technology?

Which of the following are the shifting characteristics and needs of today's financial-service customers?

When any financial institution develops serious problems that reach public notice, the public's confidence in other financial institutions may be damaged as well. The result can be as follows:

One problem with government insurance that must be faced is how to avoid distorting risk-taking decisions by the managers of privately owned financial institutions. This kind of problem is an incidence of the more general type of the ______ problems encountered in the economics literature.

In order to promote public confidence, government and the private sector can provide the following remedies:

Managers of successful financial institutions today must be intimately familiar with both the benefits and drawbacks of risk-management tools such as:

According to the FDIC Improvement Act passed by the U.S. Congress in 1991, the federally insured depository institutions must:

The previous trend toward the removal of government restrictions on the freedom of the financial markets to trade and allocate resources is called:

According to the text, future developments in regulation and deregulation will most likely be:

Regulators are likely to be looking closely in the years ahead at which of the following rules that apply to each financial institution?

For the financial-services industry, the technological revolution in information analysis, storage, and transfer has not:

The 1999 Financial Services Modernization (Gramm-Leach-Bliley) Act:

Managers must take into consideration the great power the Internet provides consumers today to:

The radiofrequency identification card (RFID) :