Chapter 1
An Overview of the Changing Financial-Services Sector
Fill in the Blank Questions
1. _______________________ is a traditional service provided by banks in which the banks store
the valuables of their customers and certify their true value.
Answer: Safekeeping of valuables
2. The fact that financial institutions make loans based on confidential information is the
_______________________ theory of banking.
Answer: delegated monitoring
3. _______________________ refers to when a financial institution trades one form of currency for
another. An example of this would be when the bank trades dollars for yen for a fee.
Answer: currency exchange
4. A(n) _______________________ is a traditional service which permits a depositor to write a
draft in payment for goods and services.
Answer: demand deposit (checking account)
5. _______________________ is a service provided by banks where the bank lends money to
individuals for the purchase of durable and other goods.
Answer: Consumer lending
6. The _______________________ of a bank is a traditional service where the bank manages the
financial affairs and property of individuals (and in some cases businesses).
Answer: trust services
Rose/Hudgins, Bank Management and Financial Services, 8/e 1
, 7. Companies such as Merrill Lynch and Sears which offered some but not all banking services in
the 1980s were called _______________________.
Answer: nonbank banks
8. The loosening of government regulation and control of financial institutions is called
_______________________.
Answer: deregulation
9. ___________________________ is an alternative to lending in which the financial institution
purchases the equipment and rents it to its customers.
Answer: Equipment leasing services
10. The___________________________ is a landmark act which allows financial service providers
to offer an expanded menu of financial services for the customer. This law allows banks to truly
become conglomerate financial service providers.
Answer: Financial Services Modernization Act (Gramm-Leach-Bliley Act)
11. The country with the most banks is _______________________.
Answer: United States
12. According to Congress a ____________ is defined as any institution that can qualify for deposit
insurance administered by the FDIC.
Answer: Bank
13. A bank which spans regions, nations, and continents, offering the widest menu of financial
services is known as a __________bank.
Answer: money-center bank
14. _____________ refers to the movement of businesses across industry lines in order to broaden its
base.
Answer: Convergence
15. Banks which serve primarily households and small firms are known as ____________ banks.
Answer: retail
16. Banks that sell deposits and make loans to businesses and individuals are known as ______banks.
Answer: commercial
17. Banks which underwrite issues of new securities for their corporate customers are known as
________ banks.
Answer: investment
2 Test Bank, Chapter 1
, 18. Banks which function under a federal charter through the Comptroller of the Currency in the
United States are known as ____________ banks.
Answer: National
19. Banks which supply both debt and equity capital to businesses are known as _________ banks.
Answer: merchant
20. A bank that offers its services only over the internet is known as a(n) .
Answer: virtual bank
21. When a local merchant sells the accounts receivables they hold against their customer to a bank
this generally known as .
Answer: discounting commercial notes
22. A(n) offers loans to commercial enterprises (such as appliance
dealers) or to individuals using funds borrowed in the open market or from other financial
institutions. Examples of this type of financial service provider include GMAC Financial
Services and Household Finance.
Answer: finance company
23. A(n) buys and sells securities on behalf of their customers and for
their own accounts. Examples of this type of financial service provider include Merrill Lynch
and Charles Schwab.
Answer: security broker (or dealer)
24. A(n) sells shares mainly to upscale investors in a broad
group of different kinds of assets including nontraditional investments in commodities, real
estate, loans to ailing companies and other risky assets.
Answer: hedge fund
25. When a bank agrees to handle the cash collections and disbursements for a company and invest
any temporary cash surpluses in interest bearing assets, they are providing services
to their customers.
Answer: cash management
True/False Questions
T F 26. Under U.S. federal law, an institution making only loans to households and offering
uninsured checkable deposits and savings deposits qualifies as a commercial bank.
Answer: False
Rose/Hudgins, Bank Management and Financial Services, 8/e 3
, T F 27. Nonbank banks can offer deposits to the public, but these deposits are not eligible for
insurance coverage by the FDIC.
Answer: False
T F 28. The etymological roots of the word "bank" trace this word back to an Italian term
referring to a "money-changer's table".
Answer: True
T F 29. According to the textbook, banks are those financial institutions that today offer the
widest range of financial services of any business firm in the economy.
Answer: True
T F 30. According to the delegated monitoring theory banks are able to attract borrowing
customers because they pledge confidentiality.
Answer: True
T F 31. Managing the financial affairs and property of individuals and business firms falls under
the type of banking service line known as cash management services.
Answer: False
T F 32. The role performed by banks in the economy in which they transform savings into credit
is known as the intermediation role.
Answer: True
T F 33. The role performed by banks in which they stand behind their customers when those
customers are unable to pay a debt obligation is known as the guarantor role.
Answer: True
T F 34.When banks serve as conduits for government policy this is referred to as their agency role.
Answer: False
T F 35. According to the textbook, high-volume banking is required to make efficient use of
automation and other technological innovations.
Answer: True
T F 36. The number of independently owned banks has risen in the United States over the last
decade.
Answer: False
4 Test Bank, Chapter 1
An Overview of the Changing Financial-Services Sector
Fill in the Blank Questions
1. _______________________ is a traditional service provided by banks in which the banks store
the valuables of their customers and certify their true value.
Answer: Safekeeping of valuables
2. The fact that financial institutions make loans based on confidential information is the
_______________________ theory of banking.
Answer: delegated monitoring
3. _______________________ refers to when a financial institution trades one form of currency for
another. An example of this would be when the bank trades dollars for yen for a fee.
Answer: currency exchange
4. A(n) _______________________ is a traditional service which permits a depositor to write a
draft in payment for goods and services.
Answer: demand deposit (checking account)
5. _______________________ is a service provided by banks where the bank lends money to
individuals for the purchase of durable and other goods.
Answer: Consumer lending
6. The _______________________ of a bank is a traditional service where the bank manages the
financial affairs and property of individuals (and in some cases businesses).
Answer: trust services
Rose/Hudgins, Bank Management and Financial Services, 8/e 1
, 7. Companies such as Merrill Lynch and Sears which offered some but not all banking services in
the 1980s were called _______________________.
Answer: nonbank banks
8. The loosening of government regulation and control of financial institutions is called
_______________________.
Answer: deregulation
9. ___________________________ is an alternative to lending in which the financial institution
purchases the equipment and rents it to its customers.
Answer: Equipment leasing services
10. The___________________________ is a landmark act which allows financial service providers
to offer an expanded menu of financial services for the customer. This law allows banks to truly
become conglomerate financial service providers.
Answer: Financial Services Modernization Act (Gramm-Leach-Bliley Act)
11. The country with the most banks is _______________________.
Answer: United States
12. According to Congress a ____________ is defined as any institution that can qualify for deposit
insurance administered by the FDIC.
Answer: Bank
13. A bank which spans regions, nations, and continents, offering the widest menu of financial
services is known as a __________bank.
Answer: money-center bank
14. _____________ refers to the movement of businesses across industry lines in order to broaden its
base.
Answer: Convergence
15. Banks which serve primarily households and small firms are known as ____________ banks.
Answer: retail
16. Banks that sell deposits and make loans to businesses and individuals are known as ______banks.
Answer: commercial
17. Banks which underwrite issues of new securities for their corporate customers are known as
________ banks.
Answer: investment
2 Test Bank, Chapter 1
, 18. Banks which function under a federal charter through the Comptroller of the Currency in the
United States are known as ____________ banks.
Answer: National
19. Banks which supply both debt and equity capital to businesses are known as _________ banks.
Answer: merchant
20. A bank that offers its services only over the internet is known as a(n) .
Answer: virtual bank
21. When a local merchant sells the accounts receivables they hold against their customer to a bank
this generally known as .
Answer: discounting commercial notes
22. A(n) offers loans to commercial enterprises (such as appliance
dealers) or to individuals using funds borrowed in the open market or from other financial
institutions. Examples of this type of financial service provider include GMAC Financial
Services and Household Finance.
Answer: finance company
23. A(n) buys and sells securities on behalf of their customers and for
their own accounts. Examples of this type of financial service provider include Merrill Lynch
and Charles Schwab.
Answer: security broker (or dealer)
24. A(n) sells shares mainly to upscale investors in a broad
group of different kinds of assets including nontraditional investments in commodities, real
estate, loans to ailing companies and other risky assets.
Answer: hedge fund
25. When a bank agrees to handle the cash collections and disbursements for a company and invest
any temporary cash surpluses in interest bearing assets, they are providing services
to their customers.
Answer: cash management
True/False Questions
T F 26. Under U.S. federal law, an institution making only loans to households and offering
uninsured checkable deposits and savings deposits qualifies as a commercial bank.
Answer: False
Rose/Hudgins, Bank Management and Financial Services, 8/e 3
, T F 27. Nonbank banks can offer deposits to the public, but these deposits are not eligible for
insurance coverage by the FDIC.
Answer: False
T F 28. The etymological roots of the word "bank" trace this word back to an Italian term
referring to a "money-changer's table".
Answer: True
T F 29. According to the textbook, banks are those financial institutions that today offer the
widest range of financial services of any business firm in the economy.
Answer: True
T F 30. According to the delegated monitoring theory banks are able to attract borrowing
customers because they pledge confidentiality.
Answer: True
T F 31. Managing the financial affairs and property of individuals and business firms falls under
the type of banking service line known as cash management services.
Answer: False
T F 32. The role performed by banks in the economy in which they transform savings into credit
is known as the intermediation role.
Answer: True
T F 33. The role performed by banks in which they stand behind their customers when those
customers are unable to pay a debt obligation is known as the guarantor role.
Answer: True
T F 34.When banks serve as conduits for government policy this is referred to as their agency role.
Answer: False
T F 35. According to the textbook, high-volume banking is required to make efficient use of
automation and other technological innovations.
Answer: True
T F 36. The number of independently owned banks has risen in the United States over the last
decade.
Answer: False
4 Test Bank, Chapter 1
