Question: 1. Assume you are the recipient of

> Explain the potential for deposit expansion when required reserves average 10 percent and $2,000 in excess reserves are deposited in the banking system.

> Explain how deposit expansion takes place in a banking system consisting of two banks.

> List and describe briefly the economic policy objectives of the nation.

> Comment on the objectives of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).

> Why was it considered necessary to create the Federal Reserve System when we already had the benefits of the National Banking Act?

> 1. Which is the major source of new financing for U.S corporations each year? a. bonds b. stock c. internal financing (retained earnings) d. It depends on the year. 2. Why would a U.S. firm issue bonds overseas? a. The Securities and Exchange Commission

> Briefly describe why and when thrift institutions were founded.

> How did the First Bank of the United States serve the nation? Also briefly describe why the Second Bank of the United States was chartered.

> Describe the three basic ways for processing or collecting a check in the United States.

> Describe the functions of banks and the banking system.

> Compare commercial banking with investment banking. What is universal banking?

> Define international banking. Describe how some foreign banking systems differ from the U.S. banking system.

> What were the Basel Accords and what was their purpose?

> Define and describe the following terms: common equity capital ratio, tier 1 ratio, and total capital ratio. How are these used by bank regulators?

> Describe the major financial institutions engaged in getting the savings of individuals into business firms that want to make investments to maintain and grow their firms.

> Describe what is meant by liquidity risk, credit risk, and interest rate risk.

> 1. If you wish to compound or discount quarterly (four times a year), for a period of five years, what would be the number of periodic payments (or receipts)? a. Five b. Ten c. Fifteen d. Twenty 2. The act of lending money at an excessively high in

> Describe how assets are managed in terms of a bank’s liquidity risk. Also briefly describe how liquidity management is used to help manage liquidity risk.

> What is meant by bank liquidity and bank solvency?

> What are the major asset categories for banks and identify the most important category. What are a bank’s major liabilities and stockholders’ equity and which category is the largest in size?

> Describe the structure of banks in terms of bank charters, branch banking, and bank holding companies.

> How are depositors’ funds protected today in the United States?

> Briefly describe the purpose of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. Also indicate the purpose of the Resolution Trust Corporation (RTC).

> Describe the reasons for the savings and loan crisis that occurred during the 1980s.

> Why was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 passed?

> Why was the Garn–St. Germain Depository Institutions Act of 1982 thought to be necessary?

> Discuss how and why banks suffered financial difficulties during the financial crisis.

> 1. What is a loan repaid in equal payments over a specified time period called? a. Simple interest loan b. Amortized loan c. Usury loan d. All of the choices are correct. 2. For an amortized loan, the period payment contains an interest payment por

> Briefly describe the development of money, from barter to the use of precious metals.

> Describe how an individual’s net worth is determined.

> Define money and indicate the basic functions of money.

> Indicate how real assets and financial assets differ.

> Identify the major participants in the U.S. monetary system.

> Identify economic units in addition to business firms who might need funds from savers.

> Describe the three basic ways whereby money is transferred from savers to investors.

> How do surplus economic units and deficit economic units differ?

> Define money market securities and briefly describe the major types of these securities.

> What are debit cards and how are they used?

> 1. Which of the following variables is unique to solving annuity problems? a. Future value b. Interest rate c. Number of periods d. Payment 2. Assume you are the recipient of a two-year, $100 per year, ordinary annuity that has a future value of $2

> What are automatic transfer service (ATS) accounts?

> What is deposit money and how is it “backed”?

> Describe how representative full-bodied money and fiat money differ.

> What is the difference between full-bodied money and token coins?

> Briefly describe the development of the international monetary system.

> How do Keynesians view the relationship between money supply and economic activity?

> Briefly describe the monetarists’ view of the relationship between money supply and economic activity.

> How does M2 differ from M1? What are money market mutual funds?

> Describe the M1 definition of the money supply and indicate the relative significance of the M1 components.

> Indicate some of the career opportunities in finance available to business graduates today.

> 1. What do coins that are full-bodied money contain? a. Both silver and gold amounts that are equal in value b. Less value in metal than their face value c. The same value in metal as their face value d. More value in metal than their face value 2.

> Identify the four types of major financial markets.

> How do debt securities and equity securities differ?

> What are the differences between primary and secondary markets?

> Briefly describe the differences between money and capital markets.

> Identify and briefly describe the financial functions in the financial system.

> What are the four major components of an effective financial system?

> Describe what is meant by ethical behavior.

> What are the six principles of finance?

> Identify and briefly describe several reasons for studying finance.

> If your belief about future exchange rates differ from those quoted as forward rates, how can you attempt to profit from this difference in expectations?

> 1. What is a series of equal payments (or receipts) that occur over a number of time periods called? a. Annuity b. Reverse annuity c. Simple interest problem d. Rule of 72 example 2. What is a series of equal payments (or receipts) that occur at th

> Why is hedging similar to buying insurance?

> What are the four requirements that need to be determined when entering into a forward contract?

> What risks does a company face due to changing exchange rates?

> Explain the process to estimating a bid price by estimating zero-NPV cash flow needs.

> Explain the process to estimating cash flows for a cost-saving project.

> Explain the process to estimating cash flows for a revenue-enhancing project.

> Why might there be tax implications when an asset is sold at the termination of a capital budgeting project?

> What information sources are used to develop estimates for a project's a. initial outlays? b. operating life? c. salvage value?

> A U.S. based multinational corporation (MNC) sold some equipment to a British firm today and will receive £1,000,000 from the British firm one month from today. Today’s spot rate is $1.12/£. The MNC is certain the spot rate will be $1.10/£ one month from

> A U.S. based multinational corporation (MNC) purchased equipment from a British firm today and must pay them £1,000,000 one month from today. The MNC is certain the spot rate will be $1.10/£ one month from today. The current forward rate is $1.05/£. Shou

> 1. How many variables are in the future value and present value equations? a. One b. Two c. Three d. Four 2. Which of the following is not a variable in the present value equation? a. Default risk b. Number of periods c. Future value d. Interes

> The current U.S. one month forward rate is $1.25/€. You are an American speculator with $40,000. You are sure the spot rate will be $1.32/€ one month from today. What steps should you take today and one month from today to make a profit buying and sellin

> The current U.S. one month interest rate is 5% compared to 7% in Europe. Today’s spot rate between the euro and dollar is $1.18/€ and today’s one month forward rate is $1.25/€. The U.S. is the home country. You have $1,000 to invest. What steps should yo

> Explain the process for using forward contracts when comparing home currency investments and overseas investments over a given time period.

> Describe the Bretton Woods system for setting currency exchange rates. What are “special drawing rights” and how are they used to foster world trade?

> What is meant by the statement that the international monetary system has operated mostly under a “gold standard”? What are the major criticisms associated with being on a gold standard?

> What is the purpose of an international monetary system?

> Discuss the meaning of the financial account and identify its major components.

> The current account is an important component of the U.S. balance of payments. Describe the current account balance and indicate its major components.

> Briefly indicate the problems facing the United States in its attempt to maintain international financial equilibrium.

> Commercial letters of credit, traveler’s letters of credit, and traveler’s checks all play an important role in international finance. Distinguish among these three types of instruments.

> 1. What is the term for an arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value? a. Compounding b. Discounting c. Investing d. Speculating 2. What would be the present value of a $100 in

> Explain the role played by the Export-Import Bank in international trade. Do you consider this bank to be in competition with private lending institutions?

> Describe the ultimate sources of funds for export financing with bankers’ acceptances. How are acceptances acquired for investment by these sources?

> Describe the costs involved in connection with financing exports through bankers’ acceptances.

> How may a bank protect itself after having issued a commercial letter of credit on behalf of a customer?

> Describe the process by which an importing firm may substitute the credit of its bank for its own credit in financing international transactions.

> How do importers protect themselves against improper delivery of goods when they are required to make payment as they place an order?

> Describe the various ways by which an exporter may finance an international shipment of goods. How may commercial banks assist the exporter in the collection of drafts?

> What are sight and time drafts? Indicate how they differ.

> How has the value of the U.S. dollar changed relative to other major currencies in recent years? What is “hedging” and how are forward contracts used to manage foreign exchange risk?

> Explain the role of supply and demand as it relates to the establishment of exchange rates between countries.

> 1. When interest is earned on interest in addition to interest being earned on the principal amount of an investment, what is this called? a. Simple interest b. Compound interest c. Basic interest d. Inflation interest 2. What would be the future v

> What are currency or foreign exchange markets?

> What types of financial crises have some countries in the EU faced in recent years?

> What is the euro? Identify some of its distinguishing characteristics.

> What is meant by the term euro zone members? Which countries are euro zone members?

> What is the European Union (EU)? How did it develop? Who are the current members of the EU?

> Describe the international monetary system currently in use.