AnswersAFC Personal Financial Literacy and Economics S2Banking and Financial Institutions

Banking and Financial Institutions Answers

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What does a bank’s interest rate measure?

A
the cost of depositing money in a bank
B
the cost of borrowing money from a bank
C
the cost of starting a new business
D
the cost of keeping a bank in business
2
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Read two excerpts from a speech by economist Ben Bernanke, former Chair of the Federal Reserve."Yet another striking feature of the Great Contraction [Depression] in the United States was the massive extent of banking panics and failures, culminating [resulting] in the Bank Holiday of March 1933, in which the entire US banking system was shut down. During the Depression decade, something close to half of all US commercial banks either failed or merged with other banks.”"The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a ‘stable monetary background.’. . .”—Ben Bernanke, 2002

A
Bank failures during the Depression were unavoidable no matter what the Fed did.
B
The Fed caused bank failures during the Depression by refusing to lower interest rates.
C
The Federal Reserve gains too much power whenever there are failing banks or other crises.
D
The Federal Reserve could have increased the money supply to help failing banks in the crisis.
3

Why did the US Congress create the Federal Reserve System in 1913?

A
to establish a central bank where American citizens could deposit their money
B
to establish a central bank to store the money used by the federal government
C
to establish a central bank that would help smaller banks survive during economic crises
D
to establish a central bank that would provide loans for people who were denied them at local banks
4

How did the Mechanics and Farmers Bank of Durham, NC, differ from most other banks of the early 1900s?

A
It was established by Black businessmen to serve their community.
B
It was the first banking institution to charge interest for borrowing money.
C
It was established to service large corporations in the North Carolina area.
D
It was the first to be insured by the Federal Deposit Insurance Corporation.
5

What is the money supply of the United States?

A
the total amount of money in the US economy
B
the sum of all deposits being held by US banks
C
the profits made by banks from the interest payment on loans
D
the total amount of money deposited within the central bank
6

Some savings accounts help depositors earn money. Where does this money come from?

A
from the federal government agency known as the FDIC
B
from the interest that borrowers pay to a bank for a loan
C
from the central banking system, which is called the Fed
D
from other depositors’ money kept in the bank’s vault
7

Review the photograph.

Question illustration
A
When mortgage interest rates go down, banks stop making loans.
B
When mortgage interest rates go down, banks make more money.
C
It’s easier for people to buy a new home when mortgage interest rates are down.
D
It’s more difficult for people to buy a new home when mortgage interest rates are down.
8

Why does the Fed sometimes increase interest rates?

A
to help more people get loans and become borrowers
B
to speed up the economy and help it grow quickly
C
to prevent banks from making profits that are too large
D
to slow inflation by stopping the economy from growing too fast
9

How does the Federal Deposit Insurance Company (FDIC) protect bank customers?

A
If customers can’t pay their bills, the FDIC provides them with short-term loans.
B
If customers lose their credit cards, the FDIC supplies them with replacements.
C
If a bank has a financial crisis, the FDIC safeguards its customers’ accounts.
D
If a bank can’t supply checkbooks, the FDIC can send them to customers.
10

Tran got a loan of $10,000 from the bank to help pay for his new car. He agreed to pay $800 in interest for the use of this money.

A
800 ÷ 10,000 = .08
B
10,000 ÷ 800 = 12.5
C
10,000 – 800 = 9,200
D
10,000 + 800 = 10,800

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Banking and Financial Institutions Answers — AFC…