Question

1)Prior to the dual banking system, the U.S. banking system included:

A.  National banks that used a national currency B.  A powerful central bank responsible for money and credit in the economy

C.  a state banking system   C.  a state banking system

2)Financial innovation in the banking industry often occurs in response to changes in financial markets, the regulatory environment, or new technology. The following questions consider how banks respond to various conditions in the banking industry.   Money-market mutual funds allowed individuals to avoid Regulation Q because:

A.  The funds acquired short-term money-market securities, allowing the shareholder to earn interest that was not subject to interest rate ceilings.

B.  Checking accounts were not subject to Regulation Q. C.  The funds allowed the bank to transfer funds automatically from checkable deposits to nontransaction accounts that are not subject to reserve requirements. D.  The funds imposed deposit-rate ceilings on shareholders.

3)Financial innovation in the banking industry often occurs in response to changes in financial markets, the regulatory environment, or new technology. The following questions consider how banks respond to various conditions in the banking industry. Banks lost cost advantages in raising liabilities (funds) in the 1970s because:

A.  Securitization of loans made it easier to sell loans. B.  Banks were not permitted to engage in off-balance-sheet activity. C.  Banks were no longer subject to reserve requirements.

D.  High inflation led to the process of disintermediation.

Answer 1

(1). Prior to the dual banking system, the banking system in the US included: Answer is (a) National banks that used a national currency

(2). Financial innovation in the banking industry often occurs in response to changes in financial markets, the regulatory environment, or new technology. The following questions consider how banks respond to various conditions in the banking industry.   Money-market mutual funds allowed individuals to avoid Regulation Q because:

Answer :(a) The funds acquired short-term money-market securities, allowing the shareholder to earn interest that was not subject to interest rate ceilings.

(3). Financial innovation in the banking industry often occurs in response to changes in financial markets, the regulatory environment, or new technology. The following questions consider how banks respond to various conditions in the banking industry. Banks lost cost advantages in raising liabilities (funds) in the 1970s because:

Answer: D. High inflation led to the disintermediation. (reason: Higher level of inflation in 70's led to higher level of interest rates demanded by lenders)