US Banking Systems Quiz 9/3/2010

Explanation
A banknote is a currency issued by a bank that promises to pay the designated amount of money when the note is presented to the bank. It is a form of paper money that serves as a legal tender and is widely accepted as a medium of exchange. Unlike a coin, which is a metallic form of currency, a banknote is made of paper and typically features various security features to prevent counterfeiting. A bankloan, on the other hand, refers to a financial transaction where a bank lends money to an individual or entity.

Explanation
A document, currency, or coin that is forged or otherwise created to look real is considered to be counterfeit. This means that it is not genuine or authentic, but rather a fake or imitation intended to deceive others. Counterfeit items are often created with the intention of passing them off as genuine in order to gain financial advantage or deceive unsuspecting individuals.

Explanation
Inflation refers to a situation where there is a persistent rise in prices due to an excessive amount of money in the economy and a scarcity of goods available for purchase. This leads to a decrease in the purchasing power of money, as individuals need more money to buy the same amount of goods and services. Therefore, inflation is the correct answer as it accurately describes the scenario of increasing prices caused by an imbalance between money supply and available goods.

Explanation
The Federal Reserve Act is the correct answer because it established the Federal Reserve System in the United States. One of the key functions of the Federal Reserve System is to provide a national check clearing system. This system allows banks to process and clear checks efficiently and ensures the smooth functioning of the nation's payment system. Therefore, the Federal Reserve Act directly addressed the needs of forming a national check clearing system.

Explanation
Buying on margin refers to the practice of borrowing money to purchase stocks, using only a small amount of your own money as a down payment. This allows investors to leverage their investments and potentially earn higher returns. However, it also increases the risk, as losses can be magnified.

Explanation
The Dual Banking System refers to the coexistence of state-chartered banks and nationally chartered banks in the United States. This system allows banks to choose whether they want to operate under state or federal regulations. Today, the Dual Banking System still exists, meaning that both types of banks continue to operate and are subject to different regulations depending on their charter. Therefore, the statement "The Dual Banking System still exists in today's banking society" is true.

Explanation
The National Bank Act of 1863 did not create the FDIC. The FDIC, or Federal Deposit Insurance Corporation, was actually created in 1933 as a response to the widespread bank failures during the Great Depression. The purpose of the FDIC is to insure deposits in banks and promote stability in the banking system. Therefore, the correct answer is False.

Explanation
The Gramm-Leach-Bliley Act of 1999, also known as the GLBA, is a federal law in the United States that requires financial institutions, including banks, to protect the privacy and security of customer financial information. This means that banks are obligated to implement measures to safeguard sensitive customer data from unauthorized access or disclosure. The GLBA aims to enhance consumer privacy rights and ensure that banks handle customer information responsibly. Therefore, the statement "The Gramm-Leach-Bliley Act of 1999 requires banks to protect customer financial information" is true.

Explanation
The OCC, or Office of the Comptroller of the Currency, is responsible for chartering, examining, and supervising national banks, not state banks. State banks are typically regulated by state banking departments or other similar regulatory bodies. Therefore, the statement that the OCC is responsible for state banks is false.

Explanation
The statement suggests that banking in the 1700s and 1800s was structured similarly to modern banks. However, this is not true. Banking during that time period was very different from today's banking system. There were no centralized banks, and most banking activities were conducted by private individuals or partnerships. There were no federal regulations or deposit insurance, and the banking system was prone to frequent failures and financial panics. It was not until the late 19th and early 20th centuries that the modern banking system began to take shape.