Introduction to Finance

 10. 
(LO 3.5)
Why was the Garn–St. Germain Depository Institutions 
Act of 1982 thought to be necessary?
 11. 
(LO 3.5)
Why was the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 passed?
 12. 
(LO 3.5)
Describe the reasons for the savings and loan crisis that 
occurred during the 1980s.
 13. 
(LO 3.5)
Briefl y 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).
 14. 
(LO 3.5)
How are depositors’ funds protected today in the United 
States?
 15. 
(LO 3.6)
Describe the structure of banks in terms of bank 
charters, branch banking, and bank holding companies.
 16. 
(LO 3.7)
What are the major asset categories for banks? 
Identify the most important category. What are a bank’s major 
1. 
The following three one-year “discount” loans are available to you:
Loan A: $120,000 at a 7 percent discount rate
Loan B: $110,000 at a 6 percent discount rate
Loan C: $130,000 at a 6.5 percent discount rate
a. 
Determine the dollar amount of interest you would pay on each 
loan and indicate the amount of net proceeds each loan would 
provide. Which loan would provide you with the most upfront 
money when the loan takes place?
b. 
Calculate the percent interest rate or eff ective cost of each loan. 
Which one has the lowest cost? 
the largest local commercial bank by an out-of-state bank holding 
company. What is your response?
5. 
Banks provide checking account services, accept savings deposits, 
and lend to borrowers. In other words, they are in the money business. 
We all have heard stories of banks or their partner fi rms “misplacing” 
or “losing” bags of money. Lending rates are also subject to change 
periodically. Both of these situations can produce ethical dilemmas or 
decisions. How would you react to the following scenarios? 
a. 
You are walking down the street and see a large money bag 
with “First National Bank” printed on it. The bag is sitting on the 
sidewalk in front of a local offi
ce of First National Bank. You are 
considering whether to pick up the bag, check its contents, and then 
try to fi nd the owner. Alternatively, you could pick up the money 
bag and take it to the local police station, or return it directly to the 
bank itself. What would you do?
b. 
You are a loan offi
cer of First National Bank. The owner of a 
small business has come into the bank today and is requesting an 
immediate $100,000 loan for which she has appropriate collateral. 
You also know that the bank is going to reduce its lending interest 
rate to small businesses next week. You could make the loan now 
or inform the small business owner that she could get a lower rate 
if the loan request is delayed. What would you do? 
liabilities and stockholders’ equity, and which category is the largest 
in size?