Introduction to Finance

 1. 
(LO 3.1)
Discuss how and why banks suff ered fi nancial diffi
culties 
during the fi nancial crisis.
 2. 
(LO 3.2)
Describe the major fi nancial institutions engaged in 
getting the savings of individuals into business fi rms that want to 
make investments to maintain and grow their fi rms.
 3. 
(LO 3.3)
Compare commercial banking with investment banking. 
What is universal banking?
 4. 
(LO 3.3)
Describe the functions of banks and the banking 
system.
 5. 
(LO 3.3)
Describe the three basic ways for processing or collecting 
a check in the United States.
 6. 
(LO 3.4)
How did the First Bank of the United States serve the 
nation? Also briefl y describe why the Second Bank of the United 
States was chartered.
 7. 
(LO 3.4)
Briefl y describe why and when thrift institutions were 
founded.
 8. 
(LO 3.5)
Why was it considered necessary to create the Federal 
Reserve System when we already had the benefi ts of the National 
Banking Act?
 9. 
(LO 3.5)
Comment on the objectives of the Depository Institutions 
Deregulation and Monetary Control Act of 1980.

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74
C H A PT E R 3 Banks and Other Financial Institutions
Exercises
Problems
1. 
Go to http://www.stlouisfed.org and identify sources and uses of 
funds for commercial banks.
2. 
You are the treasurer of a midsize industrial manufacturer. Your 
fi rm’s cash balances vary between $300,000 and $1,000,000. During 
the last three board meetings a board member has asked how you 
protect this cash while it is being lodged in banks or other temporary 
facilities. Your problem is to satisfy the board member, obtain some 
income from the cash or cash equivalent balances, and have funds 
available for immediate payout if required. What course of action do 
you follow?
3. 
You and three other staff members of the U.S. Offi
ce of Comp-
troller of the Currency have been assigned identical projects. You 
are to review the articles that have been written, the speeches made, 
and in general the suggestions that have been off ered to revamp the 
structure of the FDIC to render it more stable and fi nancially able to 
withstand adverse events. Based on the few suggestions off ered in 
this chapter and your own ideas, what is your conclusion?
4. 
You are the mayor of a community of 12,000 people. You are active 
in virtually all of the civic activities of the town and as such your 
opinion is solicited on political, economic, sociological, and other 
factors. You have been asked by one of the civic groups to comment 
on the implications for the community of a prospective purchase of