Money and Banking, Questionnaire Example

What factors explain the rapid growth of international banking? Explain each factor in your answer.

There are several factors that explain the rapid growth of international banking. These factors include the rapid growth in international trade, the need for foreign loans, and developments in communications technology and transportation. International banking has been made necessary because the enhanced competition of business in the world setting made it necessary to ease the conversion of funds in a manner that would allow business transactions to occur more rapidly.

Why did new technology make it harder to enforce limitations on bank branching in different states in the United States? How did this affect the size of banks and the process of bank consolidation? Explain your answer.

Technology made is harder to enforce limitations on bank branching because many banks can now exist in a virtual rather than a physical location. While limitations are in place to prevent a great extent of physical bank branching, there is currently no limitation on virtual bank branching. As a result, this has increased the size of banks because their accessibility has increased as well, contributing to an increase in the process of bank consolidation and other activities.

What are the three key actors in the money supply process? Which one is most important in achieving the goal of price stability? Explain your answer.

There are three to four key actors in the money supply process, which include the central federal bank, the depository institutions, depositors, and borrowers from banks and institutions that issue bonds. However, the central federal bank is the most important in achieving the goal of price stability. The bank has many assets in its control, such as bonds issued by the treasury. Furthermore, it is able to decide which currency should be placed in circulation and which should be placed in reserves. This balance between circulation and reserves helps control price stability.

When the Euro currency increases in value over the U.S. Dollar, is it more expensive to buy a Mercedes car from Germany or a Dodge truck from the United States. Explain your answer.

When the Euro currency increases in value over the U.S. Dollar, it is more expensive to buy a Mercedes car from Germany. When the monetary value of a particular currency rises, other nations will have to spend more money in order to reach the equivalent price. Therefore, the good in countries with higher value currency become more expensive for individuals living in nations with lower value currency.

What is the trend in the political independence of Central Banks around the world? Do you think that this is good or bad? Explain your answer.

Central Banks around the world have been working with their governments to achieve a prevention of financial crises by strengthening their framework for regulation. However, they are also fighting to remain free from political control. This is important because politics can heavily influence the choices made by the bank if this were allowed. It is important for banks to remain politically neutral because allowing the input of politics will allow the economy of a nation to change purely to support party goals. This could end up destroying the lifestyle of many individuals, and altering the economy should not be made to be a political tactic.

Why is “loophole mining” so common in the U.S. banking industry? What is it in response to? Is this a good or bad trend? Is this statement True, False, or uncertain. Explain your answer.

Loophole mining is common in the U.S. banking industry because a successful attempt at this activity allows bankers to be more competitive with regards to the profit earned. This is a bad trend because regulatory laws were meant to be vague to provide some exceptions to the rules in a manner that would allow banking processes to run smoothly. However, bankers are taking advantage of loophole mining for self-benefit, which contradicts the intentions of the individuals who put these regulations in place. As a consequences, these practices can be potentially damaging to the economy.

Banks are required to maintain specific reserves and reserve ratios. Explain what is a “sweep account.” Explain what is a “money market mutual fund.” How do they allow banks to avoid reserve requirements on these “excess” funds?

Sweep accounts are used to automatically transfer funds between the primary cash account and secondary investment accounts. This account is used to transfer funds in a pre-calculated manner, often to allow the banker to keep track of reserve funds versus funds that are needed to make payments. These excess funds are protected because most additional cash is invested and therefore protected against reserve requirements.