Assignment

The assignment includes 25 multiple-choice questions. BL refers to the textbook by Benson and Loftesness (2nd edition). The Kindle locations are approximate. Remember that the Mann reading can be accessed by clicking on the hyperlink in the reading list.

1. BL define payments as transfers of value from ____ and a payment system as a _____ (p. 3; Kindle, 95).
A. consumers to businesses; framework defining how the transfers take place
B. consumers to businesses; technology for carrying out the transfers
C. one end party to another; technology for carrying out the transfers
D. one end party to another; framework defining how the transfers take place

2. In the terminology used by BL, which of the following payments would be considered POS? (p. 4; Kindle, 112-122)
1. Purchasing flowers at a florist and paying with a check.
2. Purchasing flowers over the telephone and paying with a credit card.
3. Using a credit card to buy a gift for a friend at a local department store.
4. Using Venmo on your cell phone to pay a friend for your share of a restaurant meal
A. 1 and 2
B. 1 and 3
C. 2 and 4
D. 1, 2, and 3

3. In the terminology used by BL on p. 4, which of the payments in Question 2 would be considered remote commerce? (p. 4; Kindle, 112-122)
A. 2 only
B. 1 and 2
C. 2 and 4
D. 1, 2, and 4

4. In the terminology used by BL, which of the payments in Question 2 would be considered P2P? (p. 4; Kindle, 112-122)
A. 1 and 3
B. 3 and 4
C. 4 only
D. 2, 3, and 4

5. The table on p. 5 of BL (Kindle, 149) indicates that excluding wire transfers, the core payment system with the highest dollar value of transactions in 2012 was ____, while the payment system with the highest number of transactions was ____.
A. ACH; debit cards
B. debit cards; ACH
C. checks; credit cards
D. credit cards; checks

6. On p. 6 (Kindle, 149), BL point out that the total dollar value of payments in the U.S. economy is ____ the total dollar value of output (GNP) because a single purchase usually results in ____ payment.
A. much greater than; only one
B. much greater than; more than
C. about equal to; only one
D. about equal to; more than

7. According to BL, the main difference between an open-loop and a closed-loop payment system is that a closed-loop system ____. (pp. 6-7; Kindle, 155)
A. operates without intermediaries
B. operates with intermediaries
C. is privately owned and operated
D. is owned and operated by the government

8. Which of the following are cited by BL as examples of open-loop payment systems (pp. 7, 14; Kindle, 165, 304)?
1. The original American Express system.
2. The original Discover system.
3. Visa and MasterCard.
4. Check clearing houses in the 1800s.
A. 1 only
B. 1 and 3
C. 4 only
D. 3 and 4

9. Which of the following are cited by BL as examples of closed-loop payment systems (pp. 7, 14; Kindle, 165, 304)?
1. The original American Express system.
2. The original Discover system.
3. Visa and MasterCard. 4. Check clearing houses in the 1800s.
A. 1 only
B. 1 and 2
C. 4 only
D. 3 and 4

10. As explained by BL (pp. 9-10, Kindle; 212-236) and the Appendix to Summers and Wells, a debit pull payment is one in which the payer ____, while a credit push payment is one in which the payer _____.
A. authorizes the payee to request a transfer of funds from the payer's bank; directly instructs the payer's bank to transfer funds to the payee
B. directly instructs the payer's bank to transfer funds to the payee; authorizes the payee to request a transfer of funds from the payer's bank
C. uses a credit card; uses a debit card
D. the payer's bank account is credited; the payer's bank account is debited

11. According to BL, a gross settlement system is one in which transactions are settled ____, while a net settlement system is one in which transactions are settled ____. (p. 11, 250-258)
A. in an open-loop network; in a closed-loop network
B. in a closed-loop network; in a an open-loop network
C. individually as they are processed; at periodic intervals after cancelling offsetting obligations
D. at periodic intervals after cancelling offsetting obligations; individually as they are processed

12. According to BL, most U.S. payment systems began as _____systems. A key feature of these systems was that they ____. (p. 12; Kindle, 269-278)
A. government-owned; were operated to maximize government revenue
B. government-owned; were operated for the benefit of businesses and consumers C. bank-owned; gave participating banks equal access to products and services
D. bank-owned; favored large banks over small banks

13. In the U.S., the primary issuer(s) of government payments regulations is (are) _____. (BL, pp. 13; Kindle, 284)
A. the Treasury Department
B. the Federal Reserve
C. the Federal Trade Commission
D. state governments

14. According to BL, some laws and regulations affecting payments fall under the broad category of bank regulation. An example is Know Your Customer regulations, whose purpose is to ____. (BL, p. 15; Kindle, 343)
A. discourage illegal activities like money laundering
B. enable banks to charge higher prices to customers with less elastic demand
C. help banks collect information on payments habits that can be sold to marketing firms
D. encourage banks to better serve their customers by avoiding red tape

15. On p. 15 (Kindle, 353), BL raise the question whether federal regulators will take a more active role in regulating the payment industry now that many payment systems are owned by ____ , which have not been subject to as heavy regulation as _____.
A. nonbanks; banks
B. banks; nonbanks
C. domestic companies; foreign companies
D. foreign companies; domestic companies

16. According to BL, the key problem in cross-border payments is that the transaction may have to be carried out in countries that ____. (pp. 21-22; Kindle, 495-517)
A. undeveloped banking systems
B. use different currencies
C. are in different time zones
D. have payment systems with different schedules, rules, and data formats

17. One of the conclusions that BL draw from Table 2-4 is that countries within the same region, such as Europe, often have very _____ payment systems. The example they give is the role of ___ in France and Germany (pp. 22-23, especially the box on p. 22; Kindle, 526)
A. different; checks
B. different; cash
C. similar; checks
D. similar; cash

18. According to BL, large-scale open-loop payment systems have the advantage of ____ but the disadvantage of ____. (p. 23; Kindle, 543-551)

A. being free of burdensome rules; providing little guidance on how to execute payments
B. being efficient and easy to scale; being slow to innovate and respond to change;
C. being universally accessible; accepting unqualified participants
D. being quick to innovate and respond to change; being inefficient and difficult to scale;

19. According to Mann (p. 10), which of the following represent key disadvantages to buyers of using cash instead of noncash methods for payments?
1. Cash is anonymous.
2. Cash is difficult to transport.
3. Payment is final with cash.
A. 1 only
B. 1 and 2
C. 3 only
D. 2 and 3

20 According to Mann (pp. 11-12), which of the following are advantages of payment card transactions over paper-based transactions such as checks and cash?
1. Card transactions are faster at checkout.
2. Card transactions are invulnerable to fraud.
3. Card transactions can be processed at lower cost.
A. 1 and 2
B. 1 and 3
C. 2 and 3
D. 1, 2, and 3

21. On p. 13, Mann says that the U.S. has moved away from cash ____ than in many other countries and away from checks ___than in many other countries.
A. more; more B. more; less C. less; more D. less; less

22. According to Mann (p. 14), the growth of remote payments relative to in-person payments as a result of Internet commerce favored which of the following payment methods?
1. Checks.
2. Cash.
3. Credit cards. 4. PayPal.
A. 1 and 2
B. 2 and 3
C. 1, 2, and 3
D. 3 and 4

23. According to Mann (p. 15), ____ are examples of universal payment systems in that they ____.
A. debit cards and credit cards; can be used by anyone who joins a network
B. debit and credit cards; are used around the world
C. cash and checks; can be presented to almost any person or business for payment
D. cash and checks; are not subject to fraud

24. The 2000 Minneapolis Fed Annual Report says that the main objective(s) of the Federal Reserve with respect to the payments system is (are) ____.
A. efficiency and integrity of payments
B. efficiency, integrity, and equitable access to payments by people of all income levels
C. efficiency, integrity, and equitable access to payments by banks of all sizes and locations D. maximization of profits from Federal Reserve payment services

25. As explained in the Overview of Unit 1, clearing refers to ____, while settlement refers to ______.
A. the exchange of payment information between the payer's and payee's financial institutions and the calculation of their claims on each other; the discharge of these claims by means of payments between the banks
B. the transfer of funds between the payer's and payee's financial institutions; the resolution of disputes about payment transactions
C. the completion by banks of their pending payments; the calculation of each bank's net inflow or outflow of funds during the day
D. obtaining the payer's approval for a payment; the execution of the payment.