Question 1

The ability of savers to transfer wealth between youth and old age and across generations is called maturity intermediation.

Accepted Answer

A) True 
 B)False  False

Question 2

The adoption of new technologies in financial services does not require a large expenditures to adapt to the new and evolving industry standards including consumer preferences.

Accepted Answer

A) True 
 B)False  False

Question 3

Prior to the most recent financial crisis, the risks faced by FIs have traditionally been measured and managed by

Accepted Answer

A) outside agencies such as Moody's or Standard and Poor's. 
B) functional risk area such as liquidity risks, price risk, or credit risk. 
C) designated regulatory agencies for the industries in which the FI operates. 
D) using enterprise risk management techniques. 
E) None of the options.FIs did not monitor nor manage the risks that they face. 
A) outside agencies such as Moody's or Standard and Poor's. 
B) functional risk area such as liquidity risks, price risk, or credit risk. 
C) designated regulatory agencies for the industries in which the FI operates. 
D) using enterprise risk management techniques. 
E) None of the options.FIs did not monitor nor manage the risks that they face. B

Question 4

Credit allocation regulations are typically designed to benefit customers as well as the financial institution that must implement the guidelines.

Accepted Answer

A) True 
 B)False

Question 5

The goal of credit allocation is the encouragement of FIs to diversity the composition of their assets.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a major function of financial intermediaries?

Accepted Answer

A) Brokerage services. 
B) Asset transformation services. 
C) Information production. 
D) Management of the nation's money supply. 
E) Administration of the payments mechanism. 
A) Brokerage services. 
B) Asset transformation services. 
C) Information production. 
D) Management of the nation's money supply. 
E) Administration of the payments mechanism.

Question 7

As of 2015, U.S.FIs held assets totaling over $29 trillion

Accepted Answer

A) True 
 B)False

Question 8

FIs typically provide secondary claims to household savers that have inferior liquidity than primary securities of corporations such as equity and bonds.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following observations is true?

Accepted Answer

A) Central bank directly controls both inside and outside money. 
B) Outside money is that part of the money supply produced by the private banking system. 
C) Inside money refers to the quantity of notes and coin in the economy. 
D) Bulk of the money supply consists of inside money. 
E) Central banks cannot vary the quantity of outside money. 
A) Central bank directly controls both inside and outside money. 
B) Outside money is that part of the money supply produced by the private banking system. 
C) Inside money refers to the quantity of notes and coin in the economy. 
D) Bulk of the money supply consists of inside money. 
E) Central banks cannot vary the quantity of outside money.

Question 10

Advantages of depositing funds into a typical bank account instead of directly buying corporate securities include all of the following EXCEPT

Accepted Answer

A) monitoring done by the bank on your behalf. 
B) increased liquidity if funds are needed quickly. 
C) increased transactions costs. 
D) less price risk when funds are needed. 
E) better diversification of deposited funds. 
A) monitoring done by the bank on your behalf. 
B) increased liquidity if funds are needed quickly. 
C) increased transactions costs. 
D) less price risk when funds are needed. 
E) better diversification of deposited funds.

Question 11

A significant recent trend in the provision of financial services is that households increasingly prefer denomination intermediation and information services provided by

Accepted Answer

A) mutual funds and money market mutual funds. 
B) commercial banks. 
C) insurance companies. 
D) hedge funds. 
E) investment banks. 
A) mutual funds and money market mutual funds. 
B) commercial banks. 
C) insurance companies. 
D) hedge funds. 
E) investment banks.

Question 12

The Federal Reserve mandates reserve requirements for depository institutions so that the DIs may provide payment services for the U.S.economy.

Accepted Answer

A) True 
 B)False

Question 13

The asset transformation function of FIs typically involves

Accepted Answer

A) receipt of securities through electronic payments systems. 
B) altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. 
C) granting loans to transform funds deficit units into funds surplus units. 
D) investing short-term funds in off-balance sheet activities. 
E) transferring of funds from one generation to another. 
A) receipt of securities through electronic payments systems. 
B) altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. 
C) granting loans to transform funds deficit units into funds surplus units. 
D) investing short-term funds in off-balance sheet activities. 
E) transferring of funds from one generation to another.

Question 14

As a result of adopting an enterprise risk management approach, an FI will invest heavily in advanced risk measurement and management systems and practices.

Accepted Answer

A) True 
 B)False

Question 15

Traditionally, regulation of FIs in the U.S.has been

Accepted Answer

A) minimal, as evidenced by the recent financial crisis. 
B) extensive, as a result of the importance of FI to the economy. 
C) minimal, because the free market is allowed to allocate financial resources. 
D) extensive, because banks have monopoly power. 
E) no different from regulation of nonfinancial firms. 
A) minimal, as evidenced by the recent financial crisis. 
B) extensive, as a result of the importance of FI to the economy. 
C) minimal, because the free market is allowed to allocate financial resources. 
D) extensive, because banks have monopoly power. 
E) no different from regulation of nonfinancial firms.

Question 16

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

Accepted Answer

A) True 
 B)False

Question 17

FinTech services such as cryptocurrencies and blockchain provide a system that supports the exchange of value between two parties unknown to each other in a swift and effective way, without the need for financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 18

Financial intermediaries are

Accepted Answer

A) funds surplus units, because they exist to make money. 
B) funds deficit units, because they must pay heavy regulatory fees and taxes. 
C) funds surplus units, because they hold large portfolios of financial securities. 
D) funds deficit units, because they must comply with minimum capital requirements. 
E) neither funds surplus nor deficit units. 
A) funds surplus units, because they exist to make money. 
B) funds deficit units, because they must pay heavy regulatory fees and taxes. 
C) funds surplus units, because they hold large portfolios of financial securities. 
D) funds deficit units, because they must comply with minimum capital requirements. 
E) neither funds surplus nor deficit units.

Question 19

The purpose of guaranty funds in safety and soundness regulation is to protect claim-holders when an FI collapses or fails.

Accepted Answer

A) True 
 B)False

Question 20

If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.

Accepted Answer

A) True 
 B)False

Exam 1: Why Are Financial Institutions Special

The ability of savers to transfer wealth between youth and old age and across generations is called maturity intermediation.

The adoption of new technologies in financial services does not require a large expenditures to adapt to the new and evolving industry standards including consumer preferences.

Prior to the most recent financial crisis, the risks faced by FIs have traditionally been measured and managed by

Credit allocation regulations are typically designed to benefit customers as well as the financial institution that must implement the guidelines.

The goal of credit allocation is the encouragement of FIs to diversity the composition of their assets.

Which of the following is NOT a major function of financial intermediaries?

As of 2015, U.S.FIs held assets totaling over $29 trillion

FIs typically provide secondary claims to household savers that have inferior liquidity than primary securities of corporations such as equity and bonds.

Which of the following observations is true?

Advantages of depositing funds into a typical bank account instead of directly buying corporate securities include all of the following EXCEPT

A significant recent trend in the provision of financial services is that households increasingly prefer denomination intermediation and information services provided by

The Federal Reserve mandates reserve requirements for depository institutions so that the DIs may provide payment services for the U.S.economy.

The asset transformation function of FIs typically involves

As a result of adopting an enterprise risk management approach, an FI will invest heavily in advanced risk measurement and management systems and practices.

Traditionally, regulation of FIs in the U.S.has been

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

FinTech services such as cryptocurrencies and blockchain provide a system that supports the exchange of value between two parties unknown to each other in a swift and effective way, without the need for financial intermediaries.

Financial intermediaries are

The purpose of guaranty funds in safety and soundness regulation is to protect claim-holders when an FI collapses or fails.

If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters