Exam 1: Why Are Financial Institutions Special

Which of the following repealed the 1933 Glass-Steagall barriers between commercial banking, insurance, and investment banking?

The Internet has allowed individual investors to purchase securities while benefiting from decreased transactions costs.

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is

Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise less monitoring power and control over the borrower.

Nondepository financial institutions are represented by all of the following EXCEPT

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy primarily because

In a world without FIs, households will be less willing to invest in corporate securities because they

One reason for the increasing proportion of total financial assets controlled by pension funds and investment companies is that these intermediaries exploit the comparative advantages of size and diversification.

The housing bubble that began building in 2001 was primarily the result of

An FI acting as an agent in matching savers and borrowers of funds can attain economies of scale and provide this service more efficiently than either the saver or borrower could on their own.

When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model, the change is likely to result in

What distinguishes financial intermediaries from industrial firms?

When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet.

In most countries, cash is required to be held in reserve against deposits.

Firms in industries that have low costs of entry tend to enjoy larger profits than firms in industries with high costs of entry.

The ability of diversification to eliminate much of the risk from the asset side of the balance sheet of an FI is the result of choosing assets that are less than perfectly positively correlated.

Verifying the minimum level of capital or equity that must be held to fund the operations of an FI is part of the goal of

Regulation of FIs is an attempt to enhance the social welfare benefits and mitigate the social costs of providing FI services.

Unfairly excluding some potential financial service consumers from the financial services marketplace is a reason why FIs must absorb net regulatory burden.

Economic collapse during the 1930s, the banking system in the U.S.performed directly or indirectly all financial services.Those functions included all of the following EXCEPT