Question 1

Of the ten largest banks in the world at the beginning of 2015, how many were U.S.banks?

Accepted Answer

A) 0. 
B) 1. 
C) 2. 
D) 4. 
E) 8. 
A) 0. 
B) 1. 
C) 2. 
D) 4. 
E) 8.

Question 2

Compared to households, FIs often have economies of scale when purchasing or selling securities issued by businesses and governments.

Accepted Answer

A) True 
 B)False

Question 3

If a household invests in corporate securities and does not supervise how the funds are invested or used by the corporation, the risk of not earning the desired return or not having the funds returned increase.

Accepted Answer

A) True 
 B)False

Question 4

Pension and mutual funds have a lower correlation between the maturities of their assets and liabilities than do commercial banks and thrifts.

Accepted Answer

A) True 
 B)False

Question 5

Commercial banks and finance companies have traditionally served the needs of the residential real estate market.

Accepted Answer

A) True 
 B)False

Question 6

Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain

Accepted Answer

A) consumer protection guidelines. 
B) credit allocation guidelines. 
C) investor protection guidelines. 
D) safety and soundness guidelines. 
E) entry regulation guidelines. 
A) consumer protection guidelines. 
B) credit allocation guidelines. 
C) investor protection guidelines. 
D) safety and soundness guidelines. 
E) entry regulation guidelines.

Question 7

Net regulatory burden for FIs is higher because regulators may require the FI to

Accepted Answer

A) hold more capital than what would be held without regulation. 
B) produce less information than would be produced without regulation. 
C) hold more debt than what would be held without regulation. 
D) hold fewer reserves than they would without regulation. 
E) All of the options. 
A) hold more capital than what would be held without regulation. 
B) produce less information than would be produced without regulation. 
C) hold more debt than what would be held without regulation. 
D) hold fewer reserves than they would without regulation. 
E) All of the options.

Question 8

By diversifying investments, an FI is able to more accurately predict the expected return on its asset portfolio.

Accepted Answer

A) True 
 B)False

Question 9

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT

Accepted Answer

A) encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. 
B) encouraging banks to limit lending to a single customer to no more than 10% of capital. 
C) the provision of deposit insurance. 
D) the periodic monitoring of banks. 
E) encouraging banks to produce timely accounting statements and reports. 
A) encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. 
B) encouraging banks to limit lending to a single customer to no more than 10% of capital. 
C) the provision of deposit insurance. 
D) the periodic monitoring of banks. 
E) encouraging banks to produce timely accounting statements and reports.

Question 10

Savers increasingly favor investments that closely imitate diversified investments in the direct securities markets over the transformed financial claims offered by traditional FIs.

Accepted Answer

A) True 
 B)False

Question 11

The Community Reinvestment Act and the Home Mortgage Disclosure Act were both passed to provide incentives to comply with

Accepted Answer

A) entry regulation. 
B) credit allocation regulation. 
C) consumer protection regulation. 
D) safety and soundness regulation. 
E) investor protection regulation. 
A) entry regulation. 
B) credit allocation regulation. 
C) consumer protection regulation. 
D) safety and soundness regulation. 
E) investor protection regulation.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) A financial intermediary specializes in the production of information. 
B) A financial intermediary reduces its risk exposure by pooling its assets. 
C) A financial intermediary benefits society by providing a mechanism for payments. 
D) A financial intermediary may act as a broker to bring together funds deficit and funds surplus units. 
E) A financial intermediary acts as a lender of last resort. 
A) A financial intermediary specializes in the production of information. 
B) A financial intermediary reduces its risk exposure by pooling its assets. 
C) A financial intermediary benefits society by providing a mechanism for payments. 
D) A financial intermediary may act as a broker to bring together funds deficit and funds surplus units. 
E) A financial intermediary acts as a lender of last resort.

Question 13

In an attempt to enhance the net social welfare benefits of the services provided by financial intermediaries, safety and soundness regulation requires a DI to hold a minimum level of cash reserves against deposits.

Accepted Answer

A) True 
 B)False

Question 14

The asset transformation function of an FI is to issue primary financial claims to corporations while purchasing secondary claims issued by households and other investors.

Accepted Answer

A) True 
 B)False

Question 15

As a delegated monitor, an FI's actions reduce agency costs.

Accepted Answer

A) True 
 B)False

Question 16

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Accepted Answer

A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets. 
E) Everyone needs money, but not everyone needs steel. 
A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets. 
E) Everyone needs money, but not everyone needs steel.

Question 17

The adverse effects on the economy that can occur because of major disturbances to the special functions or services provided by financial institutions are negative externalities.

Accepted Answer

A) True 
 B)False

Question 18

The origination of a home mortgage loan is considered to be a

Accepted Answer

A) primary transaction, because this is the FI's primary source of business. 
B) secondary transaction, because mortgages are typically resold in the secondary market. 
C) primary transaction, because the mortgage note is a newly created financial asset. 
D) secondary transaction if the sale is for an existing home and a primary transaction if it is for a new home. 
E) derivative transaction because the value of the mortgage note depends on the underlying value of the home. 
A) primary transaction, because this is the FI's primary source of business. 
B) secondary transaction, because mortgages are typically resold in the secondary market. 
C) primary transaction, because the mortgage note is a newly created financial asset. 
D) secondary transaction if the sale is for an existing home and a primary transaction if it is for a new home. 
E) derivative transaction because the value of the mortgage note depends on the underlying value of the home.

Question 19

Which of the following statements about financial technology (FinTech) are true:

Accepted Answer

A) refers to the delivery of financial solutions in a manner that competes with traditional financial methods. 
B) is defined as technology-enabled innovation in financial services that could result in new business models, applications, processes or products. 
C) involves the risk that FinTech firms could disrupt business of financial services in the form of lost customers and lost revenue. 
D) None of the above are true. 
E) A, B, and C are true. 
A) refers to the delivery of financial solutions in a manner that competes with traditional financial methods. 
B) is defined as technology-enabled innovation in financial services that could result in new business models, applications, processes or products. 
C) involves the risk that FinTech firms could disrupt business of financial services in the form of lost customers and lost revenue. 
D) None of the above are true. 
E) A, B, and C are true.

Question 20

The passage of legislation to prevent discrimination in lending is an example of regulation to protect investors.

Accepted Answer

A) True 
 B)False

Exam 1: Why Are Financial Institutions Special

Of the ten largest banks in the world at the beginning of 2015, how many were U.S.banks?

Compared to households, FIs often have economies of scale when purchasing or selling securities issued by businesses and governments.

If a household invests in corporate securities and does not supervise how the funds are invested or used by the corporation, the risk of not earning the desired return or not having the funds returned increase.

Pension and mutual funds have a lower correlation between the maturities of their assets and liabilities than do commercial banks and thrifts.

Commercial banks and finance companies have traditionally served the needs of the residential real estate market.

Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain

Net regulatory burden for FIs is higher because regulators may require the FI to

By diversifying investments, an FI is able to more accurately predict the expected return on its asset portfolio.

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT

Savers increasingly favor investments that closely imitate diversified investments in the direct securities markets over the transformed financial claims offered by traditional FIs.

The Community Reinvestment Act and the Home Mortgage Disclosure Act were both passed to provide incentives to comply with

Which of the following statements is FALSE?

In an attempt to enhance the net social welfare benefits of the services provided by financial intermediaries, safety and soundness regulation requires a DI to hold a minimum level of cash reserves against deposits.

The asset transformation function of an FI is to issue primary financial claims to corporations while purchasing secondary claims issued by households and other investors.

As a delegated monitor, an FI's actions reduce agency costs.

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

The adverse effects on the economy that can occur because of major disturbances to the special functions or services provided by financial institutions are negative externalities.

The origination of a home mortgage loan is considered to be a

Which of the following statements about financial technology (FinTech) are true:

The passage of legislation to prevent discrimination in lending is an example of regulation to protect investors.

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