Question 1

An interest-earning checking account issued by a credit union is which of the following?

Accepted Answer

A) a share draft account 
B) a NOW account 
C) a demand deposit 
D) a passbook savings deposit 
A) a share draft account 
B) a NOW account 
C) a demand deposit 
D) a passbook savings deposit A

Question 2

The text discusses all of the following types of risk except

Accepted Answer

A) interest rate risk. 
B) exchange rate risk. 
C) purchasing power risk. 
D) credit risk. 
A) interest rate risk. 
B) exchange rate risk. 
C) purchasing power risk. 
D) credit risk. C

Question 3

Financial intermediaries are in debt to

Accepted Answer

A) net lenders. 
B) net borrowers. 
C) only other intermediaries. 
D) the U.S. Treasury. 
A) net lenders. 
B) net borrowers. 
C) only other intermediaries. 
D) the U.S. Treasury. A

Question 4

Which of the following institutions would be least likely to hold municipal securities?

Accepted Answer

A) commercial bank 
B) credit union 
C) life insurance company 
D) casualty insurance company 
A) commercial bank 
B) credit union 
C) life insurance company 
D) casualty insurance company

Question 5

When a potential borrower knows more about the risks and returns of an investment project than the bank loan officer, lenders are faced with a/an

Accepted Answer

A) adverse selection problem. 
B) asymmetric information problem. 
C) moral hazard problem. 
D) None of the above are correct. 
A) adverse selection problem. 
B) asymmetric information problem. 
C) moral hazard problem. 
D) None of the above are correct.

Question 6

Casualty and life insurance benefits that over time offer the public protection from the often catastrophic financial effects of theft, accidents, natural disasters, and death are called

Accepted Answer

A) contingent claims. 
B) savings deposits. 
C) time deposits. 
D) transactions deposits. 
A) contingent claims. 
B) savings deposits. 
C) time deposits. 
D) transactions deposits.

Question 7

Why are deposit-type FIs important in the nation's money supply?

Accepted Answer

A) only their assets are used as money 
B) they are all nationally chartered and therefore members of the Federal Reserve System 
C) their deposit liabilities are checkable deposits 
D) they have no liabilities 
A) only their assets are used as money 
B) they are all nationally chartered and therefore members of the Federal Reserve System 
C) their deposit liabilities are checkable deposits 
D) they have no liabilities

Question 8

When regulating FIs, government regulators are concerned with which of the following?

Accepted Answer

A) providing adequate profit margins for FIs to prevent their failure 
B) establishing new financial data 
C) promoting competition, soundness, and safety in financial services 
D) Both a and c are correct. 
A) providing adequate profit margins for FIs to prevent their failure 
B) establishing new financial data 
C) promoting competition, soundness, and safety in financial services 
D) Both a and c are correct.

Question 9

__________ is the risk that changes in the exchange rate will cause the dollar value of foreign exchange or foreign financial assets to fall.

Accepted Answer

A) Default risk 
B) Exchange rate risk 
C) Interest rate risk 
D) Liquidity risk 
A) Default risk 
B) Exchange rate risk 
C) Interest rate risk 
D) Liquidity risk

Question 10

If an intermediary holds foreign financial assets and if the dollar appreciates, ceteris paribus, the dollar value of the foreign exchange will do which of the following?

Accepted Answer

A) increase 
B) decrease 
C) remain the same 
D) increase by decreasing rates 
A) increase 
B) decrease 
C) remain the same 
D) increase by decreasing rates

Question 11

What is the major difference between a savings deposit and a time deposit?

Accepted Answer

A) savings deposits are less liquid 
B) savings deposits can usually be withdrawn on demand whereas time deposits may have a penalty for early withdrawal 
C) savings deposits can be withdrawn by writing a check 
D) savings deposits are not insured by the FDIC 
A) savings deposits are less liquid 
B) savings deposits can usually be withdrawn on demand whereas time deposits may have a penalty for early withdrawal 
C) savings deposits can be withdrawn by writing a check 
D) savings deposits are not insured by the FDIC

Question 12

Which of the following would be an example of interest rate risk?

Accepted Answer

A) An increase in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities. 
B) An increase in interest rates so that the costs of an FI's liabilities increase relative to the return on its assets. 
C) A decrease in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities. 
D) A change in interest rates such that the return on an FI's assets exceeds the costs of its liabilities. 
A) An increase in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities. 
B) An increase in interest rates so that the costs of an FI's liabilities increase relative to the return on its assets. 
C) A decrease in interest rates such that the return on an FI's assets increases relative to the costs of its liabilities. 
D) A change in interest rates such that the return on an FI's assets exceeds the costs of its liabilities.

Question 13

Which of the following intermediaries is likely to hold the largest percentage of assets in corporate and foreign bonds?

Accepted Answer

A) life insurance companies 
B) commercial banks 
C) casualty companies 
D) finance companies 
A) life insurance companies 
B) commercial banks 
C) casualty companies 
D) finance companies

Question 14

Why do FI's provide the public with a wide range of financial services?

Accepted Answer

A) Because intermediaries are required by law to do so. 
B) Because intermediaries are, by and large, profit seeking. 
C) Because intermediaries just like to make people happy. 
D) Because intermediaries are better at appraising the risk of default associated with lending to particular borrowers. 
A) Because intermediaries are required by law to do so. 
B) Because intermediaries are, by and large, profit seeking. 
C) Because intermediaries just like to make people happy. 
D) Because intermediaries are better at appraising the risk of default associated with lending to particular borrowers.

Question 15

Which of the following is false?

Accepted Answer

A) Financial intermediaries have experienced tremendous growth in recent decades and have become relatively more important than direct financing that bypasses intermediaries. 
B) Financial intermediaries have become less specialized over time. 
C) Depository institutions are the most important type of financial intermediary. 
D) Financial intermediaries have become more diversified and offered the public a wider range of financial services. 
A) Financial intermediaries have experienced tremendous growth in recent decades and have become relatively more important than direct financing that bypasses intermediaries. 
B) Financial intermediaries have become less specialized over time. 
C) Depository institutions are the most important type of financial intermediary. 
D) Financial intermediaries have become more diversified and offered the public a wider range of financial services.

Question 16

Which of the following would be considered a financial claim against a financial intermediary?

Accepted Answer

A) deposits 
B) business loans 
C) reserves 
D) government securities 
A) deposits 
B) business loans 
C) reserves 
D) government securities

Question 17

Savings and loan associations were developed to primarily help

Accepted Answer

A) finance international trade. 
B) promote large business loans. 
C) finance the construction and purchase of new housing. 
D) provide insurance services. 
A) finance international trade. 
B) promote large business loans. 
C) finance the construction and purchase of new housing. 
D) provide insurance services.

Question 18

A bank's success depends in particular upon

Accepted Answer

A) its ability to attract transaction deposits 
B) its ability to attract savings deposits 
C) its ability to attract time deposits 
D) All of the above are correct. 
A) its ability to attract transaction deposits 
B) its ability to attract savings deposits 
C) its ability to attract time deposits 
D) All of the above are correct.

Question 19

The largest single class of investors in equities is which of the following?

Accepted Answer

A) credit unions 
B) savings associations 
C) commercial banks 
D) pension funds 
A) credit unions 
B) savings associations 
C) commercial banks 
D) pension funds

Question 20

The major use of funds for savings associations is which of the following?

Accepted Answer

A) acquiring mortgage loans 
B) purchasing corporate stocks 
C) purchasing United States saving bonds 
D) acquiring small business loans 
A) acquiring mortgage loans 
B) purchasing corporate stocks 
C) purchasing United States saving bonds 
D) acquiring small business loans

Exam 8: An Introduction to Financial Intermediaries and Risk

An interest-earning checking account issued by a credit union is which of the following?

The text discusses all of the following types of risk except

Financial intermediaries are in debt to

Which of the following institutions would be least likely to hold municipal securities?

When a potential borrower knows more about the risks and returns of an investment project than the bank loan officer, lenders are faced with a/an

Casualty and life insurance benefits that over time offer the public protection from the often catastrophic financial effects of theft, accidents, natural disasters, and death are called

Why are deposit-type FIs important in the nation's money supply?

When regulating FIs, government regulators are concerned with which of the following?

__________ is the risk that changes in the exchange rate will cause the dollar value of foreign exchange or foreign financial assets to fall.

If an intermediary holds foreign financial assets and if the dollar appreciates, ceteris paribus, the dollar value of the foreign exchange will do which of the following?

What is the major difference between a savings deposit and a time deposit?

Which of the following would be an example of interest rate risk?

Which of the following intermediaries is likely to hold the largest percentage of assets in corporate and foreign bonds?

Why do FI's provide the public with a wide range of financial services?

Which of the following is false?

Which of the following would be considered a financial claim against a financial intermediary?

Savings and loan associations were developed to primarily help

A bank's success depends in particular upon

The largest single class of investors in equities is which of the following?

The major use of funds for savings associations is which of the following?

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

Filters