Question 1

Why do financial intermediaries 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 2

Which of the following intermediaries is most likely to hold the largest percentage of liabilities in commercial paper and corporate bonds?

Accepted Answer

A) life insurance companies 
B) private pension funds 
C) casualty companies 
D) finance companies 
A) life insurance companies 
B) private pension funds 
C) casualty companies 
D) finance companies

Question 3

Major sources of funds for savings associations include which of the following?

Accepted Answer

A) time deposits 
B) checkable deposits 
C) savings deposits 
D) All of the above are correct. 
A) time deposits 
B) checkable deposits 
C) savings deposits 
D) All of the above are correct.

Question 4

The FIRREA of 1989 was passed because of which of the following?

Accepted Answer

A) the Savings and Loan Crisis 
B) the 1988 presidential elections 
C) the 1987 Banking Deregulation Act 
D) the strengthening of the dollar 
A) the Savings and Loan Crisis 
B) the 1988 presidential elections 
C) the 1987 Banking Deregulation Act 
D) the strengthening of the dollar

Question 5

Which of the following is not directly offered by a commercial bank?

Accepted Answer

A) electronic funds transfers 
B) credit cards 
C) financial guarantees 
D) insurance services 
A) electronic funds transfers 
B) credit cards 
C) financial guarantees 
D) insurance services

Question 6

Which of the following is a regulatory restriction on financial intermediaries?

Accepted Answer

A) Savings and loans cannot acquire common stock in publicly held corporations. 
B) Financial intermediaries currently have ceilings on interest rates. 
C) Banks cannot currently have branches in more than three states. 
D) All of the above are correct. 
A) Savings and loans cannot acquire common stock in publicly held corporations. 
B) Financial intermediaries currently have ceilings on interest rates. 
C) Banks cannot currently have branches in more than three states. 
D) All of the above are correct.

Question 7

Asymmetric information, adverse selection, and moral hazard all lead to an increase in a bank's

Accepted Answer

A) default risk. 
B) interest rate risk. 
C) liquidity risk. 
D) foreign exchange risk. 
A) default risk. 
B) interest rate risk. 
C) liquidity risk. 
D) foreign exchange risk.

Question 8

The most significant overall economic function of FIs is to

Accepted Answer

A) provide checking accounts. 
B) strengthen the dollar. 
C) simplify borrowing and lending resulting in the proper allocation of resources to capital. 
D) provide services for government. 
A) provide checking accounts. 
B) strengthen the dollar. 
C) simplify borrowing and lending resulting in the proper allocation of resources to capital. 
D) provide services for government.

Question 9

Most savings banks are located in the

Accepted Answer

A) midwest. 
B) southwest. 
C) east. 
D) south. 
A) midwest. 
B) southwest. 
C) east. 
D) south.

Question 10

An adverse selection problem

Accepted Answer

A) increases the risk of default. 
B) decreases the risk of default. 
C) invites the borrower to engage in a riskier venture. 
D) can be resolved by the lender gaining more information about what the loan will be used for. 
A) increases the risk of default. 
B) decreases the risk of default. 
C) invites the borrower to engage in a riskier venture. 
D) can be resolved by the lender gaining more information about what the loan will be used for.

Question 11

Which type of deposit charges a penalty if funds are withdrawn before scheduled maturity?

Accepted Answer

A) transaction 
B) time 
C) savings 
D) None of the above is correct. 
A) transaction 
B) time 
C) savings 
D) None of the above is correct.

Question 12

The largest source of funds for commercial banks is which of the following?

Accepted Answer

A) deposits 
B) loans 
C) fed funds 
D) borrowings 
A) deposits 
B) loans 
C) fed funds 
D) borrowings

Question 13

If FIs hold foreign financial assets, they are exposed to what risk?

Accepted Answer

A) default risk 
B) liquidity risk 
C) exchange rate risk 
D) interest rate risk 
A) default risk 
B) liquidity risk 
C) exchange rate risk 
D) interest rate risk

Question 14

Many of which of the following are nonprofit, tax-exempt, cooperative associations?

Accepted Answer

A) S&Ls 
B) credit unions 
C) savings banks 
D) commercial banks 
A) S&Ls 
B) credit unions 
C) savings banks 
D) commercial banks

Question 15

The _______________________ best describes a situation where the least desirable individuals are the same individuals who pursue a loan most diligently.

Accepted Answer

A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) All of the above are correct. 
A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) All of the above are correct.

Question 16

A difference between credit unions and commercials banks is that

Accepted Answer

A) credit unions are tax exempt 
B) credit unions are not regulated by the federal government 
C) credit unions do not offer transactions deposits 
D) commercial banks are tax exempt 
A) credit unions are tax exempt 
B) credit unions are not regulated by the federal government 
C) credit unions do not offer transactions deposits 
D) commercial banks are tax exempt

Question 17

Which depository institution is considered a thrift?

Accepted Answer

A) S&Ls 
B) savings banks 
C) credit unions 
D) All of the above are considered thrifts. 
A) S&Ls 
B) savings banks 
C) credit unions 
D) All of the above are considered thrifts.

Question 18

Which FIs are not considered depository institutions?

Accepted Answer

A) commercial banks 
B) mutual funds 
C) credit unions 
D) S&Ls 
A) commercial banks 
B) mutual funds 
C) credit unions 
D) S&Ls

Question 19

Savings banks were developed to

Accepted Answer

A) help finance the construction of homes. 
B) help finance international trade. 
C) help finance large business loans. 
D) provide small loans to consumers. 
A) help finance the construction of homes. 
B) help finance international trade. 
C) help finance large business loans. 
D) provide small loans to consumers.

Question 20

By definition, credit union members must share a common bond; therefore a credit union can cater to

Accepted Answer

A) an employer 
B) a church 
C) a labor union 
D) All of the above 
A) an employer 
B) a church 
C) a labor union 
D) All of the above

Exam 8: An Introduction to Financial Intermediaries and Risk

Why do financial intermediaries provide the public with a wide range of financial services?

Which of the following intermediaries is most likely to hold the largest percentage of liabilities in commercial paper and corporate bonds?

Major sources of funds for savings associations include which of the following?

The FIRREA of 1989 was passed because of which of the following?

Which of the following is not directly offered by a commercial bank?

Which of the following is a regulatory restriction on financial intermediaries?

Asymmetric information, adverse selection, and moral hazard all lead to an increase in a bank's

The most significant overall economic function of FIs is to

Most savings banks are located in the

An adverse selection problem

Which type of deposit charges a penalty if funds are withdrawn before scheduled maturity?

The largest source of funds for commercial banks is which of the following?

If FIs hold foreign financial assets, they are exposed to what risk?

Many of which of the following are nonprofit, tax-exempt, cooperative associations?

The _______________________ best describes a situation where the least desirable individuals are the same individuals who pursue a loan most diligently.

A difference between credit unions and commercials banks is that

Which depository institution is considered a thrift?

Which FIs are not considered depository institutions?

Savings banks were developed to

By definition, credit union members must share a common bond; therefore a credit union can cater to

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