Question 1

Which of the following serve as an asset for depository institutions?

Accepted Answer

A) small time and saving deposits 
B) checkable deposits 
C) large time deposits 
D) reserves at the Fed 
A) small time and saving deposits 
B) checkable deposits 
C) large time deposits 
D) reserves at the Fed

Question 2

Which type of deposit allows the deposit claims to be withdrawn by writing a check?

Accepted Answer

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

Question 3

In general, the main variance among FIs is which of the following?

Accepted Answer

A) the risks associated with borrowing 
B) the risks associated with lending 
C) the composition of their balance sheet 
D) is becoming more significant over time 
A) the risks associated with borrowing 
B) the risks associated with lending 
C) the composition of their balance sheet 
D) is becoming more significant over time

Question 4

__________ are deposits that can be exchanged for currency and that are used to make payments through writing a check or making an electronic transfer.

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 5

The risk that the value of long-term assets in my portfolio will fall when interest rates rise is which of the following?

Accepted Answer

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

Question 6

A bank's liquidity needs can best be satisfied by holding

Accepted Answer

A) small business loans. 
B) Treasury bills. 
C) long-term Treasury securities. 
D) both small business loans and long-term Treasury securities. 
A) small business loans. 
B) Treasury bills. 
C) long-term Treasury securities. 
D) both small business loans and long-term Treasury securities.

Question 7

Which of the following is the risk involved with unanticipated changes in the return on assets and the cost of liabilities?

Accepted Answer

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

Question 8

Which of the following FIs would not hold corporate equities (stock)?

Accepted Answer

A) commercial bank 
B) pension fund 
C) life insurance company 
D) casualty insurance company 
A) commercial bank 
B) pension fund 
C) life insurance company 
D) casualty insurance company

Question 9

Which of the following make up a large portion of the liabilities held by depository institutions?

Accepted Answer

A) savings bonds 
B) corporate stocks 
C) deposits 
D) foreign financial assets 
A) savings bonds 
B) corporate stocks 
C) deposits 
D) foreign financial assets

Question 10

Which of the following are offered by a commercial bank?

Accepted Answer

A) business loans 
B) checking accounts 
C) savings accounts 
D) All of the above are offered by commercial banks. 
A) business loans 
B) checking accounts 
C) savings accounts 
D) All of the above are offered by commercial banks.

Question 11

Which of the following can serve as either an asset or a liability for a depository institution?

Accepted Answer

A) customer time and saving deposits 
B) the funds customers borrow 
C) repurchase agreements 
D) reserves 
A) customer time and saving deposits 
B) the funds customers borrow 
C) repurchase agreements 
D) reserves

Question 12

Which of the following risks is of most concern to an insurance company during a natural disaster?

Accepted Answer

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

Question 13

The risk associated with borrowers not repaying financial claims is which of the following?

Accepted Answer

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

Question 14

When the least desirable borrowers pursue a loan most diligently, 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 15

Which of the following intermediaries is likely to hold the largest percentage of assets in consumer loans?

Accepted Answer

A) commercial banks 
B) savings associations 
C) credit unions 
D) finance companies 
A) commercial banks 
B) savings associations 
C) credit unions 
D) finance companies

Question 16

In the past 25 years, the total assets of credit unions have

Accepted Answer

A) declined. 
B) increased. 
C) remained the same. 
D) increased during the 1980s, and then declined rapidly in the 1990s. 
A) declined. 
B) increased. 
C) remained the same. 
D) increased during the 1980s, and then declined rapidly in the 1990s.

Question 17

If FIs borrow short-term from depositors and purchase long-term bonds, what risk are they exposed to?

Accepted Answer

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

Question 18

What do an insurance company and a commercial bank have in common?

Accepted Answer

A) Both are financial intermediaries. 
B) Both link net borrowers with net lenders. 
C) Both provide the public with a wide range of financial services. 
D) All of the above are correct. 
A) Both are financial intermediaries. 
B) Both link net borrowers with net lenders. 
C) Both provide the public with a wide range of financial services. 
D) All of the above are correct.

Question 19

An example of default risk is

Accepted Answer

A) a borrower refusing to make his car payments. 
B) a change in the interest rate such that a borrower pays off her mortgage loan early. 
C) a change in the exchange rate such that an FI's foreign assets lose value in dollar terms. 
D) an FI's inability to make payments without first selling long-term assets. 
A) a borrower refusing to make his car payments. 
B) a change in the interest rate such that a borrower pays off her mortgage loan early. 
C) a change in the exchange rate such that an FI's foreign assets lose value in dollar terms. 
D) an FI's inability to make payments without first selling long-term assets.

Question 20

Which of the following intermediaries offers contingent claims?

Accepted Answer

A) casualty insurance companies 
B) pension plans 
C) life insurance companies 
D) All of the above offer contingent claims. 
A) casualty insurance companies 
B) pension plans 
C) life insurance companies 
D) All of the above offer contingent claims.

Exam 8: An Introduction to Financial Intermediaries and Risk

Which of the following serve as an asset for depository institutions?

Which type of deposit allows the deposit claims to be withdrawn by writing a check?

In general, the main variance among FIs is which of the following?

__________ are deposits that can be exchanged for currency and that are used to make payments through writing a check or making an electronic transfer.

The risk that the value of long-term assets in my portfolio will fall when interest rates rise is which of the following?

A bank's liquidity needs can best be satisfied by holding

Which of the following is the risk involved with unanticipated changes in the return on assets and the cost of liabilities?

Which of the following FIs would not hold corporate equities (stock)?

Which of the following make up a large portion of the liabilities held by depository institutions?

Which of the following are offered by a commercial bank?

Which of the following can serve as either an asset or a liability for a depository institution?

Which of the following risks is of most concern to an insurance company during a natural disaster?

The risk associated with borrowers not repaying financial claims is which of the following?

When the least desirable borrowers pursue a loan most diligently, lenders are faced with a/an

Which of the following intermediaries is likely to hold the largest percentage of assets in consumer loans?

In the past 25 years, the total assets of credit unions have

If FIs borrow short-term from depositors and purchase long-term bonds, what risk are they exposed to?

What do an insurance company and a commercial bank have in common?

An example of default risk is

Which of the following intermediaries offers contingent claims?

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

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