Question 1

Each of the following is a special function performed by FIs at a macro level EXCEPT

Accepted Answer

A) transmission of monetary policy. 
B) credit allocation. 
C) intergenerational wealth transfers or time intermediation. 
D) denomination intermediation. 
E) interbank lending and investing. 
A) transmission of monetary policy. 
B) credit allocation. 
C) intergenerational wealth transfers or time intermediation. 
D) denomination intermediation. 
E) interbank lending and investing.

Question 2

The efficiency with which FIs provide payment services directly benefits the economy.

Accepted Answer

A) True 
 B)False

Question 3

FIs are independent market entities that create financial assets whose value is the transformation of financial risk.

Accepted Answer

A) True 
 B)False

Question 4

Investment companies are successful in attracting business away from banks and insurance companies primarily because they

Accepted Answer

A) guarantee higher rates of return on savers' funds. 
B) remove interest rate risk for the saver. 
C) have no liquidity risk. 
D) give savers cheaper access to the direct securities markets. 
E) offer lower loan rates. 
A) guarantee higher rates of return on savers' funds. 
B) remove interest rate risk for the saver. 
C) have no liquidity risk. 
D) give savers cheaper access to the direct securities markets. 
E) offer lower loan rates.

Question 5

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 6

The asset transformation function of FIs typically involves

Accepted Answer

A) receipt of securities through electronic payments systems. 
B) altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. 
C) granting loans to transform funds deficit units into funds surplus units. 
D) investing short-term funds in off-balance sheet activities. 
E) transferring of funds from one generation to another. 
A) receipt of securities through electronic payments systems. 
B) altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. 
C) granting loans to transform funds deficit units into funds surplus units. 
D) investing short-term funds in off-balance sheet activities. 
E) transferring of funds from one generation to another.

Question 7

Credit allocation regulations are typically designed to benefit customers as well as the financial institution that must implement the guidelines.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following refers to the term "maturity intermediation"?

Accepted Answer

A) Creation of a secondary market mature enough to withstand volatility. 
B) Overcoming constraints to buying assets imposed by large minimum denomination size. 
C) Mismatching the maturities of assets and liabilities. 
D) Reducing information costs or imperfections between households and corporations. 
E) The transfer of wealth from one generation to the next. 
A) Creation of a secondary market mature enough to withstand volatility. 
B) Overcoming constraints to buying assets imposed by large minimum denomination size. 
C) Mismatching the maturities of assets and liabilities. 
D) Reducing information costs or imperfections between households and corporations. 
E) The transfer of wealth from one generation to the next.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Savers increasingly favour 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 13

Financial institutions are subject to economies of scale in the collection of information.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is NOT a major function of financial intermediaries?

Accepted Answer

A) Brokerage services. 
B) Asset transformation services. 
C) Information production. 
D) Management of the nation's money supply. 
E) Administration of the payments mechanism. 
A) Brokerage services. 
B) Asset transformation services. 
C) Information production. 
D) Management of the nation's money supply. 
E) Administration of the payments mechanism.

Question 15

Financial intermediaries are

Accepted Answer

A) funds surplus units, because they exist to make money. 
B) funds deficit units, because they must pay heavy regulatory fees and taxes. 
C) funds surplus units, because they hold large portfolios of financial securities. 
D) funds deficit units, because they must comply with minimum capital requirements. 
E) neither funds surplus nor deficit units. 
A) funds surplus units, because they exist to make money. 
B) funds deficit units, because they must pay heavy regulatory fees and taxes. 
C) funds surplus units, because they hold large portfolios of financial securities. 
D) funds deficit units, because they must comply with minimum capital requirements. 
E) neither funds surplus nor deficit units.

Question 16

If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.

Accepted Answer

A) True 
 B)False

Question 17

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

Accepted Answer

A) True 
 B)False

Question 18

Financial institutions act as intermediaries between suppliers and demanders of money.

Accepted Answer

A) True 
 B)False

Question 19

Research shows that there is a significant reduction in risk achieved by investing in as few as 8 different securities.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 1: Why Are Financial Institutions Special

Each of the following is a special function performed by FIs at a macro level EXCEPT

The efficiency with which FIs provide payment services directly benefits the economy.

FIs are independent market entities that create financial assets whose value is the transformation of financial risk.

Investment companies are successful in attracting business away from banks and insurance companies primarily because they

Which of the following statements is FALSE?

The asset transformation function of FIs typically involves

Credit allocation regulations are typically designed to benefit customers as well as the financial institution that must implement the guidelines.

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

Which of the following refers to the term "maturity intermediation"?

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

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

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

Financial institutions are subject to economies of scale in the collection of information.

Which of the following is NOT a major function of financial intermediaries?

Financial intermediaries are

If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.

Small investors in mutual funds are often able to realize larger returns than they would receive from bank deposits.

Financial institutions act as intermediaries between suppliers and demanders of money.

Research shows that there is a significant reduction in risk achieved by investing in as few as 8 different securities.

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.

Deposit-Taking Institutions

Finance Companies

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

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

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 Index

Filters