Deck 3: Non-Bank Financial Institutions

Question 1

The following factors are all reasons for mergers except:

A) finances.
B) economies of scale.
C) business diversification.
D) reduction of debt.

Answer 1

D

Question 2

The financial institution that is a specialist provider of financial and advisory services to companies is a/an:

A) credit union.
B) finance company.
C) building society.
D) investment bank.

Answer 2

D

Question 3

A company may hire a/an ________ to advise on and underwrite its new share issue.

A) loans officer
B) investment banker
C) share analyst
D) treasury officer

Answer 3

B

Question 4

The detailed analysis of a firm's financial statements as part of a possible takeover is called:

A) share analysis.
B) technical analysis.
C) due diligence.
D) project management.

Question 5

When an investment bank helps a company sell large parcels of shares directly to institutional investors,this is called:

A) due diligence.
B) placement.
C) securitisation.
D) underwriting.

Question 6

According to the text,the principal source of income for investment banks is:

A) issuing bank bills.
B) off-balance-sheet business.
C) issuing secondary securities.
D) issuing certificates of deposit.

Question 7

The task of the investment bank in a public issue of new shares is to:

A) offer interim financing to the firm.
B) invest the funds raised in the capital markets.
C) provide advice in designing and pricing a share issue.
D) act as a trustee of the funds raised.

Question 8

If a car manufacturer were to purchase one of the companies listed below,which purchase would be called a horizontal takeover?

A) A steel mill
B) A rival car manufacturer
C) A tyre manufacturer
D) A finance company

Question 9

The process of due diligence involves:

A) underwriting of new equity issues by a company.
B) providing advice to companies on the raising of new equity.
C) detailed analysis of a firm's financial statements.
D) placement of securities to institutional investors.

Question 10

If a car manufacturer were to purchase one of the companies listed below,which purchase would be called a vertical takeover?

A) An electronic components supplier
B) A rival car manufacturer
C) A travel company
D) A finance company

Question 11

Underwriting is when a/an:

A) broker places new share issues with selected financial institutions.
B) investment bank gives advice to a company about a merger.
C) broker or a financial institution guarantees prices on a security issue for a company.
D) investment bank finds funding for a company.

Question 12

Money market corporations (merchant and investment banks)have significantly increased their off-balance-sheet business on account of competition.All of the following are off-balance-sheet activities of investment banks except:

A) mergers and acquisitions.
B) managing project finance undertakings.
C) trading in the short-term money market.
D) strategic risk management advice.

Question 13

Money market corporations:

A) obtain all their funding by issuing bank bills.
B) are generally referred to as investment banks.
C) offer money market deposits to retail clients.
D) sell money market securities to retail clients.

Question 14

The ________ is the company in a merger transaction that is being pursued as a takeover possibility.

A) target company
B) takeover company
C) conglomerate company
D) hostile company

Question 15

Investment banks:

A) are supervised by APRA, since they operate in the banking sector.
B) focus their activities in the bank bill sector and money market.
C) obtain their deposits only from large corporations.
D) are not required to comply with minimum capital adequacy requirements like commercial banks are required to.

Question 16

A conglomerate takeover occurs when:

A) companies from different business areas merge.
B) both parties are similar in size.
C) the merged entity is expected to have large additional value.
D) the management team of the target company is combined with that of the takeover company.

Question 17

The ________ is the company in a merger transaction that tries to merge with or acquire another company.

A) target company
B) takeover company
C) conglomerate company
D) hostile company

Question 18

When an investment bank guarantees a certain price for a company issuing new shares,it is acting as a/an:

A) auctioneer.
B) broker.
C) dealer.
D) underwriter.

Question 19

Venture capital is:

A) funding provided for a new start-up business by a group of investors.
B) providing advice to companies on the raising of new capital.
C) short-term funding provided by banks.
D) placement of securities to institutional investors.

Question 20

Most corporations will seek advice from a/an ______ on possible mergers and acquisitions.

A) investment broker
B) commercial banker
C) accounting firm
D) investment banker

Question 21

The main feature of cash management trusts is:

A) they allow individuals to access the money markets.
B) they provide liquidity and access to funds.
C) that many are associated with stockbrokers and the electronic purchasing and selling of securities by investors.
D) all of the given answers.

Question 22

Since the early 1990s,public unit trusts have seen the largest growth in assets in:

A) cash and deposits.
B) long-term government securities.
C) equities and units in trusts.
D) land and buildings.

Question 23

A developer is promoting a large new suburban shopping centre and decides to establish a publicly listed unit trust to attract investors.Which type of unit trust would likely be established?

A) A mortgage trust
B) A property trust
C) An equity trust
D) A cash management trust

Question 24

Which of the following statements about managed funds is incorrect?

A) The assets of large managed funds may be managed by several professional managers.
B) A mutual fund is required to use the services of a mutual fund custodian.
C) Sources of funds for a managed fund may be in the form of monthly payments.
D) For Australia, recent figures show that the statutory funds of life offices have the largest amounts of assets under management.

Question 25

The financial institution that pools funds for individuals and then invests them in both the money and capital markets is a:

A) savings bank.
B) credit union.
C) investment bank.
D) managed fund.

Question 26

An investor who wishes to save for their retirement in 20 years' time and who has a high propensity for taking risk is likely to invest in a managed fund which invests in government securities and:

A) cash deposits.
B) some property.
C) debentures.
D) foreign equities.

Question 27

The main advantage of a listed trust over an unlisted unit trust is that a listed trust:

A) has a trustee but an unlisted trust does not.
B) can be sold at any time by the unit holder in the marketplace.
C) invests in equities, while an unlisted trust invests only in fixed interest.
D) invests in equities, while an unlisted trust invests in property.

Question 28

Which of the following statements is NOT a feature of unit trusts?

A) Unit trusts are companies that accept funds from investors and make investments that yield returns in the form of income and/or capital gains.
B) The market determines the value of a listed unit trust.
C) Unlisted unit trusts are generally highly liquid as they can accept money from investors at any time.
D) The number of listed property trusts is far larger than the number of listed equity trusts.

Question 29

A managed fund that is established under a trust deed and is managed by a responsible entity is called a:

A) mutual fund.
B) trust fund.
C) trustee fund.
D) investment fund.

Question 30

The majority of securities owned by unlisted public unit trusts are:

A) real physical assets.
B) money market securities.
C) capital market securities.
D) fixed interest trusts.

Question 31

Funds under management by managed funds in 2010 have a value of:

A) $345b.
B) $500b.
C) $1000b.
D) $1666b.

Question 32

Managed fund managers:

A) invest funds according to their fund's trust deed.
B) generally reinvest income and any capital gains in the fund.
C) will usually maintain a diversified portfolio of assets within the asset classes.
D) all of the given answers.

Question 33

The function of a ________ is to provide income for employees of corporations or governments after they retire.

A) building society
B) credit union
C) general insurer
D) superannuation fund

Question 34

The largest proportion of funds held by cash management funds in Australia is in:

A) cash and deposits.
B) bills of exchange.
C) promissory notes and CDs.
D) bills of exchange and CDs.

Question 35

Superannuation funds that aim at delivering a longer term income stream and capital appreciation by acquiring a diversified asset portfolio across a wider risk spectrum are classified as:

A) managed growth funds.
B) capital guaranteed funds.
C) balanced growth funds.
D) capital stable funds.

Question 36

An investor is considering different methods of investment,including a public unit trust.Which of the following is NOT a function of a public unit trust?

A) Acting as a vehicle for the pooling of investor funds
B) Providing a level of investor protection though the appointment of a trustee
C) Allowing small investors access to larger investment opportunities
D) Locking in a trust unit price by listing on the Australian Securities Exchange

Question 37

Which of the following statements is NOT a feature of public unit trusts?

A) The four main classes of trusts are property, equity, mortgage and fixed interest trusts.
B) There was enormous growth in public unit trusts during the 1990s.
C) The majority of mortgages held by a mortgage trust are 'first' mortgages.
D) Property trusts are generally unlisted as they need notice to sell their physical assets.

Question 38

In Australia,listed property trusts dominate over the proportion of unlisted property unit trusts because:

A) the valuations of buildings are larger than share valuations.
B) mortgages on buildings are larger than companies' valuations.
C) listed shares can be more advantageous in terms of liquidity.
D) it reflects the liquid nature of properties.

Question 39

A mutual investment fund that specialises in short-term debt instruments and managed by a financial intermediary is called a:

A) money market fund.
B) cash management trust.
C) certificate of deposit fund.
D) bank bill fund.

Question 40

Essentially,superannuation assets provide:

A) indefinite income when employees stop working.
B) indefinite income as long as employees continue to work.
C) limited income if an employee is injured and unable to work.
D) retirement income for employees.

Question 41

The amount of financial assets held by insurance companies has _______ over the past 20 years.

A) decreased
B) remained stable
C) increased slowly
D) increased dramatically

Question 42

Life insurance companies:

A) are significant investors in equities.
B) invest mainly in debt, which is generally in the form of debentures.
C) are not important suppliers of equity funding.
D) do not match any of these answers.

Question 43

Superannuation funds,because of the ______-term nature of their liabilities,prefer to hold _____-term assets.

A) long, long
B) long, short
C) short, long
D) short, short

Question 44

Recent figures about superannuation assets in Australia show that the largest amounts of assets are in the ____:

A) corporate superannuation funds.
B) industry corporation funds.
C) retail superannuation funds.
D) self-managed superannuation funds.

Question 45

The superannuation fund that involves the amount of benefit paid out on retirement being calculated by a formula based at the time when a person joined the fund is called:

A) a defined benefit fund.
B) an accumulation fund.
C) a defined termination fund.
D) a defined payout fund.

Question 46

The superannuation fund where the amount of funds available at retirement consists of past contributions plus earnings less taxes and expenses is called:

A) a defined benefit fund.
B) an accumulation fund.
C) a defined termination fund.
D) a defined payout fund.

Question 47

Recent figures show the largest proportion of assets held by life insurance companies is:

A) Commonwealth securities.
B) loans and placements.
C) equities and units in trusts.
D) land and buildings.

Question 48

The superannuation fund where the employer must make good a shortfall in the fund when the benefit is to be paid up is a/an:

A) accumulation fund.
B) defined benefit fund.
C) fully funded fund.
D) private fund.

Question 49

Which of the following is NOT an important result of the compulsory guarantee charge implemented in July 1992?

A) The amount of superannuation funds in Australia has increased significantly.
B) The employer contribution SGC increased to 9% from July 2002.
C) The vast majority of retirement savings are invested in superannuation funds.
D) The SGC represents a penalty taxation charge on employers.

Question 50

In an accumulation superannuation fund:

A) the employee is promised an allocated benefit based on earnings and years of service.
B) superannuation income varies depending on how well the plan's investments have performed.
C) if the funds in the plan exceed the promised amount, the excess remains with the issuing firm or institution.
D) all of the earnings' taxes are paid by the employer.

Question 51

All of the following Acts or Bills are relevant to the operation of the Australian superannuation industry except the:

A) Superannuation Industry (Supervision) Act 1993.
B) Income Tax Assessment Act 1936.
C) Superannuation (Agents and Brokers) Act 1984.
D) Superannuation Guarantee Amendment Bill 2011.

Question 52

A private superannuation fund to which an individual makes recurring,predetermined payments for a given number of years into the plan is called a/an:

A) approved deposit scheme.
B) superannuation savings plan.
C) standard superannuation scheme.
D) single premium scheme.

Question 53

Which of the following statements about life insurance companies is false?

A) As inflows of funds are relatively predictable, they have a very stable level of liabilities.
B) Life insurance companies have greatly increased their assets over the past decade.
C) Life insurance companies sell contracts that offer financial cover against premature death.
D) Life insurance companies have large amounts of short-term liquid securities.

Question 54

Which of the following statements is true?

A) Since the 1990s, assets of superannuation funds outside life insurance offices have grown much slower than life insurance office funds.
B) Assets in defined benefit schemes have experienced greater growth than assets in accumulation schemes.
C) The introduction of the Superannuation Guarantee Charge (SGC) policy in 1992 resulted in rapid growth in Australia's superannuation industry throughout the 1990s.
D) Industry superannuation funds are regulated superannuation entities with more than ten members that provide benefits for employees working in the same industry.

Question 55

When an employee makes regular contributions equal to 7% of their salary and their employer also contributes the equivalent of 14% of salary to a superannuation fund that is an accumulation scheme:

A) the final payout benefit is stated when the member joins the fund.
B) the final payout depends upon the investment performance of the fund.
C) payment is specified under the superannuation guarantee legislation.
D) the benefit is paid in the form of a life annuity.

Question 56

In Australia,the prudential supervisor of life insurance offices is:

A) ASIC.
B) APRA.
C) the Reserve Bank of Australia.
D) PSLI.

Question 57

Life insurance offices are providers of superannuation products which make up ______ per cent of the assets of life insurance offices' statutory funds.

A) 57
B) 67
C) 77
D) 87

Question 58

If an individual retires early but wants to retain their superannuation entitlements in a favourable taxation environment,they can hold their eligible superannuation funds in a:

A) single-premium scheme.
B) growing annuity scheme.
C) rollover scheme.
D) termination scheme.

Question 59

A defined benefit plan:

A) is always fully funded, with no shortfall requirement.
B) may have a shortfall, but the Commonwealth government will make good the shortfall.
C) may have a shortfall, but the employer will make good the shortfall.
D) is where the employee bears the risk if the performance of the investment is bad.

Question 60

Which of the following statements with regard to life insurance companies is true?

A) Life insurance companies are more likely to acquire short-term assets than long-term securities, for liquidity reasons.
B) Life insurance companies are more likely to acquire long-term assets because their liabilities are long-term in nature.
C) Life insurance companies tend to acquire short-term assets because they have relatively predictable inflows and outflows.
D) The Reserve Bank of Australia regulates life insurance companies.

Question 61

By the end of the 1990s,there had been a substantial contraction in the building society sector.What is the principal reason for this contraction in building societies?

A) Loss of confidence in building societies by individual investors
B) Conversion of building societies to banks
C) Increased cost of regulation by the Australian Prudential Regulation Authority (APRA)
D) Rationalisation through the merger of small building societies

Question 62

In Australia there has been a substantial expansion of assets in the life insurance industry.Which of the following factors is one of the primary reasons for this?

A) Increased confidence in life policies by individual investors
B) Growth in superannuation funds
C) Decreased cost of regulation by the Australian Financial Institutions Commission
D) Rationalisation through mergers of small life insurance companies

Question 63

Finance companies generally:

A) issue shares and use the proceeds to buy bonds.
B) raise funds in financial markets to lend to households and companies.
C) raise funds from banks to lend to households and companies.
D) issue bonds and use the proceeds to buy shares.

Question 64

General insurance companies hold:

A) a smaller number of short-term assets than life insurance companies.
B) a greater number of short-term assets than life insurance companies.
C) approximately the same number of short-term assets as life insurance companies.
D) only long-term assets.

Question 65

In relation to insurance for term-life policies with a stepped premium over time,the policy holder pays premiums:

A) based on current market rates.
B) that increase gradually over time.
C) based on increases in inflation.
D) based on indexing the sum insured.

Question 66

For motor vehicle insurance,a third party policy means:

A) the policy covers damage to the named vehicle plus any damage to any third party vehicle or party.
B) the policy covers damage to both parties.
C) the policy covers damage or loss to a third party or property only.
D) the policy covers damage to the named vehicle plus any theft.

Question 67

In a/an _____ insurance policy,there is no savings component.

A) term
B) variable
C) whole
D) endowment

Question 68

Life insurance companies attract a large proportion of their funds through regular premiums from policy holders.In regard to the matching principle,what types of assets would an insurance company hold the smallest proportions of?

A) Equity investments
B) Debentures and notes
C) Housing loan mortgages
D) Money market securities

Question 69

Since deregulation of the financial markets in the 1980s,finance companies have seen the largest growth in their assets in:

A) bills of exchange.
B) local government securities.
C) placements and deposits.
D) loans to businesses.

Question 70

A fund that aims to achieve high investment returns by using exotic financial products is called a:

A) a hedge fund.
B) project fund.
C) money market fund.
D) leverage fund.

Question 71

A major difference between a whole-of-life insurance policy and a term-life policy is:

A) a whole-of-life policy is long-term, whereas a term policy is only for a term of one year.
B) a term policy has an investment component, specified only for the term.
C) only a whole-of-life policy has an investment part.
D) term policies only pay bonuses at the end of the term, unlike the whole-of-life policy, which pays them out immediately as they are accumulated.

Question 72

Which of the following statements is NOT a feature of finance companies?

A) Finance companies came into existence in response to regulations on interest rates.
B) Finance companies sell unsecured notes and use the funds to make loans to borrowers.
C) The majority of finance companies' funds are sourced from banks.
D) Today the banks own many large finance companies.

Question 73

A portfolio manager for a general insurance company who expects a downturn in the markets is likely to shift more of the company's portfolio into:

A) common stock.
B) long-term corporate bonds.
C) preference shares.
D) short-term securities.

Question 74

Finance companies use their funds to provide:

A) loans to individuals.
B) instalment credit to finance retail sales to retail stores.
C) lease financing.
D) all of the given answers.

Question 75

A life insurance company that sells a large number of ________ will need a large portion of liquid assets to match the liabilities.

A) whole-of-life policies
B) 20-year-term policies
C) annuities
D) one-year renewable term policies

Question 76

Which of the following statement about building societies in Australia is incorrect?

A) The main activities of building societies are to take in deposits and provide mortgage finance.
B) The largest building societies have tended to convert to regional banks in recent times.
C) Now currently the building society sector holds 2 per cent of the total assets of the Australian financial system.
D) Building societies are authorised deposit-taking institutions and supervised by APRA.

Question 77

General insurance companies hold more liquid assets than life insurance companies because:

A) they have a legal requirement to do so.
B) events such as fires and earthquakes are difficult to predict.
C) more people try to get payouts from them by fraud.
D) there are more items covered under a general insurance policy so there are more payouts to the insured.

Question 78

A hedge fund that takes a short position in equity markets:

A) will sell forward shares.
B) will buy a derivative that they expect will increase in price.
C) will buy shares.
D) is expecting the markets to increase.

Question 79

Which of the following does NOT apply to a whole-of-life insurance policy?

A) It includes an investment component
B) It is a long-term insurance policy
C) It may pay a bonus if surplus investment returns are generated
D) Premiums reduce over time owing to accumulated bonuses

Question 80

A hedge fund that takes a long position in the Australian foreign exchange market is forecasting Australian foreign currency will:

A) decrease.
B) increase.
C) stay the same.
D) decrease in the long-term.