Deck 21: Thrift Operations

Question 1

If deposits move money from their checking account to short-term CDs, this would ____ the rate-sensitivity of the savings institution's liabilities to interest rate movements.

A)increase
B)have no effect on
C)decrease
D)A or C, depending on the size of the savings institution

Answer 1

A

Question 2

Which of the following statements is incorrect?

A)A mutual-to-stock conversion allows savings institutions to obtain additional capital by issuing stock.
B)Because of the difference in owner control, mutual savings institutions are more susceptible to unfriendly takeovers.
C)When a mutual savings institution is involved in an acquisition, it first converts to a stock-owned savings institution.
D)Consolidation and acquisitions have caused the number of mutual and stock savings institutions to decline consistently over the years.

Answer 2

B

Question 3

The ____ savings institutions hold the most assets in aggregate.

A)stock owned
B)mutual
C)closely-held
D)privatized

Answer 3

A

Question 4

Most mortgages originated by SIs are for

A)commercial buildings.
B)land for commercial purposes.
C)single-family homes or multifamily dwellings.
D)none of the above.

Question 5

____ are the primary asset of savings institutions.

A)Mortgages
B)Cash balances
C)Investment securities
D)Business loans

Question 6

Adjustable-rate mortgages ____ of rising interest rates on a typical savings institution's spread.They ____ of declining interest rates on the spread.

A)reduce the adverse impact; reduce the favorable impact
B)reduce the adverse impact; increase the favorable impact
C)increase the adverse impact; increase the favorable impact
D)increase the adverse impact; reduce the favorable impact

Question 7

A contract that allows for the purchase of a specified debt security for a specified price at a future point in time is known as a(n)

A)interest rate futures contract.
B)interest rate swap contract.
C)interest cap contract.
D)security swap contract.

Question 8

When savings institutions are unable to attract sufficient deposits, they can

A)borrow in the federal funds market.
B)borrow from the Federal Reserve.
C)borrow through a repurchase agreement.
D)all of the above

Question 9

Which of the following is not an asset of savings institutions?

A)loans
B)mortgages
C)NOW accounts
D)mortgage-backed securities

Question 10

If a savings institutions' assets have considerably longer duration than its liabilities, it can reduce its exposure to interest rate risk by

A)reducing its proportion of assets in the short duration categories.
B)increasing its proportion of liabilities in the short duration categories.
C)increasing its proportion of liabilities in the long duration category.
D)A and B

Question 11

Savings institutions use most of their funds for ____.Commercial banks use most of their funds for ____.

A)mortgages; mortgages
B)mortgages; business loans and commercial real estate loans
C)business loans; commercial real estate loans and mortgages
D)commercial real estate loans and mortgages; business loans

Question 12

For savings institutions in aggregate, ____ are the main asset.

A)investment securities
B)mortgages
C)commercial loans
D)credit card loans

Question 13

Savings institutions obtain most of their funds from

A)savings and time deposits.
B)loans.
C)mortgages.
D)repurchase agreements.

Question 14

An interest rate swap reduces the favorable impact of declining interest rates.

Question 15

To measure ____ risk, some SIs measure the duration of their respective assets and liabilities.

A)credit
B)interest rate
C)liquidity
D)none of the above

Question 16

When a savings institution uses interest rate swaps to hedge interest rate risk, it would likely exchange ____ outflows for ____ inflows.

A)variable-rate; fixed-rate
B)variable-rate; variable-rate
C)fixed-rate; variable-rate
D)fixed-rate; fixed-rate

Question 17

The capital of SIs is primarily composed of retained earnings and funds obtained from issuing stock.

Question 18

Federally-chartered savings institutions are regulated by the

A)Securities and Exchange Commission (SEC).
B)Federal Reserve.
C)Office of Thrift Supervision (OTS).
D)Comptroller of the Currency.

Question 19

Savings institutions that reduce their amount of ____ will best reduce their exposure to interest rate risk.

A)fixed-rate mortgages
B)consumer loans
C)commercial loans
D)short-term securities

Question 20

The insuring agency for S&Ls is the

A)Securities and Exchange Commission (SEC).
B)Federal Deposit Insurance Corporation (FDIC).
C)U.S.Treasury.
D)Savings Association Insurance Fund (SAIF).

Question 21

Because credit unions ____ stock, they are technically owned by the ____.

A)issue; depositors
B)do not issue; depositors
C)issue; stockholders
D)do not issue; management

Question 22

The sensitivity of cost of funds to interest rate movements has been

A)greater for credit unions than savings institutions.
B)greater for credit unions than commercial banks.
C)lower for credit unions than for savings institutions or commercial banks.
D)similar for credit unions as savings institutions and commercial banks.

Question 23

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) prohibited

A)S&Ls from merging.
B)commercial banks from acquiring S&Ls.
C)S&Ls from investing in junk bonds.
D)S&Ls from making loans to foreign governments.

Question 24

The ____ acts as a temporary lender to credit unions.

A)World Bank
B)Central Liquidity Facility
C)Federal Home Loan Bank
D)National Credit Union Administration

Question 25

Which of the following was not a major reason for the savings institution crisis?

A)a large proportion of loan losses on real estate loans
B)a large proportion of loan losses on loans by SIs to less-developed countries
C)fraud
D)illiquidity
E)increased interest expenses

Question 26

Although adjustable-rate mortgages reduce the adverse impact of ____ interest rates, they also reduce the favorable impact of ____ interest rates.

A)rising; rising
B)declining; declining
C)rising; declining
D)declining; rising
E)none of the above

Question 27

____ are non-profit organizations composed of members with a common bond.

A)Credit unions
B)Savings banks
C)Savings and loan associations
D)Commercial banks

Question 28

Most of the assets of savings institutions (SIs) are owned by SIs in the ____ asset size category.

A)less than $100 million
B)more than $1 billion
C)between $100 million and $300 million
D)between $300 million and $1 billion

Question 29

Savings institutions commonly ____ to reduce their risk.

A)purchase futures contracts on stock indexes
B)purchase futures contracts on treasury bonds
C)sell futures contracts on stock indexes
D)sell futures contracts on treasury bonds

Question 30

An SI's cash flows are ____ related to interest rate movements.

A)positively related to
B)negatively related to
C)unrelated to
D)none of the above

Question 31

Money market deposit accounts (MMDAs) represent

A)trust accounts managed by savings institutions.
B)checking accounts that do not pay interest.
C)accounts offered primarily by money market funds.
D)deposit accounts offering limited checking and close-to-market interest rates.

Question 32

The risk that a credit union will experience an unanticipated wave of withdrawals without an offsetting amount of new deposits is ____ risk.

A)credit (default)
B)interest rate
C)liquidity
D)exchange rate
E)none of the above

Question 33

Stock-owned savings institutions ____ susceptible to unfriendly takeovers.Mutual savings institutions ____ susceptible to unfriendly takeovers.

A)are; are not
B)are; are
C)are not; are
D)are not; are not

Question 34

A savings institution owned by its depositors is a ____ savings institution.

A)mutual
B)stock
C)credit
D)closed-end

Question 35

Checkable accounts offered by credit unions are called

A)NOW accounts.
B)money market deposit accounts.
C)share certificates.
D)share drafts.

Question 36

Savings institutions ____ allowed to borrow funds in the federal funds market; savings institutions ____ allowed to borrow funds from the Federal Reserve.

A)are; are
B)are; are not
C)are not; are not
D)are not; are

Question 37

____ risk is probably the least concern for savings institutions.

A)Liquidity
B)Exchange rate
C)Credit
D)Interest rate

Question 38

To obtain funds, savings institutions commonly issue securities that are backed by

A)equity.
B)debt.
C)mortgages.
D)cash.
E)none of the above

Question 39

The primary use of credit union funds is

A)loans to credit union members.
B)the purchase of government securities.
C)the purchase of agency securities.
D)the purchase of corporate bonds.
E)none of the above

Question 40

Credit unions obtain most of their funds from

A)issuing common stock.
B)retained earnings.
C)share deposits by members.
D)issuing long-term bonds.

Question 41

Comparing credit unions with commercial banks and savings institutions

A)credit unions are less able to quickly generate additional deposits.
B)savings institutions and commercial banks can borrow from the Central Liquidity Facility, but credit unions cannot.
C)savings institutions and commercial banks are less able to quickly generate additional deposits.
D)credit unions have less exposure to liquidity risk.

Question 42

According to your text, about ____ percent of credit unions are insured by the National Credit Union Share Insurance Fund.

A)20
B)40
C)60
D)90

Question 43

Deposits at credit unions are called

A)NOW accounts.
B)money market deposit accounts.
C)shares.
D)credit union deposit accounts.

Question 44

Because credit unions do not issue stock, they are technically sole proprietorships.

Question 45

High economic growth results in more risk for a savings institution, since its consumer loans, mortgage loans, and investments in debt securities are more likely to default.

Question 46

In general, when interest rates fall, a savings institution's cost of obtaining funds declines more than the decline in the interest earned on its loans and investments.

Question 47

Credit unions differ from savings institutions in that they use a ____ proportion of their funds for mortgages and are ____ institutions.

A)smaller; non-profit
B)larger; non-profit
C)smaller; for-profit
D)larger; for-profit

Question 48

In general, savings institutions are larger than commercial banks.

Question 49

The National Credit Union Share Insurance Fund (NCUSIF) requires all

A)federal-chartered credit unions to obtain insurance from the NCUSIF.
B)state-chartered credit unions to obtain insurance from the NCUSIF.
C)credit unions to pay an annual supplemental insurance premium each year.
D)depository institutions to pay a supplemental insurance premium each year.

Question 50

Because credit unions' sources and uses of funds are generally interest rate ____, movements in interest revenues and interest expenses of credit unions are ____.

A)sensitive; negatively correlated
B)insensitive; highly correlated
C)sensitive; uncorrelated
D)sensitive; highly correlated
E)insensitive; uncorrelated

Question 51

Today, credit unions are regulated as to the

A)types of services they can offer.
B)rates they offer on deposits.
C)maturity of residential loans they make.
D)size of residential mortgage loans.

Question 52

Credit unions use the majority of their funds to

A)purchase investment securities.
B)provide commercial real estate loans.
C)provide small business loans to members.
D)provide consumer loans to members.

Question 53

Today, savings institutions are not permitted to invest in junk bonds.

Question 54

Savings institutions do not really know the actual maturity of the mortgages they hold and cannot perfectly match the interest rate sensitivity of their assets and liabilities.

Question 55

The majority of maturities on consumer loans offered by credit unions are ____ term, causing income generated on their asset portfolio to be ____ to interest rate movements.

A)long; insensitive
B)short or medium; sensitive
C)long; sensitive
D)short or medium; insensitive

Question 56

Like commercial banks, savings institutions commonly measure the gap between their rate-sensitive assets and rate-sensitive liabilities in order to determine their exposure to credit risk.

Question 57

Federal credit unions are regulated and supervised by the

A)Central Liquidity Facility.
B)National Credit Union Administration.
C)Securities and Exchange Commission.
D)Corporate Credit Union Network.
E)none of the above

Question 58

The maximum insurance per depositor by the National Credit Union Insurance Fund is

A)$100,000.
B)$50,000.
C)$40,000.
D)$25,000.

Question 59

Because savings institutions commonly use long-term liabilities to finance short-term assets, they depend on additional deposits to accommodate withdrawal requests.

Question 60

If credit union members have a particular affiliation with their employers and large layoffs occur, the credit union's exposure to ____ risk may increase.

A)settlement
B)interest rate
C)credit
D)none of the above

Question 61

____ risk is probably the least concern for savings institutions.

A)Liquidity
B)Exchange rate
C)Credit
D)Interest rate

Question 62

Which of the following is not a deposit source of funds for savings institutions?

A)passbook savings
B)retail CDs
C)money market deposit accounts
D)negotiable order of withdrawal (NOW) accounts
E)All of the above are deposit sources of funds for savings institutions.

Question 63

The National Credit Union Administration (NCUA) participates in the creation of new credit unions, as it has the power to grant or revoke charters.

Question 64

From the perspective of a savings institution, although adjustable-rate mortgages reduce the adverse impact of ____ interest rates, they also reduce the favorable impact of ____ interest rates.

A)rising; rising
B)rising; declining
C)declining; rising
D)declining; declining
E)none of the above

Question 65

Federal credit unions are regulated and supervised by the

A)National Credit Union Administration.
B)Central Liquidity Facility.
C)Securities and Exchange Commission.
D)Corporate Credit Union Network.
E)none of the above

Question 66

Credit unions are unregulated as to the types of services they offer.

Question 67

Which of the following is not an advantage of credit unions?

A)They can offer attractive rates to their member savers and borrowers because they are nonprofit and therefore are not taxed.
B)Their noninterest expenses are relatively low, because their labor, office, and furniture are often donated or provided at a very low cost through the affiliation of their members.
C)Their large membership allows them to effectively diversify geographically.
D)All of the above are advantages of credit unions.

Question 68

Credit unions are technically owned by the

A)shareholders.
B)bondholders.
C)government.
D)depositors.
E)none of the above

Question 69

Which of the following is not an objective of a credit union?

A)to satisfy credit union members
B)to act as an intermediary for members by repackaging deposits
C)to provide loans to members who are in need of funds
D)All of the above are objectives of credit unions.

Question 70

The primary source of funds for credit unions is

A)share certificates.
B)share deposits.
C)share drafts.
D)borrowed funds from the Central Liquidity Facility (CLF).
E)none of the above

Question 71

To manage interest rate risk, a savings institution could use

A)fixed-rate mortgages.
B)currency options.
C)interest rate futures contracts.
D)letters of credit.

Question 72

Because credit unions are for-profit organizations, their income is taxable.

Question 73

Credit unions use the majority of their funds to invest in the stock market.

Question 74

Credit unions obtain most of their funds by borrowing from the U.S.government.

Question 75

From a savings institution's point of view, although adjustable-rate mortgages reduce the adverse impact of ____ interest rates, they also reduce the favorable impact of ____ interest rates.

A)rising; rising
B)declining; declining
C)rising; declining
D)declining; rising
E)none of the above

Question 76

____ is not a main use of funds for savings institutions.

A)Capital
B)Mortgages
C)Consumer and commercial loans
D)Mortgage-backed securities

Question 77

____ are not a main source of funds for savings institutions.

A)Deposits
B)Borrowed funds
C)Capital
D)Mortgages

Question 78

____ are the primary asset of savings institutions.

A)Deposits
B)Mortgages
C)Cash
D)Consumer and commercial loans

Question 79

All federally chartered credit unions are required to obtain insurance from the National Credit Union Share Insurance Fund (NCUSIF).