Deck 21: Thrift Operations

Question 1

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

Answer 1

D

Question 2

If depositors move money from their checking accounts 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 2

A

Question 3

Which of the following was not a major reason for the savings institution crisis in the late 1980s?

A) large losses on real estate loans
B) large losses on loans to less-developed countries
C) fraud
D) illiquidity
E) increased interest expenses

Answer 3

B

Question 4

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

A) reduce; reduce
B) reduce; increase
C) increase; increase
D) increase; reduce

Question 5

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 6

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

Question 7

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

A) merging
B) offering mortgage loans .
C) investing in junk bonds.
D) making loans to foreign governments.

Question 8

Federally chartered savings institutions are regulated by the

A) Securities and Exchange Commission (SEC).
B) National Credit Union Administration.
C) Comptroller of the Currency and the Federal Reserve.
D) U.S. Treasury.

Question 9

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

Question 10

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

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

Question 11

____ are the primary asset of savings institutions.

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

Question 12

If a savings institution's assets have a 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 13

Most mortgages originated by savings institutions are for

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

Question 14

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 their ownership structure, 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.

Question 15

Savings institutions obtain most of their funds from

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

Question 16

____ savings institutions hold the most assets in aggregate.

A) Stock-owned
B) Mutual
C) Closely held
D) Privatized

Question 17

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

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

Question 18

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

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

Question 19

____ do not represent an asset of credit unions.

A) Mortgage-backed securities
B) Home equity loans
C) Automobile loans
D) Stocks

Question 20

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 21

To obtain short-term funds, savings institutions commonly borrow funds in the ____ market.

A) stock
B) bond
C) mortgage
D) federal funds
E) futures

Question 22

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 23

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 24

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

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

Question 25

____ risk is probably the least concern for savings institutions.

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

Question 26

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 27

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 28

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 29

Money market deposit accounts (MMDAs) are

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 30

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 31

Interest-paying checkable accounts offered by credit unions are called

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

Question 32

____ are nonprofit organizations composed of members with a common bond.

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

Question 33

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 34

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 35

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 36

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 37

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

A) $250,000.
B) $50,000.
C) $40,000.
D) $25,000.

Question 38

Savings institutions can obtain capital by:

A) issuing stock.
B) repurchasing stock.
C) borrowing from the Federal Reserve.
D) borrowing in the federal funds market.

Question 39

A savings institution's cash flows are ____ related to interest rate movements.

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

Question 40

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 41

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 42

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 can make.
D) size of residential mortgage loans they can make.

Question 43

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 44

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 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

In general, savings institutions are larger than commercial banks.

Question 50

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 51

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 52

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 53

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

Question 54

Deposits at credit unions are called

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

Question 55

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 56

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

A) federally 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 a supplemental insurance premium each year.
D) depository institutions to pay a supplemental insurance premium each year.

Question 57

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

Question 58

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

Question 59

The National Credit Union Administration (NCUA) is responsible for regulating savings institutions.

Question 60

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

Question 61

Under the Financial Reform Act (Dodd-Frank Act) of 2010, all federally chartered savings institutions are to be regulated by the Federal Reserve, so these savings institutions no longer haveanincentive to go regulator shopping.

Question 62

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

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

Question 63

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

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

Question 64

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 65

During the credit crisis of 2008-2009, savings institutions experienced all of the following except:

A) high default rates on loans to finance leveraged buyouts.
B) a decline in the level of mortgage originations.
C) high default rates on subprime mortgages.
D) losses on investments in mortgage-backed securities.

Question 66

The Financial Reform Act of 2010 did all of the following except:

A) strengthened the standards required to obtain a mortgage.
B) required more disclosures by financial institutions regarding the quality of the underlying assets when they sell mortgage-backed securities.
C) required savings institutions to sell off any holdings of junk bonds and prohibited them from investing in junk bonds in the future.
D) established the Consumer Financial Protection Bureau.

Question 67

During the credit crisis of 2008-2009, some credit unions suffered losses on second mortgages and home-equity loans that they had provided, and some credit unions experienced losses on mortgage#NAME?acked securities in which they had invested.

Question 68

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.