FIN3305

Social Security is a

"pay-as-you-go" system.

Functions of the Fed

1.) Control Money Supply 2.) Supply the economy with paper money. 3.) Providing check-clearing services 4.) Holding depository institutions' reserves 5.) Supervising member banks 6.) Serve as the government's banker. 7.) Serve as the lender of last resort. 8.) Handling the sale of U.S. Treasury securities (auctions)

During the Depression, about ________ banks failed (about 40% of all commercial banks).

10,000

You have $10,000 to invest and you buy the shares of a load fund that charges a front load of 5.75%. How many shares were you able to buy, if NAV on the purchase day was $9.02?

10,000*.0575=575-10,000=9,425/9.02= 1,045

federal reserve

12 Federal Reserve districts, each with its own Federal Reserve bank.

The fundamental objective of monetary policy is to assist the economy in achieving

A full-employment, non-inflationary level of total output

Which of the following protects the mortgage lender's right to sell property if the underlying loan defaults?

A lien

Just prior to the 2007 financial crisis, mortgage loans known as NINJA loans were issued to borrowers. What is a NINJA loan?

A loan issued to borrowers with no income, employment, nor assets to speak of.

What factors are used in determining a person's FICO score?

All of the above

Funds Management

Balances the bank's needs for liquidity, safety, and income.

What insurance protects against liability for harm the insured may cause to others as a result of product failure or accidents

Casualty insurance

What insurance protects against liability for harm the insured may cause to others as a result of product failure or accidents?

Casualty insurance

The main use of funds for private sector pension funds is:

Common stock

Commercial Banking

Delivers loan, deposit, and payment services to business.

Fraudulent practices and other abuses of private pension funds led Congress to enact the

Employee Retirement Income Security Act

federal funds

Excess reserves that banks deposit at Federal Reserve Banks and are made available for other banks to borrow generally for a very short period of time such as overnight.

Private mortgage insurance is a policy that guarantees to pay the lender the balance on the loan, should a default occur.

False

The main purpose of a title search is to ensure that the title is in the name of a rapist illegal alien.

False

Monetary policy in the United States is the responsibility of the:

Federal Reserve

The legislation that separated commercial banking from the securities industry is known as the

Glass-Steagall Act

The prohibition against banks underwriting corporate securities and engaging in brokerage, real estate, and insurance activities was repealed by the

Gramm-Leach-Bliley Financial Services Modernization Act.

Which of the following is true of mortgage interest rates

Longer-term mortgages have higher interest rates than shorter-term mortgages.

A mutual fund's net assets divided by the number of its own shares outstanding is equal to the,

NAV

The most frequently used monetary device for achieving price stability is:

Open-market operations

Which of the following tools of monetary policy is considered the most important?

Open-market operations

tools to change money supply

Open-market operations (buying and selling treasury bonds, notes, and bills). Discount rate: Interest rate banks are charged when they borrow from the Fed. Reserve requirement: % of deposits that must be held by a bank as vault cash or on account with the federal reserve.

Which one of the following is a tool of monetary policy for alternating the reserves of commercial banks?

Open-market operations, Discount rate, Reserve ratio

Which of the following is not a proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees?

Provide more generous annual cost of living increases

Monetary Policy

The actions the Fed takes to control the money supply and the rate of inflation in the economy

Open Market Operations

The purchase and sale U.S. Treasury and federal Reserve to influence the growth of the nation's money supply. They are the principal means by which the Federal Reserve implements monetary policy.

An employee is fully vested when he/she acquires a non-forfeitable right to pension benefits irrespective of future employment.

True

Other things equal, the higher the down payment, the less likely a borrower is to default.

True

Prior to the 1920s, U.S. banking regulations discouraged mortgage lending by banks.

True

A loan for borrowers who do not qualify for loans at the usual market rate of interest because of a poor credit rating or because the loan is larger than justified by their income is

a subprime mortgage.

World Bank research on the effects of deposit insurance concludes that

adoption of explicit government deposit insurance is associated with a higher incidence of banking crises.

When bad drivers line up to purchase collision insurance, automobile insurers are subject to the

adverse selection problem.

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

adverse selection= high risk lifestyles to get life insurance

If the FDIC uses the purchase and assumption method to handle a failed bank,

all deposits will be paid in full.

Privatization of Social Security

all of the above 1=would transform the program from an unfounded pay as you go system to a fully funded pension plan. 2=would mean the workers current contribution to social security would no longer be available to pay benefits to current retirees. 3=receives less public support when the stock market declines.

The interest rate borrowers pay on their mortgages is determined by

all of the above. 1,Current Long-Term Market Rates 2. Term 3. Discount Points 4. Borrower's Financial Status

The ________ price is the price that brokers (agentes) receive when they sell securities.

ask

The ________ price is the price that brokers receive when they sell securities

ask

When the lender and the borrower have different amounts of information regarding a transaction, ________ is said to exist.

asymmetric information

who owns the federal reserve

banks Each of the 12 district Federal Reserve banks is owned by its member banks (commercial banks such as BoA)

A company's pension plan promises employees a specific amount of income when they retire. However, the plan does not have the assets to meet these future obligations to employees. This plan represents a defined-________ plan that is ________.

benefit; underfunded

The main use of funds for life insurance companies is:

bonds

Financial markets have the basic function of

bringing together people with funds to lend and people who want to borrow funds

The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the

central bank.

federal reserve system

central banking system of the United States.

Which of the following pensions does not promise employees a specific retirement benefit?

defined-contribution plan

(Fannie Mae) The Federal National Mortgage Association

does only A and B of the above.

The too-big-to-fail policy

exacerbates moral hazard problems treats large depositors of small banks inequitably when compared to depositors of large banks.

Pension funds are the slowest growing financial intermediary.

falce

Adjustable rate mortgages shift interest rate risk from the borrower to the lender.

false

The primary function of investment banks is to

help corporations issue new securities

The primary function of investment banks is

helping corporations raise funds.

The majority of mutual fund assets are now owned by

individual investors

Keogh plans and IRAs are

individual pension plans.

A credit default swap, or CDS, is essentially

insurance against default (inclumplimiento) on a financial instrument

A term life insurance policy provides

insurance benefits only.

Ginnie Mae=The Government National Mortgage Association

insures pass-through certificates.

The result of the too-big-to-fail policy is that ________ banks will take on ________ risks, making bank failures more likely.

large; greater

A securities dealer stands ready to make a market in the security at any time. For this reason, dealers are also called

market makers

ROA= return on assets

measures the ability of the bank's assets to generate profit; does not reflect differences in financial leverage (meaningful)

Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of

moral hazard

During the early years of an amortizing mortgage loan, the lender applies

most of the monthly payment to interest on the loan.

During the last years of an amortizing mortgage loan, the lender applies

most of the monthly payment to the outstanding principal balance.

Most mutual funds are structured in two ways. The most common structure is a(n) ________ fund, from which shares can be redeemed at any time at a price that is tied to the asset value of the fund. A(n) ________ fund has a fixed number of nonredeemable shares that are traded in the over-the-counter market.

open-end; closed-end

The fastest growing financial intermediary is

pension plans

Tasks that investment bankers perform when acting as underwriters to sell securities to the public include:

pricing preparing arranging

Tasks that investment bankers perform when acting as underwriters to sell securities to the public include:

pricing the security preparing the filings required by the securities and exchange comminsion arranging for the security to be rated

Moral hazard is an important consequence of insurance arrangements because the existence of insurance

provides increased incentives for risk taking.

The process of underwriting (agree to) a stock or bond issue requires that the investment bank

purchase the entire issue at a predetermined price and then resell it in the market

The process of underwriting a stock or bond issue requires that the investment bank

purchase the entire issue at a predetermined price and then resell it in the market.

If an investment is liquid, it can be sold

quickly

tools to change interest rates

raising/lowering interest rates to slow/spur economic activity and control inflation.

One way for bank regulators to assure depositors that a bank is not taking on too much risk is to require the bank to

reduce the size of its loan portfolio. diversify its loan portfolio.

The Federal Reserve's Regulation Q

set maximum interest rates banks could pay on deposits.

Private pension plan assets are invested mainly in __

stock

Although the FDIC was created to prevent bank failures, its existence encourages banks to

take too much risk.

The most important developments that have reduced banks' cost advantages in the past twenty years include

the elimination of Regulation Q ceilings. the competition from money market mutual funds.

what is the federal funds rate

the interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves

what is discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks.

The most common type of mortgage-backed security is

the mortgage pass-through, a security that has the borrower's mortgage payments pass through the trustee before being disbursed to the investors.

Reverse mortgages provide the borrower with a monthly cash inflow.

true

The Social Security system is an example of a public pension plan that is

underfunded

the Social Security system is an example of a public pension plan that is

underfunded insuficientes fondos