Exam 2 Financial instituions

Borrowed Funds?

fed funds purchased and repos other borrowed funds (e.g., banker's acceptances, commercial paper, discount window loans)

An open-end mutual fund owns 1,200 shares of stock A at $15; 600 shares of stock B at $30; and 1,100 shares of stock C at $25. The fund has 1,400 shares outstanding and its liabilities are $600. What is the fund's NAV? Group of answer choices $103.5 $44.93 $45.79 $160.64

$44.93

A mutual fund owns 1,600 shares of a bank at $12.30; 1,200 shares of an auto mobile company at $55.60; and 200 shares of a tech giant at $149.48 . The fund has 2,500 shares outstanding and no liabilities. What is its NAV? Group of answer choices $46.52 $38.65 $71.75 $34.56

$46.52

What did the Glass-Steagall Act do?

- separation of commercial and investment banking; - established FDIC - no interest payments on demand deposits - interest rate ceiling on other deposits

What is a 12b-1 fee?

12b-1 fees are annual fees charged by a mutual fund to pay for marketing and distribution costs. -cannot exceed 0.75% of average annual net assets for load funds -cannot exceed 0.25% of average annual net assets for no-load funds

Long Term

-U.S. Treasury notes and bonds and agency securities, securities issued by states and political subdivisions, mortgage-backed securities, other debt securities

What did the mccarran-ferguson act of 1945 do?

-confirms the primacy of state over federal regulation of insurance companies -state insurance commissions charter and examine ICs -the National Association of Insurance Commissioners (NAIC) has developed a coordinated examination system

Core Deposits?

-deposits of the bank that are stable over short periods of time and thus provide a long-term funding source to a bank -demand deposits, NOW, MMDAs, Savings, and Retail CDs

What did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 do?

-dissolved the FSLIC and transferred its management to the FDIC -created the Savings Association Insurance Fund (SAIF)

Short-term investments (marketable securities)

-interest-bearing deposits at other FIs, U.S.Treasury bills, fed funds sold, and reverse RPs,

What did the ERISA act of 1974 do?

-pension plan funding -vesting of benefits -fiduciary responsibilities of fund administrators -pension fund transferability pension fund insurance

Purchased Funds?

-rate-sensitive, more volatile funding sources of the bank

Other Deposits

-wholesale certificates of deposits -brokered deposits

Given the following data, calculate the operating ratio: Premiums earned=$350,000 Losses incurred = $328,500 Expenses/commissions=$60,000 Dividends paid to policyholders = $25,000 Investment income on premiums= $35,000 Group of answer choices 118.14% 108.14% 100.86% 128.14%

108.14%

When was the Social Security established? Group of answer choices 1990 1947 1934 1935

1935

The Federal Insurance Office (FIO) was created in which year? Group of answer choices 1999 1933 2010 1970

2010

How many banks are there?

5289

An insurance company has an expense ratio of 45%. It pays 2.5% of premiums as dividends to its policy holders and has a loss ratio of 58.5%. The investment yield to premium ratio is 7%. What is the operating ratio for the company? Group of answer choices 58.50% 96.50% 113.00% 99.00%

99.00%

What is a REIT? Group of answer choices A closed-end investment company that specializes in investing in the financial service industry. A closed-end investment company that specializes in investing in mortgages or real estate properties. An open-end investment company that specializes in investing in mortgages or real estate properties. An open-end investment company that specializes in investing in the financial service industry.

A closed-end investment company that specializes in investing in mortgages or real estate properties

What is an off-balance-sheet asset? Group of answer choices Tradable financial asset purchased with the intention of holding it for investment. Contractual commitment to loan to a firm a certain maximum amount at given interest rate. Asset, held to meet reserve requirements and to provide liquidity. A contingent item which when an event occurs, moves onto the asset side of the balance sheet or income is realized.

A contingent item which when an event occurs, moves onto the asset side of the balance sheet or income is realized.

Up-front fee on loan commitments can be defined as: Group of answer choices A fee charged for making funds available through a loan commitment. None of the answers are correct. A fee charged by the bank in exchange for keeping an account open. A fee charged on the unused component of a loan commitment.

A fee charged for making funds available through a loan commitment.

A fiduciary is Group of answer choices A manager of a hedge fund. A person responsible for managing a closed-end fund. A trustee or investment advisor that manages a pension fund. An employee who is eligible to receive pension benefits because he or she has worked for a stated period.

A trustee or investment advisor that manages a pension fund.

What was the key feature of the Glass-Stegall Act of 1933? Group of answer choices Established the Federal Deposit Insurance Corporation (FDIC). All the answers are correct. No interest payments on demand deposits and interest rate ceiling on other deposits. Separation of commercial banking and investment banking.

All the answers are correct.

Which of the following is true for large banks? Group of answer choices All the answers are correct. Large banks tend to use more purchased funds. Large banks tend to have less core deposits. Large banks tend to operate with lower equity capital.

All the answers are correct.

A Roth IRA Group of answer choices Requires minimum distribution when you reach the age of 59 ½. Is the same as a traditional IRA. Allows tax-free withdrawals. Is a retirement account in which contributions are made strictly by the employer.

Allows tax-free withdrawals.

What is one of the main jobs of the Office of the Comptroller of the Currency? Group of answer choices Approves/disapproves mergers involving national banks. Charters state banks as well as regulate and closes them. Ensures banks meet the reserve requirements. Insures the deposits of commercial banks.

Approves/disapproves mergers involving national banks.

Defined benefit plans Group of answer choices Allow employee discretion in asset allocation. Are becoming more important than defined contribution plans. Are becoming less important than defined contribution plans. Do not allow investing in Treasury securities.

Are becoming less important than defined contribution plans.

What are economies of scale? Group of answer choices Average unit cost falls as its output of services (size) decreases. Total costs fall as output increases. Average unit cost falls as its output of services (size) increases. Total fixed costs fall as output increases.

Average unit cost falls as its output of services (size) increases.

What is the largest asset class that life insurance companies hold?

Bonds

T/F •In March 2006 the BIF and the SAIF were merged into one Deposit Insurance Fund (DIF) and •In January 2007 the FDIC began a more aggressive insurance system where all institutions pay into the fund

Both are true

A defined benefit pension fund: Group of answer choices Invests most in mutual funds. None of the answers are correct. Allows for tax-free withdrawals. Can be fully funded, underfunded, or overfunded.

Can be fully funded, underfunded, or overfunded.

what is Common Equity tier 1?

Common Equity Tier I (CET1) capital is composed of the book value of common equity plus retained earnings minus goodwill

Letters of Credit can be defined as: Futures, forward, swap, and option positions taken by a commercial bank for hedging or other purposes. Contingent guarantees sold by an FI to underwrite the trade or commercial performance of the buyer of the guarantee. An amount banks charge for making funds available through a loan commitment. A credit limit assigned to individual customers by retail banks.

Contingent guarantees sold by an FI to underwrite the trade or commercial performance of the buyer of the guarantee.

Who regulators bank holding companies

FED

T/F Defined contribution plans have become less important than defined benefit plans?

False, they have become more important

The Glass-Steagall Act of 1933 resulted in the creation of the Group of answer choices Federal Deposit Insurance Corporation Federal Reserve Board Saving Association Insurance Fund Bank Holding Company

Federal Deposit Insurance Corporation

Which of the following regulations a U.S. commercial bank may not be subjected to? Group of answer choices Consumer Protection Regulation Entry and Chartering Regulation Investor Protection Regulation Fiduciary Responsibilities Regulation

Fiduciary Responsibilities Regulation

Which of the following insurance will protect against multiple perils of damage to a personal dwelling and personal property? Group of answer choices Commercial multiple peril Homeowners multiple peril Casualty insurance Auto liability and physical damage

Homeowners multiple peril

What is the largest holding sector for mutual funds?

Household sector (6.673 T out of 13.209 T)

Which type of mutual funds has the smallest number of funds in it? Group of answer choices Global Equity Bond Hybrid

Hybrid

When it comes to regulations of commercial banks and insurance companies, what is true? Group of answer choices Both commercial banks and insurance companies are regulated by state regulators. Insurance Companies are regulated by state regulators whereas commercial Banks are regulated by Federal Reserve, OCC, and FDIC. Commercial banks are regulated by state regulators whereas insurance companies are regulated by Federal Reserve, OCC, and FDIC. Both commercial banks and insurance companies are regulated by Federal Reserve, OCC and FDIC.

Insurance Companies are regulated by state regulators whereas commercial Banks are regulated by Federal Reserve, OCC, and FDIC.

Regarding the Morningstar's style of mutual funds, growth funds Group of answer choices Invest in stocks of large companies. Invest in stocks which pay no dividends. Invest in stocks which usually have relatively higher P/E ratio. Invest in stocks that are undervalued and have lower P/E ratios.

Invest in stocks which usually have relatively higher P/E ratio.

Which of the following is an asset on a commercial bank's balance sheet? Group of answer choices Transaction Accounts Investments Savings and Time Deposit Accounts Negotiable CD's

Investments

A 403(b) plan Group of answer choices Is a defined benefit plan. Is a defined contribution plan for taxable firms. Is a defined contribution plan for educational or non-profit organizations. Does not allow employer contributions.

Is a defined contribution plan for educational or non-profit organizations.

What did the Retirement Protection Act of 1994 aim to do? Group of answer choices It increased premium from $2.60 per employee to $3.90 per employee. It attempted to strengthen the Pension Benefit Guarantee Corporation. It established the Pension Benefit Guarantee Corporation. It worked on vesting of benefits.

It attempted to strengthen the Pension Benefit Guarantee Corporation.

What did the McCarran-Ferguson Act do? Group of answer choices It created the Federal Insurance Office that reports to Congress and the President on the insurance industry. It created The Financial Stability Oversight Council (FSOC) responsible for identifying institutions that present a systemic risk to the U.S. economy. It allowed commercial banks, investment banks and insurance companies to exist as subsidiaries under one financial holding company. It stated that the state insurance commissioners charter and examine insurance companies.

It stated that the state insurance commissioners charter and examine insurance companies.

Which of the following is the major source of earnings for a typical U.S. commercial bank? Group of answer choices Equity Capital Loans Deposits Investments

Loans

A fender bender is an example of which of the following events? Group of answer choices Low Severity, Low Frequency High Severity, Low Frequency High Severity, High Frequency Low Severity, High Frequency

Low Severity, High Frequency

Minimum levels of cash reserves required by the regulators to be held at commercial banks come under what kind of regulation? Group of answer choices Monetary Policy Regulation Entry and chartering Regulation Credit Allocation Regulation Safety and Soundness Regulation

Monetary Policy Regulation

A fund whose number of shares can increase or decrease daily and which is not traded on an organized exchange is called a(n) Market timing fund Fixed-rate index fund Open-end fund Closed-end fund

Open-end fund

Fed funds purchased come in the category of: Group of answer choices Now Accounts Saving Deposits Purchased Funds Real estate loans

Purchased Funds

What is the primary source of funding for commercial banks?

Real estate loans

Who regulates Mutual Funds

SEC

Which of the following charters and regulates state banks? Group of answer choices Office of Comptroller of the Currency Federal Reserve System Office of National Bank Administration State Authorities

State Authorites

Who charters and regulates State banks?

State authorities

A risk avoidance hedge fund Group of answer choices Takes a market neutral approach that favors short-term investment strategies and high exposure to market risk. Takes a market neutral approach that strives for high returns with high risk. Takes a market neutral approach that strives for consistent returns with low risk. Takes a market neutral approach that favors longer-term investment strategies and moderate exposure to market risk.

Takes a market neutral approach that strives for consistent returns with low risk.

The National Association of Securities Dealers (NASD) was appointed to supervise mutual fund share distributions under which Act? Group of answer choices The Market Reform Act of 1990 The Securities Act of 1933 The Investment Advisers Act and Investment Company Act of 1940 The Securities Exchange Act of 1934

The Securities Exchange Act of 1934

What did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 result in? Group of answer choices The creation of Saving Association Insurance Fund The creation of Federal Savings and Loan Insurance Corporation The restructure of Bank Insurance Fund The creation of Deposit Insurance Fund

The creation of Saving Association Insurance Fund

What is the adverse selection problem? Group of answer choices The problem that customers who apply for insurance policies are less likely to be those in need of coverage The problem that customers who apply for insurance policies are more likely to be those in need of coverage. None of the answers are correct. The problem that occurs when the insured takes an action not considered in the contract that changes the value of the insurance.

The problem that customers who apply for insurance policies are more likely to be those in need of coverage.

What is true about money center banks? Group of answer choices None of the answers are correct. They are retail banks mainly funded by accepting small deposits. They are consumer-oriented banks. They are wholesale banks which heavily rely on non-deposit or borrowed sources of funds.

They are wholesale banks which heavily rely on non-deposit or borrowed sources of funds.

What is the major job of insurance underwriters? Group of answer choices They assess and price risk. They assess claims and determine coverage. They reduce the risks of underwriting and selling insurance. They sell insurance contracts for coverage.

They assess and price risk.

Which is true about Exchange Traded Funds (ETFs)? Group of answer choices ETFs management fees are higher than actively traded funds. They cannot be traded during the day. They are funds which invest in stocks with high P/E ratios. They can be sold short and purchased on margin.

They can be sold short and purchased on margin.

What was "The Financial Services Modernization Act of 1999" about? Group of answer choices This act allowed commercial banks to enter the investment banking and insurance business. This act allowed nationwide branch networks to evolve and reach 83,000 in 2013. This act effectively separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation. This act authorized the Federal Reserve to set reserve requirements and interest rates for deposits at member banks.

This act allowed commercial banks to enter the investment banking and insurance business.

What is the purpose of the Community Reinvestment Act (CRA) of 1977? Group of answer choices To protect consumers from unfair, deceptive, and abusive practices, and improve transparency in dealing with consumers. To encourage lending to socially important sectors of the economy such as housing and farming. To protect investors who purchase securities from commercial banks against unfair treatment such as insider trading, lack of disclosure, malfeasance, and breach of fiduciary responsibility. To require minimum levels of cash reserves to be held at commercial banks.

To encourage lending to socially important sectors of the economy such as housing and farming.

T/F Large banks have smaller net interest margins

True

What are the differences between Value, Growth, Blend, And (Large, Small, & Mid) Cap stocks?

Value- Undervalued companies with low P/E Ratio Blend - Combo of Value and Growth Growth - Strong growth with high P/E Large, Mid, Small Cap - Based off company size

Federal Insurance Office (FIO) was created because of which of the following regulation? Group of answer choices McCarran-Ferguson Act Wall Street Reform and Consumer Protection Act The Financial Services Modernization Act Glass-Steagall Act

Wall Street Reform and Consumer Protection Act

Since mutual funds always cost 1$ per share, what happens if your 1000$ account increases by 5%?

You gain 50 shares. (1000 * .05)

What are Life Insurance companies largest liabilities

net Policy Reserves

Who regulates state banks

•Federal Deposit Insurance Corporation (FDIC)

What did the Financial Services Modernization Act of 1999 do?

•Financial Services Modernization Act in 1999 repealed Glass-Steagall Act Allows banks to participate in investment banking

Who regulates national banks?

•Office of the Comptroller of the Currency (OCC)

What are the main types of regulations for commercial banks?

•Safety and Soundness Regulation •Monetary Policy Regulation •Credit Allocation Regulation •Consumer Protection Regulation •Investor Protection Regulation •Entry and Chartering Regulation

What are unearned premiums?

•Unearned premiums represent 13.2% of total liabilities and capital -includes premiums that have been paid before insurance coverage has been provided