Financial Institutions Chapter 1

The Volcker Rule forbids depository institutions from engaging in what type of risky trading activity?

Buying or selling derivatives for the bank's own account

Which of the following is NOT a responsibility of the SEC?

Ensuring that investors make good decisions

________ are sold in secondary financial markets by _________.

Financial instruments; agents in need of funds

The first-time issue of stock by a corporation going public is called a(n)

Initial Public Offering (IPO)

Which of the following statements is true regarding derivative securities?

Their value is linked to the value of another previously issued security.

True or false: In the U.S., most money market securities are traded "over the counter" rather than on organized exchanges.

True

In primary markets, the users of funds are frequently

corporations needing funds for new projects.

The major supplier(s) of securities for capital markets (i.e. users of funds) are

corporations. governments.

"Depreciation" of a foreign currency relative to the U.S. dollar means that

each unit of foreign currency is worth fewer U.S. dollars.

"Appreciation" of a foreign currency relative to the U.S. dollar means that

each unit of foreign currency is worth more U.S. dollars.

The passage of the Securities Act of 1933 stated that the main emphasis of SEC regulations should be focused on

ensuring the full and fair disclosure of securities information.

Most primary market transactions in the U.S. are arranged through ___________ who help reduce the cost and risk of the seller creating a market for its securities on its own.

investment banks

The financial institutions that experienced a dramatic increase in their share of total FI assets during the period 1948 to 2019 are

investments companies. pension funds. securities broker/dealers.

Secondary markets offer buyers of securities the ability to convert the securities to cash quickly at fair market value, a characteristic know as __________.

liquidity

Two important characteristics of money market securities are

maturity of one year or less. low interest rate risk.

The supplier's cost of ensuring that the user of funds does not steal or waste the funds is called

monitoring cost.

IPO's are issued on the ____________ and facilitated by ____________.

primary market; investment banks

In the secondary market transactions, funds are exchanged with the help of _________ acting as an intermediary between the buyer and seller of an instrument.

securities brokers

Secondary markets offer issuers of securities important information about how the issuer is performing and how much it will cost to raise additional capital. This information is conveyed through the _________.

security market price

Which of the following is the correct ranking from largest to smallest dollar value in capital markets in 2019?

stocks; mortgages; corporate bonds

The service that financial institutions provide to those who want to save for their future or for future generations is called

time intermediation.

Primary financial markets bring together ________ with _________.

users of funds; providers of funds

The Volcker Rule was passed as part of what important Act of Congress?

The Wall Street Reform and Consumer Protection Act of 2010

Which of the following is NOT specified in the derivative security contract?

The final purpose for which the asset exchanged will be used

In the "originate and distribute" model, financial institutions issue loans then

sell the loans quickly.

Two important characteristics of capital market securities are

wider price fluctuations than MM securities. maturity greater than one year.