Learnsmart Chapter 1
The daily volume of electronic payments processed through the Fedwire and CHIPS systems is approximately
$4.5 trillion
Two important characteristics of money market securities are
maturity of one year or less, and low interest rate risk
Which country has the greatest number of banks among the list of top 20 global banks by size?
China
Which of the following is NOT a responsibility of the SEC?
Ensuring that investors make good decisions.
T/F: the original issuers of financial instruments obtain additional funds when those instruments are resold on the secondary market
False, original issuers receive no funds from secondary market transactions between unrelated parties
______ are sold in secondary financial markets by _________.
Financial instruments; agents in need of funds
The financial institutions that experienced a dramatic increase in their share of total Fl assets during the period 1948-2016 are
Investments companies, securities broker/dealers and pension funds
In the 'originate and hold' model, financial institutions are exposed to risks, including which of the following?
Liquidity risk, interest rate risk, and credit risk
The term "thrifts" refers to which of the following type(s) of depository institutions?
Savings banks, credit unions, and savings associations
The Volcker Rule was passed as part of what important Act of Congress?
The Wall Street Reform and Consumer Protection Act of 2010
The term 'Brexit' refers to
The decision of the people of the United Kingdom to leave the European Union after 43 years
Which of the following is NOT specified in the derivative security contract?
The final purpose for which the asset exchanged will be used.
T/F: The originate and distribute model contributed to the financial crisis because it allowed Fl's to issue risky mortgages knowing they could sell them before they defaulted.
True, this is called moral hazard
As a result of increased globalization, movements in US financial markets now have __________ impact on foreign financial markets
a much greater
After hitting the bottom in March 2009, the Dow Jones Industrial Average did not recover to its pre-crisis levels for
about four years
The main issuer of money market securities are
corporations and the government
The risk that financial institutions face when doing business in foreign countries is called
country or sovereign risk
Financial institutions frequently pool small deposits from individual savers and invest the funds in large denomination securities. This is called
denomination intermediation
A significant component of the money supply that is under the supervision of financial institutions is
deposits at commercial banks and thrifts
Other than residential mortgages, another area in which US financial institutions have been encouraged by government policy to provide financing is
farming
Consolidation of financial services such as commercial banking, insurance, and investment banking under one roof has led to the creation of a business entity called the
financial services holding company
Traditional depository institutions find it difficult to compete with other financial institutions due to
higher costs due to regulation
When a US corporation or investor receives foreign currency cash flows, the US dollar value of those cash flows will ______ if the foreign currency _____ against the US dollar.
increase; appreciates & decrease; depreciates
Maturity intermediation may expose financial institutions to
interest rate risk
Intermediaries in secondary market transactions are usually _____________ and _______________.
investment banks; securities brokers
Financial institutions encourage investment by saver by offering investments in ____________, _________________ and _______________.
life insurance, annuities and pension funds
Secondary markets offer buyers of securities the ability to convert them to cash quickly at fair market value, a characteristic known as ____________.
liquidity
The preference of fund suppliers to choose to hold cash versus investing in long-term securities increases that cost of long-term borrowing. This cost can best be described as
liquidity cost
The claims issued by financial institutions to investors often guarantee the investors immediate access to their funds on demand. This relieves the investors from
liquidity risk
A financial institution's average cost of monitoring fund users is ________ than the individual investor's cost.
lower
Financial institutions frequently transform short-maturity liabilities provided by investors into a portfolio of long-maturity assets. This is known as
maturity intermediation
In a world without financial institutions where suppliers provided funds directly to users, suppliers of funds would face three types of risks/costs. These are
monitoring cost, price risk and liquidity cost
The risk that price of a security may change between the time it is purchased and the time it is sold is called
price risk
IPO's are issued on the _____ and facilitated by _______.
primary market; investment banks
The two types of securities that investors most often associate with capital markets are
stocks and bonds
The decline of the share of assets held by commercial banks between 1948 and 2016 is due to
strict capital regulations, low interest rates and regulations imposed during the financial crisis
The problem that arises when individual investors leave it to each other to collect information and monitor the fund users is called
the free rider problem
In terms of severity, the financial crisis of 2008 is generally considered to be
the worst recession in the US since the Great Depression
Primary financial markets bring together __________ with ___________
users of funds; providers of funds
