Chapters 1-3
Which of the following is the most important source of funds for savings institutions? A. Borrowings from the Federal Home Loan Bank. B. Small time and savings deposits. C. Repurchase agreements. D. Direct federal fund borrowings. E. Negotiable certificates of deposit.
B. Small time and savings deposits.
Which of the following is the type of loan that Ford Motor Credit Corporation provides to Ford dealers to finance the cars that the dealer has for sale? A. Inventory loan. B. Wholesale loan. C. Automobile lease. D. Factoring. E. Equipment loan.
B. Wholesale loan.
The largest liability on FDIC-insured savings institutions' balance sheet as of year-end 2012 was A. commercial paper. B. small time and savings deposits. C. repurchase agreements. D. FHLBB advances. E. cash.
B. small time and savings deposits.
A company that provides financing to corporations, especially through equipment leasing and factoring would best be categorized as a A. sales finance institution. B. personal credit institution. C. subprime lender. D. loan shark. E. business credit institution.
E. business credit institution.
State-chartered commercial banks may be regulated by A. the FDIC only. B. the FDIC and the Federal Reserve System. C. the Federal Reserve System only. D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency. E. the FDIC, the Federal Reserve System, the Comptroller of the Currency, and state banking commissions.
E. the FDIC, the Federal Reserve System, the Comptroller of the Currency, and state banking commissions.
Which of the following is NOT true? A. The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. B. Consumer loans represent the largest portion of the loan portfolio of finance companies. C. Finance companies rely on short-term commercial paper and customer deposits to finance their assets. D. Finance companies rely on short-term commercial paper and long-term debt to finance their assets. E. Finance companies are now the largest issuers of commercial paper in the U.S.
C. Finance companies rely on short-term commercial paper and customer deposits to finance their assets.
The largest asset class on U.S. commercial banks' balance sheet as of September 30, 2012 was A. investment securities. B. commercial and industrial loans. C. real estate loans. D. cash. E. deposits.
C. real estate loans.
Safety and soundness regulations include all of the following layers of protection EXCEPT A. the provision of guaranty funds. B. requirements encouraging diversification of assets. C. the creation of money for those FIs in financial trouble. D. requiring minimum levels of capital. E. monitoring and surveillance.
C. the creation of money for those FIs in financial trouble.
Which of the following groups of FIs have experienced the highest percentage growth in assets in the U.S. financial services industry during the past sixty years? A. Commercial banks. B. Thrifts. C. Life insurance companies. D. Investment companies. E. Finance companies.
D. Investment companies.
Nondepository financial institutions are represented by all of the following EXCEPT A. insurance companies. B. mutual funds. C. finance companies. D. credit unions. E. securities firms.
D. credit unions.
Which of the following statements is FALSE? A. A financial intermediary specializes in the production of information. B. A financial intermediary reduces its risk exposure by pooling its assets. C. A financial intermediary benefits society by providing a mechanism for payments. D. A financial intermediary may act as a broker to bring together funds deficit and funds surplus units. E. A financial intermediary acts as a lender of last resort.
E. A financial intermediary acts as a lender of last resort.
During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year. A. $600 billion; one-fifth B. $400 billion; one-tenth C. $100 billion; one-half D. $400 billion; one-third E. $600 billion; one-half
A. $600 billion; one-fifth
By late 2012, the number of branches of existing commercial banks in the U.S. approximated ________, which was a(an) _________ from 1985. A. 83,000; increase B. 43,000; increase C. 68,000; decrease D. 103,000; decrease E. 72,000; increase
A. 83,000; increase
What distinguishes financial intermediaries from industrial firms? A. FI balance sheets are almost totally comprised of financial assets while commercial firms hold substantial amounts of real assets. B. Industrial firms are the customers of FIs, but FIs cannot be customers of industrial firms. C. FIs deal exclusively in primary securities, but industrial firms specialize in secondary securities. D. Industrial firms produce real goods or services while FIs only produce money. E. Industrial firms are unregulated while FIs are heavily regulated.
A. FI balance sheets are almost totally comprised of financial assets while commercial firms hold substantial amounts of real assets.
Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers? A. Finance companies are less willing to accept risky customers than are banks. B. Finance companies are not subject to regulations that restrict the type of products and services they can offer. C. Finance companies often have substantial industry and product expertise. D. Finance companies generally have lower overhead than banks. E. Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions.
A. Finance companies are less willing to accept risky customers than are banks.
This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently. A. Sales finance institution. B. Personal credit institution. C. Business credit institution. D. Lease finance company. E. Factoring company.
A. Sales finance institution.
Which of the following is closely associated with credit allocation regulation? A. Support the FI's lending to socially important sectors. B. Transmission of monetary policy from the Federal Reserve to the economy. C. Ensure the safety and soundness of the FI. D. Prevent discrimination in lending on the basis of age, race, sex, or income. E. Protect investors against abuses.
A. Support the FI's lending to socially important sectors.
Which of the following observations concerning credit unions is NOT true? A. They invest heavily in corporate securities. B. Member loans constitute a majority of their total assets. C. They tend to invest more of their assets in U.S. Treasuries than other DIs. D. They engage in off-balance-sheet activities. E. They focus more on providing services and less on profitability.
A. They invest heavily in corporate securities.
The qualified thrift lender test is designed to ensure that A. a floor is set for the mortgage related assets held by savings institutions. B. a ceiling is set on the mortgage related assets held by commercial banks. C. savings associations are covered by risk-based deposit insurance premiums. D. an interest rate ceiling is imposed on small savings and time deposits at savings institutions. E. regulators could close thrifts and banks faster.
A. a floor is set for the mortgage related assets held by savings institutions.
Regulatory forbearance refers to a policy of A. allowing insolvent banks to continue to operate. B. foreclosing real estate properties in the event on non-payments of mortgages. C. strict regulation of banks, closing them down as soon as they are insolvent. D. rescheduling of all loans of a client in the event of non-payment. E. Answers B and C only.
A. allowing insolvent banks to continue to operate.
Finance companies have enjoyed very high rates of growth because they A. are willing to lend to riskier customers than commercial banks. B. charge higher rates on lower risk loans. C. do not have ties or affiliations with manufacturing firms. D. face very high levels of regulation, which assures their success. E. do not sell the loans that they originate.
A. are willing to lend to riskier customers than commercial banks.
The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. B. encouraging banks to limit lending to a single customer to no more than 10% of capital. C. the provision of deposit insurance. D. the periodic monitoring of banks. E. encouraging banks to produce timely accounting statements and reports.
A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure.
Net regulatory burden for FIs is higher because regulators may require the FI to A. hold more capital than what would be held without regulation. B. produce less information than would be produced without regulation. C. hold more debt than what would be held without regulation. D. hold fewer reserves than they would without regulation. E. All of the above.
A. hold more capital than what would be held without regulation.
The largest asset class on FDIC-insured savings institutions' balance sheet as of year-end 2012 was A. mortgage loans. B. cash. C. investment securities. D. deposits. E. non-mortgage Loans.
A. mortgage loans.
A significant recent trend in the provision of financial services is that households increasingly prefer denomination intermediation and information services provided by A. mutual funds and money market mutual funds. B. commercial banks. C. insurance companies. D. hedge funds. E. investment banks.
A. mutual funds and money market mutual funds.
A consumer lending function is performed by each of the following FIs EXCEPT A. mutual funds. B. finance companies. C. pension funds. D. depository institutions. E. insurance companies.
A. mutual funds.
A company that specializes in making loans to the customers of a particular retailer or manufacturer would best be categorized as a A. sales finance institution. B. personal credit institution. C. business credit institution. D. lease finance company. E. factoring company.
A. sales finance institution.
The largest liability on credit unions' balance sheet as of September 30, 2012 was A. small time and savings deposits. B. open-market paper. C. repurchase agreements. D. ownership shares. E. share advances.
A. small time and savings deposits.
This broad class of loans constitutes the highest percentage of total assets for all U.S. commercial banks as of the end of 2012. A. Commercial and industrial. B. Commercial and residential real estate. C. Individual loans. D. Credit card debt. E. Less developed country loans.
B. Commercial and residential real estate.
How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation? A. Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. B. Financial intermediation has become more costly because it is necessary to invest in high cost technology. C. Financial intermediation has been unaffected. D. Financial intermediation has become more costly as global firms exploit economies of scale and scope. E. Financial intermediation has become less risky as firms become adept at maintaining zero gap positions.
B. Financial intermediation has become more costly because it is necessary to invest in high cost technology.
What is the primary function of finance companies? A. Protect individuals and corporations from adverse events. B. Make loans to both individuals and corporations. C. Extend loans to banks and other financial institutions. D. Pool the financial resources of individuals and companies and invest in diversified portfolios of assets. E. Assist in the trading of securities in the secondary markets.
B. Make loans to both individuals and corporations.
Which of the following is traditionally the major type of consumer loans for finance companies? A. Revolving loans. B. Motor vehicle loans and leases. C. Wholesale loans. D. Equipment leases. E. Home equity loans.
B. Motor vehicle loans and leases.
As of 2012, which of the following is true concerning payday lending? A. The typical borrower earns less than $25,000. B. Payday lending has been effectively banned in 18 states. C. Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. D. Less than $30 billion of payday loans were generated by the industry. E. Payday lenders were banned from forming relationships with nationally chartered banks.
B. Payday lending has been effectively banned in 18 states.
What was the primary objective of the Bank Holding Company Act of 1956? A. Permitted bank holding companies to acquire banks in other states. B. Restricted the banking and nonbanking acquisition activities of multibank holding companies. C. Regulated foreign bank branches and agencies in the United States. D. Bank holding companies were permitted to convert out-of-state subsidiary banks into branches of a single interstate bank. E. Allowed for the creation of a financial services holding company.
B. Restricted the banking and nonbanking acquisition activities of multibank holding companies.
Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain A. consumer protection guidelines. B. credit allocation guidelines. C. investor protection guidelines. D. safety and soundness guidelines. E. entry regulation guidelines.
B. credit allocation guidelines.
The federal government has traditionally extended safety nets to DIs consisting of A. deposit insurance, discount window borrowing, and reserve requirements. B. deposit insurance and discount window borrowing. C. deposit insurance, unemployment insurance, and discount window borrowing. D. deposit insurance, open market operations, and discount window borrowing. E. deposit insurance protection.
B. deposit insurance and discount window borrowing.
Traditionally, regulation of FIs in the U.S. has been A. minimal, as evidenced by the recent financial crisis. B. extensive, as a result of the importance of FI to the economy. C. minimal, because the free market is allowed to allocate financial resources. D. extensive, because banks have monopoly power. E. no different from regulation of nonfinancial firms.
B. extensive, as a result of the importance of FI to the economy.
Customer deposits are classified on a DI's balance sheet as A. assets, because the DI uses deposit funds to earn profits. B. liabilities, because the DI uses deposits as a source of funds. C. assets, because customers view deposits as assets. D. liabilities, because the DI must meet reserve requirements on customer deposits. E. liabilities, because DIs are required to serve depositors.
B. liabilities, because the DI uses deposits as a source of funds.
The housing bubble that began building in 2001 was primarily the result of A. the availability of low-cost affordable homes. B. low interest rates and increased liquidity provided by the Federal Reserve. C. a change in income tax policy that favored home ownership. D. increased demand for U.S. real estate by international investors. E. lack of available residential rental property.
B. low interest rates and increased liquidity provided by the Federal Reserve.
Economic collapse during the 1930s, the banking system in the U.S. performed directly or indirectly all financial services. Those functions included all of the following EXCEPT A. commercial banking. B. money market funds. C. investment banking. D. stock investing. E. insurance services.
B. money market funds.
The largest liability on U.S. commercial banks' balance sheet as of September 30. 2012 was A. investment securities. B. non-transaction accounts. C. transaction accounts. D. borrowings. E. cash.
B. non-transaction accounts.
A company that specializes in making installment loans to consumers would best be categorized as a A. sales finance institution. B. personal credit institution. C. business credit institution. D. lease finance company. E. factoring company.
B. personal credit institution.
In financing their asset growth, finance companies A. have relied more on bank loans over time. B. rely heavily on short-term commercial paper. C. use less equity capital than commercial banks. D. do not issue demand deposits, but can issue time deposits. E. use very small amounts of long-term debt and bonds.
B. rely heavily on short-term commercial paper.
The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in A. generating profits and lowering costs. B. risk measurement and management. C. investment advice and brokerage services. D. time intermediation and denomination mediation. E. derivative securities and interbank borrowing.
B. risk measurement and management.
The primary regulators of savings institutions are A. the Federal Reserve and the FDIC. B. the Office of Thrift Supervision and the FDIC. C. the FDIC and the Office of the Comptroller of the Currency. D. the Office of Thrift Supervision and the Comptroller of the Currency. E. the Federal Reserve and the Comptroller of the Currency.
B. the Office of Thrift Supervision and the FDIC.
The strong performance of commercial banks during the decade before 2007 was due to A. the stability of interest rates during this period. B. the ability of banks to shift credit risk from their balance sheets to financial markets. C. the contraction of the number of banks and thrifts. D. the growth in the number of thrifts and credit unions. E. All of the above.
B. the ability of banks to shift credit risk from their balance sheets to financial markets.
In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime mortgage markets and the onset of the recent financial crisis? A. 2001. B. 2003. C. 2006. D. 2008. E. 2010.
C. 2006.
By late 2012, the number of commercial banks in the U.S. was approximately A. 2,200. B. 4,680. C. 6,170. D. 8,100. E. 12,700.
C. 6,170.
Compared to commercial banks, why do finance companies often have substantial industry and product expertise? A. Because they have no bank-type regulators looking directly over their shoulders. B. Because they are specialized in market research and analysis. C. Because they are often subsidiaries of corporate-sector holding companies. D. Because they are more often willing to accept risky customers. E. All of the above.
C. Because they are often subsidiaries of corporate-sector holding companies.
Which of the following identifies the primary function of the Office of the Comptroller of the Currency? A. Manage the deposit insurance fund and carry out bank examinations. B. Regulate and examine bank holding companies as well as individual commercial banks. C. Charter national banks and approve their merger activity. D. Determine permissible activities for state chartered banks. E. Stand as the "lender of last resort" for troubled banks.
C. Charter national banks and approve their merger activity.
Which of the following measures the difference between the private costs of regulations and the private benefits of those regulations for the producers of financial services? A. Capital adequacy. B. Agency costs. C. Net regulatory burden. D. Charter value. E. Liquidity risk.
C. Net regulatory burden.
These organizations were originated to avoid the legal definition of a bank. A. Money center banks. B. Savings associations. C. Nonbank banks. D. Financial services holding companies. E. Savings banks.
C. Nonbank banks.
Which of the following dominates the loan portfolios of banks with assets less than one billion dollars? A. Commercial loans. B. Consumer loans. C. Real estate loans. D. Credit card debt. E. Industrial loans.
C. Real estate loans.
Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer? A. The bank failure usually leads to a government bailout. B. There are fewer steel manufacturers than there are banks. C. The large bank failure reduces credit availability throughout the economy. D. Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets. E. Everyone needs money, but not everyone needs steel.
C. The large bank failure reduces credit availability throughout the economy.
Which of the following is true of secondary securities? A. They include equities, bonds, and other debt claims. B. They are backed by the real assets of corporations issuing them. C. They are securities that back primary securities. D. They are securities issued by FIs. E. They must be placed in a separate account on order for primary securities to be offered.
C. They are securities that back primary securities.
Holdings of U.S. Treasury securities are classified on a DI's balance sheet as A. assets, because U.S. Treasury securities are default risk-free. B. liabilities, because the DI must pay cash in order to acquire the securities. C. assets, because securities holdings represent a use of funds for investment. D. liabilities, because the Treasury securities must be pledged as collateral against discount window borrowing. E. assets, because the market for U.S. Treasury securities is the most liquid in the world.
C. assets, because securities holdings represent a use of funds for investment.
The Community Reinvestment Act and the Home Mortgage Disclosure Act were both passed to provide incentives to comply with A. entry regulation. B. credit allocation regulation. C. consumer protection regulation. D. safety and soundness regulation. E. investor protection regulation.
C. consumer protection regulation.
A primary advantage for a depository institution of belonging to the Federal Reserve System is A. direct access to correspondent banking services. B. the lower deposit reserves required under the Federal Reserve System. C. direct access to the discount window of the Fed. D. commission less trading of U.S. government securities. E. decreased costs of regulatory compliance.
C. direct access to the discount window of the Fed.
The FIRREA Act of 1989 introduced the qualified thrift lender test (QLT), which set the percentage of assets required for qualification to be no less than A. 50 percent. B. 55 percent. C. 60 percent. D. 65 percent. E. 68 percent.
D. 65 percent.
As of 2012, commercial banks with over $10 billion in assets constituted approximately ____ percent of the industry assets and numbered approximately _____. A. 50; 310 B. 60; 165 C. 70; 525 D. 80; 90 E. 90; 440
D. 80; 90
Traditionally, the percentage of depository institutions' assets funded by some form of liability is approximately A. 50 percent. B. 75 percent. C. 85 percent. D. 90 percent. E. 40 percent.
D. 90 percent.
A large number of the savings institution failures during the in the 1980s was a result of A. interest rate risk exposure. B. excessively risky investments. C. fraudulent behavior on the part of managers. D. All of the above. E. answers B and C only.
D. All of the above.
Finance companies often prefer to lease equipment to customers because A. repossession in the event of default is easier. B. a lease with little or no down payment is more attractive to business customers. C. the finance company receives the benefit of depreciation expense. D. All of these.
D. All of these.
FIs perform their intermediary function in two ways A. they specialize as brokers between savers and users. B. they serve as asset transformers by purchasing primary securities and issuing secondary securities. C. they serve as asset transformers by purchasing secondary securities and issuing primary securities. D. Answers A and B. E. Answers A and C.
D. Answers A and B.
Which of the following observations is true? A. Central bank directly controls both inside and outside money. B. Outside money is that part of the money supply produced by the private banking system. C. Inside money refers to the quantity of notes and coin in the economy. D. Bulk of the money supply consists of inside money. E. Central banks cannot vary the quantity of outside money.
D. Bulk of the money supply consists of inside money.
Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy primarily because A. loans to corporations are part of the money supply. B. bank loans are highly regulated. C. savings institutions provide a large amount of credit to finance residential real estate. D. DI deposits are a major portion of the money supply. E. U.S. DIs compete with foreign financial institutions.
D. DI deposits are a major portion of the money supply.
Which of the following is NOT a type of consumer loan? A. Personal cash loan. B. Mobile home loan. C. Private-label credit card loan. D. Equipment loan. E. Motor vehicle loan.
D. Equipment loan.
Which of the following is NOT true? A. The finance company industry tends to be very concentrated. B. Twenty of the largest finance companies account for more than 65% of the industry assets. C. Many of the largest finance companies tend to be wholly owned or are captive subsidiaries of major manufacturing firms. D. Finance companies specialize only in consumer loans and do not make business loans. E. Finance companies often provide captive financing for the purchase of products manufactured by their parent company.
D. Finance companies specialize only in consumer loans and do not make business loans.
Which of the following is NOT a major function of financial intermediaries? A. Brokerage services. B. Asset transformation services. C. Information production. D. Management of the nation's money supply. E. Administration of the payments mechanism.
D. Management of the nation's money supply.
Which of the following is true of off-balance-sheet activities? A. They involve generation of fees without exposure to any risk. B. They include contingent activities recorded in the current balance sheet. C. They invite regulatory costs and additional "taxes." D. They have both risk-reducing as well as risk-increasing attributes. E. The risk involved is best represented by notional or face value.
D. They have both risk-reducing as well as risk-increasing attributes.
Which of the following is NOT an off balance sheet activity for U.S. banks? A. Derivative contracts. B. Loan commitments. C. Standby letters of credit. D. Trust services. E. When-issued securities.
D. Trust services.
Correspondent banking may involve A. providing banking services to other banks facing shortage of staff. B. providing foreign exchange trading services to individuals. C. holding and managing assets for individuals or corporations. D. acting as transfer and disbursement agents for pension funds. E. providing hedging services to corporations.
D. acting as transfer and disbursement agents for pension funds.
When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model, the change is likely to result in A. increased operating costs. B. increased interest rate risk. C. increased liquidity risk. D. decreased monitoring costs. E. decreased fee income.
D. decreased monitoring costs.
Investment companies are successful in attracting business away from banks and insurance companies primarily because they A. guarantee higher rates of return on savers' funds. B. remove interest rate risk for the saver. C. have no liquidity risk. D. give savers cheaper access to the direct securities markets. E. offer lower loan rates.
D. give savers cheaper access to the direct securities markets.
Compared to commercial banks, finance companies usually signal solvency and safety concerns by A. holding higher leverage ratios. B. holding lower capital-asset ratio. C. holding less liquid long-term assets. D. holding higher capital-asset ratio. E. Answers A and B only.
D. holding higher capital-asset ratio.
Finance companies that prey on desperate higher-risk customers charging unfairly exorbitant interest rates are referred to as A. refinancing companies. B. captive companies. C. business credit companies. D. loan shark companies. E. personal credit companies.
D. loan shark companies.
National-chartered commercial banks are most likely to be regulated by A. the FDIC only. B. the FDIC and the Federal Reserve System. C. the Federal Reserve System only. D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency. E. the Federal Reserve System and the Comptroller of the Currency.
D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency.
Which of the following refers to the possibility that a firm's owners or managers will take actions contrary to the promises contained in the covenants of the securities the firm issues to raise funds? A. Liquidity risk. B. Price risk. C. Credit risk. D. Intermediation. E. Agency costs.
E. Agency costs.
The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is because diversification allows an FI to predict more accurately the expected returns on its asset portfolio. A. because diversification allows an FI to predict more accurately the expected returns on its asset portfolio. B. significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive. C. because individual savers cannot benefit from risk diversification. D. because FIs have a cost advantage in monitoring their portfolios. E. All of the above
E. All of the above
Which of the following is NOT a type of finance company? A. Sales finance institutions. B. Personal credit institutions. C. Business credit institutions. D. Captive finance company. E. All of the above are types of finance companies.
E. All of the above are types of finance companies.
Finance companies charge different rates than do commercial banks which A. tend to be higher than bank rates. B. often reflect a more risky borrower. C. causes some finance companies to be classified as subprime lenders. D. must meet state usury law guidelines. E. All of the above.
E. All of the above.
In a world without FIs, households will be less willing to invest in corporate securities because they A. are not able to monitor the activities of the corporation more closely than FIs. B. tend to prefer shorter, more liquid securities. C. are subject to price risk when corporate securities are sold. D. may not have enough funds to purchase corporate securities. E. All of the above.
E. All of the above.
Why do households prefer to use FIs as intermediaries to invest their surplus funds? A. Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. B. To receive the benefits of diversification that households may not be able to achieve on their own. C. The FI has can benefit from combining funds and negotiating lower asset prices and transactions costs. D. The FI can provide insurance at relatively low cost that will protect funds under management. E. All of the above.
E. All of the above.
Credit Unions were generally less affected than other depository institutions by the recent financial crisis because A. they had relatively more assets in consumer loans than other DIs. B. they had relatively more residential mortgages. C. they hold more government and agency securities, on average. D. they hold less government and agency securities, on average. E. Answers A and C only.
E. Answers A and C only.
Which of the following FIs does not provide a business lending function? A. Depository institutions. B. Insurance companies. C. Finance companies. D. Pension funds. E. Mutual funds.
E. Mutual funds.
Which of the following is a major source of debt capital for a captive finance company? A. Premiums. B. Deposits. C. Equity. D. Bank loans. E. Parent company.
E. Parent company.
Which of the following observations concerning payday lenders is NOT true? A. They provide short-term cash advances. B. Their advances are due when borrowers receive their next paycheck. C. The industry originated from check cashing outlets. D. The payday loan industry is regulated at the state level. E. The demand for short-term loans has decreased considerably.
E. The demand for short-term loans has decreased considerably.
Which of the following observations concerning mortgages is NOT valid? A. They may refer to loans secured by lien on residential houses. B. They are a minor component in finance company portfolios. C. Mortgage-backed securities are created by securitization. D. Home equity loans are examples of second mortgages. E. The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner.
E. The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner.
Home equity loans have A. become less profitable for finance companies. B. seen reduced demand since the Tax Reform Act of 1986 was passed. C. interest charges that are not tax deductible. D. a higher bad debt expense than those on other finance company loans. E. allows customers to borrow on a line of credit secured with a second mortgage on their home.
E. allows customers to borrow on a line of credit secured with a second mortgage on their home.
Customer loans are classified on a DI's balance sheet as A. assets, because the DI's major asset is its client base. B. liabilities, because the customer may default on the loan. C. assets, because the DI earns servicing fees on the loan. D. liabilities, because the DI must transfer funds to the borrower at the initiation of the loan. E. assets, because DIs originate and monitor loan portfolios.
E. assets, because DIs originate and monitor loan portfolios.
The most numerous of the institutions that define the depository institutions segment of the FI industry in the US is (are) A. savings associations. B. small commercial banks. C. large commercial banks. D. savings banks. E. credit unions.
E. credit unions.
Each of the following is a special function performed by FIs at a macro level EXCEPT A. transmission of monetary policy. B. credit allocation. C. intergenerational wealth transfers or time intermediation. D. denomination intermediation. E. interbank lending and investing.
E. interbank lending and investing.
Financial intermediaries are A. funds surplus units, because they exist to make money. B. funds deficit units, because they must pay heavy regulatory fees and taxes. C. funds surplus units, because they hold large portfolios of financial securities. D. funds deficit units, because they must comply with minimum capital requirements. E. neither funds surplus nor deficit units.
E. neither funds surplus nor deficit units.
A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a A. commercial bank. B. personal credit institution. C. savings bank. D. sales finance institution. E. payday lender.
E. payday lender.
Factoring involves A. making loans to customers that depository institutions find too risky to lend. B. providing financing for the purchase of products manufactured by the parent company. C. approving of collateral that depository institutions do not find acceptable. D. providing financing through equipment leasing. E. purchasing of accounts receivable by finance company from corporate customers.
E. purchasing of accounts receivable by finance company from corporate customers.
Prior to the financial crisis that began in 2007, finance companies A. had experienced slow asset growth because of the upcoming economic slowdown. B. had found subprime lending to be a risk-free method to achieve growth. C. had experienced strong profit and loan growth, especially those companies that lend to less risky customers. D. had experienced strong success in the area of electronic lending. E. had avoided takeover attempts by other financial institutions.
C. had experienced strong profit and loan growth, especially those companies that lend to less risky customers.
Depository financial institutions include all of the following EXCEPT A. commercial banks. B. savings banks. C. investment banks. D. credit unions. E. all of the above are depository institutions.
C. investment banks.
In contrast to earlier periods in the finance company industry, during the middle 2000s, A. regulatory reform led to decreasing profits. B. mortgages originated were generally not securitized. C. new car loan rates charged by finance companies were been lower than those of commercial banks. D. mortgage lending become less important to the industry. E. finance companies were required to offer time deposit products to their customers.
C. new car loan rates charged by finance companies were been lower than those of commercial banks.
Compared to banks and savings institutions, credit unions are able to pay a higher rate on the deposits of members because A. they intend to attract new members. B. they do not issue common stock. C. of their tax-exempt status. D. Regulation Q still applies to the industry. E. they are subject to the provisions of the Community Reinvestment Act.
C. of their tax-exempt status.
The origination of a home mortgage loan is considered to be a A. primary security, because this is the FI's primary source of business. B. secondary security, because mortgages are typically resold in the secondary market. C. primary security, because the mortgage note is a newly created security. D. secondary security if the sale is for an existing home and a primary security if it is for a new home. E. derivative security because the value of the mortgage note depends on the underlying value of the home.
C. primary security, because the mortgage note is a newly created security.
Money center banks are considered to be any bank which A. has corporate headquarters in either New York City, Chicago, San Francisco, Atlanta, Dallas, or Charlotte. B. is a net supplier of funds on the interbank market. C. relies almost entirely on nondeposit and borrowed funds as sources of liabilities. D. does not participate in foreign currency markets. E. is not characterized by any of the above.
C. relies almost entirely on nondeposit and borrowed funds as sources of liabilities.
As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade, A. banks became more financially stable. B. it became easier to measure the riskiness of individual loans. C. there was a dramatic increase in systematic risk of the financial system. D. the Federal Reserve decreased the number of services that banks could provide. E. it became more difficult for households to obtain credit.
C. there was a dramatic increase in systematic risk of the financial system.
Ally Financial [formerly General Motors Acceptance Corporation (GMAC)] A. is a wholly owned subsidiary of General Motors. B. only provides financing to purchasers of automobiles built by General Motors. C. was classified as a commercial bank holding company in 2008. D. did not participate in federal bailout funds during the financial crisis because of their financial strength. E. is the largest finance company in the U.S.
C. was classified as a commercial bank holding company in 2008.