Chapter 1 - Introduction SB

The daily volume of electronic payments processed through the Fedwire and CHIPS systems is approximately

$4.5 trillion.

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

Buying and selling derivatives for the bank's own account.

Which country has the greatest number of banks among the list of top 10 global banks by size?

China

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

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

True or false: 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.

Following the Brexit vote in June 2016, the British Pound dropped in value to its lowest point since 1985. This was due to

Investors selling off pound-denominated assets and investing the funds in safe assets like gold and U.S. government bonds.

The Act of Congress that overturned Glass-Steagall and made the creation of Financial Services Holding Companies possible was

The Financial Services Modernization Act of 1999.

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 statements is true regarding derivative securities?

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

As a result of increased globalization, movements in U.S. financial markets now have ____ impact on foreign financial markets.

a much greater

After hitting bottom in March 2009, the Dow Jones Industrial Average did not recover to its pre-crisis levels for

about four years

Financial institutions encourage investment by savers by offering investments in ____, _____, and ____.

annuities; life insurance; pension funds

During the past 30 years, reversal of some of the trends that have reshaped the financial industry are

changes in technology; changes in regulatory barriers; financial innovation changes

When a U.S. corporation or investor receives foreign current cash flows, the U.S. dollar value of those cash flows will ____ if the foreign currency ____ against the U.S. dollar.

decrease; depreciates

When a financial institution hires employees to monitor fund users on behalf of fund providers, they are said to be acting as

delegated monitors

A primary conduit through which monetary policy actions of the Federal Reserve are transmitted to the economy are

depository institutions.

Financial institutions are able to guarantee the liquidity and safety of investors' funds despite investing in risky assets by

diversifying their investments across many uncorrelated assets.

A financial institution's average cost of monitoring is lower than the individual investor's due to

economies of scale.

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

Other than residential mortgages, another are in which U.S. financial institutions have been encouraged by government policy to provide financing is

farming.

In primary markets, fund users raise new capital through the sale of

financial securities

Traditional depository institutions find it difficult to compete with other financial institutions due to

higher costs due to regulation.

Two benefits to individual small savers of denomination intermediation are ____ and ____.

higher returns; lower risks

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

hold the loans to maturity

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

initial public offering (IPO)

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

liquidity

Financial institutions frequently transform short-maturity liabilities provided by investors into a portfolio of long-maturity assets. This is known as

maturity intermediation

Two important characteristics of money market securities are

maturity of one year or less; low interest rate risk

The risk incurred by financial institutions by holding contingent assets and liabilities off balance sheet is called

off balance sheet risk.

In a world without financial institutions where suppliers provided funds directly to users, suppliers of fund would face three types of risks/costs These are

price risk; monitoring cost; liquidity cost

The decline of the share of assets held by commercial banks between 1948 and 2016 is due to

regulations imposed during the financial crisis; strict capital regulations; low interest rates

The term "thrifts" refers to which of the following type(s) of depository institution?

saving banks; credit unions; savings associations

The financial institutions that experienced a dramatic increase in their share of total FI assets during the period of 1948 and 2016 are

securities brokers/dealers; pension funds; investments companies

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

The two types of securities that investors most often associate with capital markets are _____ and _____.

stocks; bonds

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

time intermediation

Two of the important payment services provided by financial institutions to the economy are ____ and _____.

wire transfers; check clearing