FINA 365
sales finance institution
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.
480
By 2012, there were approximately ______ securities firms and investment banks operating. A. 9,100 B. 7,600 C. 1,200 D. 480 E. 220
83,000; increase
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
80; 90
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
interbank lending and investing
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.
money market funds
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.
purchasing of accounts receivable by finance company from corporate customers
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.
All of the Above
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.
$600 billion; one-fifth
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
FDIC
Which of the following currently manages the insurance funds for both commercial banks and savings institutions? A. FDIC. B. FSLIC. C. OCC. D. FRS. E. State authorities.
they are securities purchased under agreements to resell
Which of the following is true about reverse repurchase agreements? A. They are securities purchased under agreements to resell. B. They account for less than 5 percent of assets of broker-dealers. C. They amount to 40.8 percent of total liabilities and equity of broker-dealers. D. They are treated as liabilities. E. They are securities temporarily lent in exchange for cash received.
net regulatory burden
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.
All of the above
Which of the following might lead a consumer to seek a loan from a subprime lender? A. Inability to document their income. B. Have previously filed for bankruptcy. C. Has never had a loan before. D. Lack of savings for a down payment. E. All of the above.
business credit institution
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.
personal credit institution
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.
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.
is a subsidiary of a non financial corporation
A corporate venture capital firm A. has publicly-traded common stock. B. provides equity funds to companies that already have publicly traded common stock. C. is a subsidiary of a nonfinancial corporation. D. provides debt funding to only to established corporations. E. is subject to more stringent disclosure requirements than other venture capital firms.
lends to a high-risk customers
A finance company may be classified as a subprime lender if it A. charges interest rates below those charged by commercial banks. B. lends to low-risk customers. C. lends to high-risk customers. D. originated from check cashing outlets in the early 1990s. E. is wholly owned by a parent corporation.
All of the above
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.
payday lender
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.
direct access to the discount window of the Fed.
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.
mutual funds and money market mutual funds
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.
larger corporations can register their new issues with the SEC up to two years in advance
According to SEC Rule 415, A. larger corporations can register their new issues with the SEC up to two years in advance. B. firms should disclose soft dollar arrangements to their clients. C. large investors are allowed to begin trading privately placed securities among themselves. D. firms are required to maintain records of the information used to verify the identity of a person opening an account. E. publicly held companies must disclose all material information that might affect investment decisions to all investors at the same time.
increased transactions costs
Advantages of depositing funds into a typical bank account instead of directly buying corporate securities include all of the following EXCEPT A. monitoring done by the bank on your behalf. B. increased liquidity if funds are needed quickly. C. increased transactions costs. D. less price risk when funds are needed. E. better diversification of deposited funds.
credit unions
All of the following are examples of participants in the shadow banking system EXCEPT A. money market mutual funds (MMMFs). B. structured investment vehicles (SIVs). C. credit hedge funds. D. limited-purpose finance companies. E. credit unions.
was classified as a commercial bank holding company in 2008
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.
a principal transaction
An attempt by a market maker to earn a profit on the price movements of securities by taking inventory positions for its own account is called A. risk arbitrage. B. an agency transaction. C. best efforts underwriting. D. pure arbitrage. E. a principal transaction.
there was a dramatic increase in systemic risk of the financial system
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.
$40.3 billion
As of 2011 approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies. A. $12.1 billion B. $8.6 billion C. $16.5 billion D. $32.4 billion E. $40.3 billion
65 percent
As of 2011 approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies. A. 15 percent B. 25 percent C. 40 percent D. 50 percent E. 65 percent
Payday lending has been effectively banned in 18 states
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.
8,100
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.
effectively affirmed the SEC as the primary regulator of the industry
Considering the securities firms and investment banking industries, The National Securities Markets Improvement Act (NSMIA) of 1996 A. appointed the Federal Reserve System as the primary regulator of the industry. B. diminished the role of the National Association of Securities Dealers (NASD) in regulating the industry. C. allowed individual states the right to require registration of firms operating in the state. D. effectively affirmed the SEC as the primary regulator of the industry. E. required all firms in the industry to maintain minimum amounts of capital.
acting as transfer and disbursement agents for pension funds
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.
market making
Creating a secondary market in an asset by a securities firm involves the function of A. cash management. B. investing. C. market making. D. trading. E. investment banking.
they had relatively more assets in consumer loans than other DIs and they hold more government and agency securities, on average
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.
liabilities, because the DI uses deposits as a source of funds
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.
assets, because DIs originate and monitor loan portfolios
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.
investment banks
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.
DI deposits are a major portion of the money supply
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.
conduct trades for customers but do not offer investment advice
Discount brokers A. are securities firms focused on providing research support for customers. B. conduct trades for customers but do not offer investment advice. C. allow customers to receive investment advice at very low rates. D. effect trades for customers on- or offline while offering investment advice. E. are electronic trading securities firms that allow customers to trade without the use of a broker.
total assets in finance companies grew over 1,000%
During the period from 1977 to 2012, A. total assets in finance companies grew over 1,000%. B. commercial paper became a less important source of funds for finance companies. C. assets in finance companies became less diversified. D. mortgage lending declined in importance to finance companies. E. in finance companies, consumer lending increased as a percent of total assets.
They specialize as brokers between savers and users and they serve as asset transformers by purchasing primary securities and issuing secondary securities
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.
are willing to lend to riskier customers than commercial
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.
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 the above. E. Answers A and C only.
loan shark companies
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.
neither funds surplus or deficit units
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.
assets, because securities holdings represent a use of funds for investment
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.
allows customers to borrow on a line of credit secured with a second mortgage on their home
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.
Sarbanes-Oxley Act
Legislation designed to improve corporate governance practices, especially as they relate to accounting practices, is the A. National Securities Markets Improvement Act of 1996. B. Sarbanes-Oxley Act. C. U.S.A. Patriot Act. D. Financial Services Modernization Act of 1999. E. Bank Holding Company Act.
All of the above
Many households place funds with financial institutions because many FI accounts provide A. lower denominations than other securities. B. flexible maturities verses other interest-earning securities. C. better liquidity than directly negotiated debt contracts. D. less price risk if interest rates change. E. All of the above.
relies almost entirely on nondeposit and borrowed funds as sources of liabilities
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.
may specialize in providing service to both retail and corporate customers and may specialize more in corporate finance with high activity in trading securities
National full-line investment and brokerage firms A. may specialize in providing service to both retail and corporate customers. B. usually serve only as discount brokers without offering investment advice. C. may specialize more in corporate finance with high activity in trading securities. D. All of the above. E. Answers A and C only.
the FDIC and the Federal Reserve System
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.
All of the above
Negative externalities exist in the depository sector when A. the fear of DI insolvency leads to bank deposit runs. B. lending activity is impaired or constrained. C. there are delays in disbursements from insolvent DIs. D. banks that are healthy suffer when another bank nears insolvency. E. All of the above.
hold more capital than what would be held without regulation
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.
credit unions
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.
1
Of the ten largest banks in the world at the beginning of 2012, how many were U.S. banks? A. 0. B. 1. C. 2. D. 4. E. 8.
the function of cash mangement
Offering bank deposit-like accounts to individual customers by a securities firm involves A. the function of investing. B. the function of cash management. C. the function of market making. D. the function of trading. E. the function of investment banking.
research and other advisory services
Soft dollars is a term often used in reference to the portion of a fee or commission that is allocated to A. research and other advisory services. B. custody and escrow services. C. clearance and settlement services. D. banking services. E. back office services.
the FDIC, the Federal Reserve System, and the Comptroller of the Currency
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.
consumer protection regulation
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.
65 persent
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.
$500,000
The Securities Investor Protection Corporation (SIPC) protects investors against losses of up to ________ on securities firm failures. A. $100,000 B. $200,000 C. $500,000 D. $1,000,000 E. $25,000,000
All of the above
The U.S.A. Patriot Act requires financial services firms to A. verify the identity of any person seeking to open an account. B. maintain records of the information used to verify a person's identity. C. determine whether a person opening an account is on a list of suspected terrorists. D. All of the above. E. Answers A and C only.
altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio
The asset transformation function of FIs typically involves A. receipt of securities through electronic payments systems. B. altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. C. granting loans to transform funds deficit units into funds surplus units. D. investing short-term funds in off-balance sheet activities. E. transferring of funds from one generation to another.
Increase the cost of entry by requiring more capital and restrict the number of FIs that can operate in a given market
The charter values of FIs will be higher if regulators A. increase the cost of entry by requiring more capital. B. restrict the number of activities permitted by FIs, thereby increasing potential profits. C. restrict the number of FIs that can operate in a given market. D. Answers A and B. E. Answers A and C.
limited partnership
The dominant form of institutional venture capital firms operate as A. Corporation. B. Subsidiary of a financial company. C. Bank holding company. D. Limited partnership. E. General partnership.
deposit insurance and discount window borrowing
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.
encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure
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.
find and find the most promising new firms
The function of institutional venture capital firms is to A. find and fund the most promising new firms. B. lend funds on a long-term basis to promising new companies with no track record. C. take equity positions in successful established companies. D. lend funds to established companies that are faltering. E. none of the above.
All of the above
The future viability of the savings association industry in traditional mortgage lending has been questioned because of A. securitization practices of other FIs. B. the additional risk exposure of long-term mortgage lending. C. intense competition from other FIs. D. the liquidity risks associated with mortgage lending. E. All of the above.
low interest rates and increased liquidity provided by the Federal Reserve
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.
mortgage loans
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.
real estate loans
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
home mortgages
The largest asset class on credit unions' balance sheet as of September 30, 2012 was A. cash. B. investment securities. C. home mortgages. D. checkable deposits. E. consumer credit.
securities purchased under agreement to resell
The largest category of assets for broker-dealers as of the beginning of 2012 was A. receivables from other broker-dealers. B. securities purchased under agreement to resell. C. receivables from customers. D. exchange membership. E. long position in securities and commodities.
securities sold under repurchase agreements
The largest category of liabilities of broker-dealers as of the beginning of 2012 was A. bank loans payable. B. securities sold under repurchase agreements. C. payables to customers. D. short positions in securities and commodities. E. payables to non-customers.
small time and savings deposits
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.
non-transaction accounts
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.
small time and savings deposits
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.
investing
The management of pools of assets by securities firms is considered to be the function of A. market making. B. investment banking. C. trading. D. investing. E. cash management.
The large bank failure reduces credit availability throughout the economy
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.
agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission and market markers take inventory positions to stabilize the market in the securities
The market-making function of investment banking can be described as A. agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. agency transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.
total equity
The most common benchmark of relative size of a firm in the securities trading and underwriting industry is based on A. total asset value. B. total equity. C. total debt. D. annual sales. E. annual profits.
credit unions
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.
primary security, because the mortgage note is a newly created security
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.
they make it easier to buy and sell securities using funds from the CMA
The primary advantage to the investor of a brokerage firm cash management account (CMA) over commercial bank deposit accounts is that A. no FDIC insurance is required on CMAs. B. no regulatory oversight of CMAs. C. they make it easier to buy and sell securities using funds from the CMA. D. CMAs guarantee higher rates of return than money market deposit accounts. E. Regulation Q interest rate ceilings do not apply to CMAs.
the Office of Thrift Supervision and the FDIC
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.
back-office functions
The process of providing custody and escrow services, clearance and settlement services, and research and other advisory services by a securities firm involves the function of A. mergers and acquisitions. B. market making. C. investment banking. D. back-office functions. E. cash management services.
a floor is set for the mortgage related assets held by savings institutions
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.
All of the above
The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is 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
risk measurement and management
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.
the ability of banks to shift credit risk from their balance sheets to financial markets
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.
nonbank banks
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.
Commercial and residential real estate
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.
sales finance institution
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.
extensive, as a result of the importance of FI to the economy
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.
90 percent
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.
safety and soundness regulation
Verifying the minimum level of capital or equity that must be held to fund the operations of an FI is part of the goal of A. investor protection regulation. B. safety and soundness regulation. C. entry regulation. D. credit allocation regulation. E. consumer protection regulation.
FI balance sheets are almost totally comprised of financial assets while commercial firms hold substantial amount of real assets
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.
The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions
What is globalization? A. The process that causes an FI to focus more intensely on their own domestic market. B. Acceptance of the Federal Reserve as the regulator of the world financial system. C. Usually refers to the initiation of GLOBEX, a new international financial communications and trading system. D. The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions. E. Joint ownership of international electronic payments systems.
Coexistence of both nationally chartered and state chartered banks
What is the defining characteristic of the dual banking system? A. Coexistence of parent and holding companies. B. Coexistence of both nationally chartered and state chartered banks. C. Control of nationally chartered and state chartered banks by the state regulators. D. Control of nationally chartered banks by both FRS and State bank regulators. E. Nonbanking companies carrying out both banking and other activities.
Make loans to both individuals and corporations
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.
Restricted the banking and nonbanking acquisition activities of multibank holding companies
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.
decreased monitoring costs
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.
brokerage services
Which function of an FI reduces transaction and information costs between a corporation and individual which may encourage a higher rate of savings? A. Brokerage services. B. Asset transformation services. C. Information production services. D. Money supply management. E. Administration of the payments mechanism.
None of the above
Which of the following 2 firms survived as investment banks following the most recent financial crisis? A. Morgan Stanley and Bear Stearns. B. Goldman Sachs and Merrill Lynch. C. Lehman Brothers and Morgan Stanley. D. Merrill Lynch and Lehman Brothers. E. None of the above.
Pension funds
Which of the following FIs does not currently provide a payment function for their customers? A. Depository institutions. B. Insurance companies. C. Finance companies. D. Pension funds. E. Mutual funds.
mutual funds
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.
New York Stock Exchange
Which of the following is a self-regulatory organization involved in the day-to-day regulation of trading practices? A. Securities and Exchange Commission. B. New York Stock Exchange. C. Securities Investor Protection Corporation. D. Chicago Board of Trade. E. All of the above.
Support the FI's lending to socially important sectors
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.
they assist in trading of existing securities
Which of the following is most typical of broker-dealers? A. They assist in underwriting of new securities. B. They assist in trading of existing securities. C. They assist in issuing new securities. D. They assist in underwriting and distribution of new securities. E. All of the above.
small time and savings deposits
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.
Wholesale loan
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.
Motor vehicle loans and leases
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.
they have both risk-reducing as well as risk-increasing attributes
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.
securities are placed with few large institutional investors
Which of the following is true of private placement of securities? A. Securities are placed with few large institutional investors. B. Securities of private firms are sold to the investing public at lower prices. C. They must be registered with the SEC. D. Public trading in these securities is not allowed. E. Subject to more stringent disclosure and informational requirements than those imposed by the SEC on publicly registered issues.
They are securities issued by FIs
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.
Merrill Lynch and Bear Stearns
Which of the following two investment banks were acquired by financial services holding companies during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.
Goldman Sachs and Morgan Stanley
Which of the following two investment banks were granted approval to be chartered as commercial banks during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.
underwriting issues of new securities
Which of the following would be a key area of activity for an investment bank specializing in the commercial side of the business? A. Purchase of existing securities. B. Sale of securities in the secondary market. C. Brokerage of existing securities. D. Underwriting issues of new securities. E. All of the above.
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.
of their tax-exempt status
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.
holding higher capital-asset ratio
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.
Because they are often subsidiaries of corporate-sector holding companies
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.
give savers cheaper access to the direct securities markets
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.
Financial intermediation has become more costly because it is necessary to invest in high cost technology
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.
growth in the asset-backed securities market
Identify a major reason behind the increase in domestic underwriting activity during the 1990s. A. Enhanced non-trading profits. B. High long-term interest rates. C. Low long-term dividend rates. D. Growth in the asset-backed securities market. E. Decreased securitization of debt.
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.
lower levels of capital
In comparison to a typical commercial bank, an investment bank is likely to have A. lower levels of capital. B. higher reliance on long-term debt. C. lower levels of repurchase agreements. D. higher levels of net interest margin. E. higher levels of loans to customers.
new car loan rates charged by finance companies were lower than those of commercial 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. iD. mortgage lending become less important to the industry. E. finance companies were required to offer time deposit products to their customers.
rely heavily on short-term commercial paper
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.
All of the above
In its role as a delegated monitor, an FI A. keeps track of required interest and principal payments on loans it originates. B. works with financially distressed borrowers in danger of defaulting on their loans. C. holds portfolios of loans that they continue to service. D. maintains contact with borrowers to ensure that loan proceeds are utilized for intended purposes. E. All of the above.
Principal transactions are when market makers take long or short positions and seek profits on price movements and market makers take inventory positions to stabilize the market in the securities
In market-making A. principal transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. principal transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.
2006
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.
Parent company
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.
their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks
One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that A. their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks. B. the industry had acquired too much capital during the previous decade. C. bank holding companies needed the ability to underwrite new issues of corporate securities. D. it was the only way an investment bank could qualify for federal bailout funds. E. the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.
investment banking
Participation in the activities relating to the underwriting and distribution of new issues of debt and equity by a securities firm involves the function of A. investing. B. merger and acquisitions. C. market making. D. investment banking. E. trading.
credit allocation guidelines
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.
had experienced strong profit and loan growth, especially those companies that lend to less risky 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.
computer-driven buying or selling of baskets of 15 or more stocks by institutional traders
Program trading involves A. online trading services provided to customers by electronic trading securities firms. B. computer-driven buying or selling of baskets of 15 or more stocks by institutional traders. C. purchase and sale of assets that are potentially but not necessarily equivalent. D. buying blocks of securities in anticipation of some information release. E. providing a platform for customers to trade without the use of a broker.
buying an asset in one market at one price and selling it immediately in another market at a higher price
Pure arbitrage trading involves A. buying blocks of securities in anticipation of some information release. B. purchase of stock in a company being acquired and the sale of stock in the acquiring company. C. exploitation of a difference between a company's current value and its estimated liquidation value. D. buying an asset in one market at one price and selling it immediately in another market at a higher price. E. simultaneous purchase and sale of similar shares in a single market.
allowing insolvent banks to continue to operate
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.
the creation of money for those FIs in financial trouble
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
illiquid assets
Securities firms have equity ratios that are lower than those for commercial banks because their balance sheets contain a larger portion of A. illiquid assets. B. current liabilities. C. long term liabilities. D. fixed assets. E. liquid assets.
securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities
Which of the following differentiates securities firms from investment banks? A. Securities firms are concerned with the commercial side of the business while investment banks are concerned with the retail side of the business. B. Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities. C. Securities firms underwrite new issues of securities while investment banks provide brokerage services. D. Securities firms originate new issues of securities and investment banks underwrite the securities. E. Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities.
real estate loans
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.
Investment companies
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.
Charter national banks and approve their merger activity
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.
Lehman Brothers
Which of the following investment banks is no longer in business as a result of the most recent financial crisis? A. Morgan Stanley. B. Bear Stearns. C. Lehman Brothers. D. Goldman Sachs. E. Merrill Lynch.
Correspondent banking services
Which of the following is NOT a back-office service function in the securities industry? A. Correspondent banking services. B. Escrow services. C. Clearance of securities transactions. D. Research services. E. Services related to settlement of securities transactions.
management of the nation's money supply
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.
required investment analysts' compensation to be function of the quality and accuracy of research they produce
Which of the following is NOT a provision of Sarbanes-Oxley Act? A. Created an independent auditing oversight board. B. Increased penalties for corporate wrongdoers. C. Forced faster and more extensive financial disclosure. D. Created avenues of recourse for aggrieved shareholders. E. Required investment analysts' compensation to be a function of the quality and accuracy of research they produce.
Equipment loan
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.
All of the above are types of finance
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.
Finance companies are less willing to accept risky customers than are banks
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.
Trust services
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.
liquidity trading
Which of the following is NOT considered a trading activity of securities firms? A. Position trading. B. Pure arbitrage. C. Liquidity trading. D. Risk arbitrage trading. E. Program trading.
Finance companies rely on short-term commercial paper and customer deposits to finance their assets
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.
Finance companies specialize only in consumer loans and do not make business
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.
investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis
Which of the following is true? A. Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis. B. Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis. C. With best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. D. An investment banker is acting as an agent when conducting a firm-commitment offering of securities. E. Answers B and C only.
They invest heavily in corporate securities
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.
The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner
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.
The demand for short-term loans has decreased considerably
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.
only the largest banks have sufficient staff to offer trust services
Which of the following observations concerning trust departments is true? A. They are found only among smaller community banks. B. Only the largest banks have sufficient staff to offer trust services. C. They provide banking services to other banks. D. Pension fund assets are the largest category of assets managed by trust departments. E. They primarily handle assets for financially sophisticated investors.
Bulk of the money supply consists of inside money
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.
Agency costs
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.
mismatching the maturities of assets and liabilities
Which of the following refers to the term "maturity intermediation"? A. Creation of a secondary market mature enough to withstand volatility. B. Overcoming constraints to buying assets imposed by large minimum denomination size. C. Mismatching the maturities of assets and liabilities. D. Reducing information costs or imperfections between households and corporations. E. The transfer of wealth from one generation to the next.
Financial Services Modernization Act (1999)
Which of the following repealed the 1933 Glass-Steagall barriers between commercial banking, insurance, and investment banking? A. Financial Institutions Reform Recovery and Enforcement Act (1989). B. Financial Services Modernization Act (1999). C. Competitive Equality in Banking Act (1987). D. The Bank Holding Company Act (1956). E. Garn-St. Germain Depository Institutions Act (1982).
A financial intermediary acts as a lender of last resort
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.
