Learnsmart Chapter 1

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

$4.5 trillion

Two important characteristics of money market securities are

maturity of one year or less, and low interest rate risk

Which country has the greatest number of banks among the list of top 20 global banks by size?

China

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

Ensuring that investors make good decisions.

T/F: the original issuers of financial instruments obtain additional funds when those instruments are resold on the secondary market

False, original issuers receive no funds from secondary market transactions between unrelated parties

______ are sold in secondary financial markets by _________.

Financial instruments; agents in need of funds

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

Investments companies, securities broker/dealers and pension funds

In the 'originate and hold' model, financial institutions are exposed to risks, including which of the following?

Liquidity risk, interest rate risk, and credit risk

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

Savings banks, credit unions, and savings associations

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

The Wall Street Reform and Consumer Protection Act of 2010

The term 'Brexit' refers to

The decision of the people of the United Kingdom to leave the European Union after 43 years

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

The final purpose for which the asset exchanged will be used.

T/F: The originate and distribute model contributed to the financial crisis because it allowed Fl's to issue risky mortgages knowing they could sell them before they defaulted.

True, this is called moral hazard

As a result of increased globalization, movements in US financial markets now have __________ impact on foreign financial markets

a much greater

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

about four years

The main issuer of money market securities are

corporations and the government

The risk that financial institutions face when doing business in foreign countries is called

country or sovereign risk

Financial institutions frequently pool small deposits from individual savers and invest the funds in large denomination securities. This is called

denomination intermediation

A significant component of the money supply that is under the supervision of financial institutions is

deposits at commercial banks and thrifts

Other than residential mortgages, another area in which US financial institutions have been encouraged by government policy to provide financing is

farming

Consolidation of financial services such as commercial banking, insurance, and investment banking under one roof has led to the creation of a business entity called the

financial services holding company

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

higher costs due to regulation

When a US corporation or investor receives foreign currency cash flows, the US dollar value of those cash flows will ______ if the foreign currency _____ against the US dollar.

increase; appreciates & decrease; depreciates

Maturity intermediation may expose financial institutions to

interest rate risk

Intermediaries in secondary market transactions are usually _____________ and _______________.

investment banks; securities brokers

Financial institutions encourage investment by saver by offering investments in ____________, _________________ and _______________.

life insurance, annuities and pension funds

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

liquidity

The preference of fund suppliers to choose to hold cash versus investing in long-term securities increases that cost of long-term borrowing. This cost can best be described as

liquidity cost

The claims issued by financial institutions to investors often guarantee the investors immediate access to their funds on demand. This relieves the investors from

liquidity risk

A financial institution's average cost of monitoring fund users is ________ than the individual investor's cost.

lower

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

maturity intermediation

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

monitoring cost, price risk and liquidity cost

The risk that price of a security may change between the time it is purchased and the time it is sold is called

price risk

IPO's are issued on the _____ and facilitated by _______.

primary market; investment banks

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

stocks and bonds

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

strict capital regulations, low interest rates and regulations imposed during the financial crisis

The problem that arises when individual investors leave it to each other to collect information and monitor the fund users is called

the free rider problem

In terms of severity, the financial crisis of 2008 is generally considered to be

the worst recession in the US since the Great Depression

Primary financial markets bring together __________ with ___________

users of funds; providers of funds