Unit 7

Consumer finance companies lend money to people who do not have access to traditional banking services because of a A)lack of credit. B)great credit history. C)high income. D)consistent employment history.

A

During the 1980s, instead of closing insolvent thrifts, the Federal Home Loan Bank Board regulators often ignored the problem, allowing the failed institutions to continue. How did these so-called zombie institutions infect healthy institutions? A)Zombie institutions paid high interest rates to attract savers, forcing healthy institutions to raise their rates as well. B)Zombie institutions offered loans with high interest rates; healthy institutions had to compete by doing the same. C)Investors would move funds from the zombie banks into the healthy banks. D)Managers would leave zombie institutions and get jobs at healthy banks.

A

From an insurance company's point of view, which of these are the best examples of occurrences or activities that show pure risk? A)Playing in a poker game or investing in the stock market B)Driving a car or keeping valuable items in the basement of your house C)Working in a physically risky occupation or buying bonds D)Skydiving or investing in gold

A

In early twentieth century, credit unions began in response to which of the following? A)Working class and small merchants had to go to loan sharks for needed funds. B)Loan societies were dependent on subsidies from the wealthy. C)Immigrants preferred to borrow money from people like themselves. D)Banking laws prevented commercial banks from making small loans.

A

Savage's Provident Institution for Savings was based on which of the following principles? A)To help the poor and working class help themselves through savings B)To fund loans and create "a bank for savings" for the poor C)To provide payments during times of illness D)To help the poor and working class by providing very high interest on any savings they might make

A

What could be considered a return to the "traditional" role of thrifts? A)Emphasizing real estate loans rather than commercial loans B)Emphasizing consumer loans rather than commercial loans C)Making somewhat riskier loans than commercial banks D)Primarily focusing on financial services to businesses

A

What was the goal of The Federal Home Loan Bank System? A)To create a government-sponsored lender to thrifts that made consumer mortgage loans. B)To increase the amount of high-cost funds available for home mortgage loans. C)To reduce the amount of low-cost funds available to financial institutions. D)To reduce the number of thrift institutions.

A

Which of the following is NOT a common characteristic of hedge funds? A)Track an index, like the S&P 500 B)Seek to be market-neutral C)Require investors to commit funds for several years D)Are limited to high net worth individuals

A

Which of the following is categorized as an "alternative asset"? A)Hedge fund B)Exchange-traded fund C)Close-ended fund D)Real estate investment trust

A

Which of the following is most likely to be able to meet its future obligations?

A

Which of the following types of equity funds is considered the most speculative? A)Aggressive growth funds B)Income funds C)Growth and income funds D)International funds

A

Why is Social Security having trouble working as a pay-as-you-go system? A)The birth rate in the United States, with few exceptions, has been dropping since 1964. B)Baby boomers are retiring early and living longer. C)Generation Y or Millennials do not make enough money to pay into the system D)Elderly wealthy people are collecting Social Security when they do not need it.

A

Why is accounts receivable financing NOT a costless transaction for a firm? A)The receivables must be sold at a discount. B)The receivables are used as collateral, making them less valuable. C)The receivables must now be shown as a liability on the firm's books. D)Customers do not like it and sometimes take their business elsewhere.

A

Why were many Building & Loan associations organized along ethnic lines? A)Many immigrants preferred to save their money in institutions that lent money to people who were like them. B)Building & Loan associations reminded immigrants of home. C)More than other people, immigrants had problems repaying loans. D)Building & Loan associations did not allow immigrants from other ethnic groups to join.

A

Alexis is just out of college and wants to save aggressively for a house. She is willing and able to take on a moderate amount of risk and has a time line of 10 years to save a down payment. Which of these funds might she be most likely to consider? A)Treasury bond funds B)A target date hybrid fund C)Mortgage bond funds D)A real return hybrid fund

B

Amy is switching employers and can take the full balance of her defined contribution plan with her, including all employer contributions. Amy is A)fully funded. B)fully vested. C)underfunded. D)unionized.

B

Angelic is approaching retirement and is in good health. If she is afraid of outliving her financial resources, she should purchase A)whole life insurance. B)an annuity. C)term life insurance. D)mutual funds.

B

Commercial banks and thrifts claim that __________ gives credit unions an unfair advantage. A)limiting membership to a common bond B)not paying corporate income taxes C)charging lower interest rates on loans D)paying higher interest rates on deposits

B

Credit unions first began in North America in which time period? A)The early years of the nineteenth century B)The early years of the twentieth century C)Right after the Great Depression D)In the 1950s

B

During the postwar boom, commercial banks were subject to interest rate ceilings under Regulation Q. Which of these is true of thrifts regarding Regulation Q? A)Thrifts were initially unaffected by Regulation Q but subjected to the same regulations as commercial banks by 1950. B)Thrifts were not affected by Regulation Q during the postwar boom. C)Thrifts were allowed to provide slightly higher interest on deposits than commercial banks under Regulation Q. D)Thrifts were limited to even lower interest rates for depositors than commercial banks could pay under Regulation Q.

B

How did Killinger revolutionize the thrift industry and make Washington Mutual "more retail than banking"? A)A lesser range of debt instruments was offered than at traditional thrifts. B)Credit was granted to people who would not typically qualify for it. C)More commercial loans were made than at traditional thrifts. D)Larger loans were emphasized but were made only to those who could afford them.

B

How did subprime mortgage defaults affect the insurance market? A)Insurance companies suddenly owned lots of almost worthless houses. B)Insurance companies that issued credit default swaps no longer had the reserves they needed to pay claims. C)Banks lost money, but insurance companies were unaffected. D)Policyholders saw their premiums increase to cover the losses.

B

In regulating mutual funds, which of the following is NOT a responsibility of the Securities and Exchange Commission (SEC)? A)Prosecute fraud and deceptive sales practices B)Determine how funds may advertise C)Regulate structure and operations of mutual funds D)Determine how investors are kept informed

B

Jack Bogle, former head of The Vanguard Group, recommends that investors own index funds because these funds are A)"actively managed" and the fees are much higher. B)not "actively managed" and the fees are much lower. C)"actively managed" and have a role to play in a saver's portfolio. D)"actively managed" and outperform the overall market performance.

B

Rachel's homeowner's policy specifically covers damage from earthquakes. It is a(n)__________ policy. A)open-peril B)named-peril C)casualty D)liability

B

The __________ Act requires hedge funds with more than $100 million to register with the SEC. A)Sarbanes-Oxley B)Dodd-Frank C)Gramm - Leach-Bliley D)Investment Advisors

B

When purchasing life insurance, who would you expect to have the highest premium? A)College student B)Middle age smoker C)Middle age athlete D)Newborn baby

B

Which act defines a mutual fund? A)Federal Reserve Act of 1913 B)Investment Company Act of 1940 C)Securities Exchange Act of 1934 D)Depository Institutions Deregulation and Monetary Control Act of 1980

B

Which of the following can be exempt from federal income taxes? A)Close-ended funds B)Real estate investment trusts (REITs) C)Hedge fund D)Exchange-traded funds

B

Which of the following people would assess the damage to your vehicle if you were in a car accident? A)Actuary B)Claims adjuster C)Underwriter D)Agent

B

Which of these funds allows investors to write checks to access their funds at any time? A)Equity B)Money market mutual C)Index D)Hybrid

B

Paulo has property insurance that specifically excludes damage from flooding. What kind of policy does Paulo have? A)Casualty B)Named-peril C)Open-peril D)Liability

C

Savage's Provident Institution for Savings is known for all of the following except which one of these? A)Provident in the early days promised greater dividends if the institution could afford it. B)The early Provident paid depositors a 1% return quarterly. C)The early Provident took savings year-round and returned them with interest at Christmas. D)Provident in the early days was the first banking institution the poor and working class of the United States had that focused on their needs.

C

According to the World Bank, in 2012, which country spent a higher percentage of its GDP on health care? A)Canada B)United Kingdom C)Germany D)United States

D

An investor interested in an actively managed fund should invest in which of these funds? A)Index fund B)Hybrid fund C)Equity fund D)Hedge fund

D

At the end of 2014, which of the following accounted for the largest portion of the US mutual fund industry? A)Money market funds B)Bond funds C)Hybrid funds D)Equity funds

D

Gwen and Ray want to invest in an equity mutual fund for their newborn son and will not need the funds for almost 18 years. They have a better than average income and plan to invest each year. Without taking on too much risk, which type of equity mutual funds are they most likely to consider? A)An income fund or a global equity fund B)An aggressive growth fund or an income fund C)A growth and income fund or an aggressive growth fund D)A growth fund or a global equity fund

D

How did most Savings & Loans begin? A)Federal Home Loan Bank System B)Chartered banks C)Thrifts D)Building & Loan associations

D

How did the Resolution Trust Corporation (RTC)operate? A)They were responsible for borrowing money for the thrift institutions. B)They were responsible for the management of the thrift institutions. C)They were responsible for buying the thrift institutions assets. D)They were responsible for closing the failed thrift institutions

D

If Jules is interested in investing in a mutual fund and wants to know how the funds will be invested and how the fund has performed in the past, he should read A)the fund's yearly report. B)the entry in the Investment Company Fact Book about the fund. C)articles in the Financial Times about the fund. D)the fund's prospectus.

D

In what year were credit unions included in an expansion of the Small Business Administration, allowing them to make federal government-subsidized Small Business Administration loans to small businesses that qualified? A)1934 B)1964 C)1998 D)2003

D

Jean is concerned she might not qualify for a traditional loan. Which of the following bank holding companies would most likely be able to provide her services? A)CashNetUSA B)GE Capital C)GM Financial D)HBSC Finance

D

Lin redeemed $10,000 worth of mutual fund shares, but only received $9,150 in cash. This is what kind of fee, and what percentage was she charged? A)Advisory fee, 7.0% B)Front-end load, 8.5% C)Back-end load, 7.0% D)Back-end load, 8.5%

D

Mutual funds traditionally keep a small percentage of their funds in highly liquid assets such as bank CDs, since some shareholders may want to redeem shares on any given day. What percentage of total assets is typically held in a very liquid form? A)25% B)20% to 25% C)10% to 12% D)4% to 6%

D

The number of credit unions increased across the United States after the passage of the __________ Act. A)Federal Home Loan Bank B)Massachusetts Credit Union C)Depository Institutions Deregulation and Monetary Control D)Federal Credit Union

D

Which of the following are traded daily on stock exchanges at market-determined prices? A)Real estate investment trusts B)Close-ended funds C)Most bond funds D)Exchange-traded funds

D

Which of the following is NOT a duty of the Federal Insurance Office? A)Monitor access to insurance by underserved populations B)Monitor the health of the insurance industry C)Identify regulatory gaps and systemic risk D)Regulate the insurance industry

D

Which of the following is consulted in determining what premium should be paid on a policy? A)Agent B)Underwriter C)Claims adjuster D)Actuary

D

Which of the following protects insurance policyholders and beneficiaries if an insurance company becomes insolvent? A)Underwriter B)Federal Insurance Office C)McCarran - Ferguson Act of 1945 D)Insurance guarantee fund

D

__________ life insurance generally offers policyholders a choice of mutual funds in which to invest the cash value. A)Whole B)Universal C)Term D)Variable

D

A mutual fund has a net asset value ( NAV )of $8.10 and 325 shares outstanding. What is the total market value of the fund? A)$2,461.15 B)$4,012.34 C)$2,492.30 D)$2,632.50

D ($ x shares)

Rudy has a mutual fund investment with low fees. He is not concerned about the fees over the long run. How is his thinking flawed?

Each time fees are withdrawn, Rudy has

In a close-ended fund, the investment company can also buy back shares or allow investors to redeem their shares at any time.

False

It is illegal for an employer to underfund a pension.

False

Savings & Loans were set up as nonprofit institutions to provide consumer credit to the working class and small business.

False

Compare the management of index funds versus that of hybrid funds.

Index funds are designed to match a stock

In terms of insurance, what is moral hazard and what do insurance companies do to try to offset it?

Moral hazard occurs when a policyholder changes their behavior because they're insured

How did the drop in the birth rate cause problems for Social Security, and how would raising the benefits age help save the system?

The drop in the US birth rate means that

Compare and contrast the means and motivations for establishing the first thrifts to Kerry Killinger's time at Washington Mutual and that company's efforts.

The thrifts were first established to pr

Compare and contrast the primary differences between Savings & Loans and credit unions and discuss why those differences caused the institutions to act differently.

the goal of both institutions was to off

Which of these is an argument against health insurance using co-payments, typically known as co-pays? A)Co-payments are insufficient and health care insurance is still beyond the financial reach of most people. B)Co-payments are relatively small in comparison to actual health costs, so people are insensitive to the true cost of their own health care. C)Doctors in this system are discouraged from ordering much-needed medical tests and treatments. D)Many people are still tempted to go without insurance, or to have minimal health insurance.

B

Which of these statements most accurately describes both an unregistered financial advisor and a registered investment advisor? A)Both are interested and willing to work with relatively low net worth investors; only the registered advisor is overseen by the SEC B)Both charge fees to manage funds; only a registered investment advisor is legally obligated to put his investors' interests ahead of his own. C)Registered investment advisors tend to charge lower fees; unregistered financial advisors charge higher fees but take on more clients. D)Registered investment advisors and unregistered financial advisors most often charge an annual fee.

B

Who created the first finance companies? A)Thrifts B)Retailers C)Commercial banks D)Consumer groups

B

Why would focusing on deposits from the working class make modern savings banks still relatively small? A)Federal regulations limit the size of these institutions to better serve the poor. B)The working class served by these institutions typically have a low savings rate. C)The managers of these institutions tend to be more conservative in investing funds. D)The FDIC will not insure deposits at a thrift institution.

B

With whole life insurance, the insured can borrow against the A)face value. B)cash value. C)death benefit. D)annuity.

B

__________ life insurance does not build any cash value. A)Whole B)Term C)Universal D)Variable

B

How did finance companies provide mortgages that contributed to the financial crisis of 2008?

By subtly or openly misrepresenting

A "no-load" fund does NOT charge A)for marketing expenses. B)an advisory fee. C)a sales charge at purchase. D)for administrative services.

C

As the country started to recover from the recession in early 2009, small business lending by credit unions A)decreased slightly, while commercial bank lending increased. B)decreased by 25%. C)increased somewhat, while commercial bank lending decreased. D)increased by 25%.

C

Fred is within about 10 years of retirement and wants to protect the market value of his investment, but also make small gains in capital. He can afford some small risk or losses. What type of funds might he consider? A)Corporate bond funds and aggressive growth funds B)Equity growth funds C)Hybrid funds with an emphasis on bonds D)Hybrid funds with an emphasis on equities

C

How is the price per share of an open-ended mutual fund determined? A)Number of outstanding shares divided by the net value of the fund's total assets B)Net value of the fund's total assets less any liabilities divided by the number of outstanding shares C)Net value of the fund's total assets divided by the number of outstanding shares D)Average value of the fund's total assets divided by the number of outstanding shares

C

In a __________ plan, the employee usually makes some investment decisions for funding the pension, often choosing from a collection of mutual funds, rather than having a full range of options. A)vested B)defined benefits C)defined contribution D)fully funded

C

Increasing premiums after a claim is one way insurance companies reduce what kind of risk? A)Adverse selection B)Pure risk C)Moral hazard D)Speculative risk

C

Malpractice insurance is an example of A)open-peril insurance. B)named-peril insurance. C)liability insurance. D)an annuity.

C

Many critics of mutual funds are critical of what aspect of the industry? A)Hidden administrative fees B)High advisory fees C)Slick advertising campaigns D)Poor returns on investments

C

The Garn-St. Germain Depository Institutions Act allowed Savings & Loans to A)negotiate orders of withdrawal. B)decrease their consumer lending. C)increase their consumer lending. D)collect interest on accounts.

C

The Social Security system is in trouble for which of the following reasons? A)It is no longer receiving adequate federal funding .B)The baby-boom generation is likely to bankrupt the system completely. C)The pay-as-you-go plan has been inadequate since the 1960s and has never been updated. D)There will be fewer workers than retirees.

C

The most expensive annual fees paid by mutual fund shareholders are __________ fees. A)administrative services B)advertising C)advisory D)sales commission

C

The thrifts were hurt by growing inflationary pressures in the 1960s. Their problems were compounded by which of these factors in that same decade? A)Thrifts were affected by the end of Regulation Q. B)Thrifts were impacted by the Depository Institution Deregulation and Monetary Control Act (DIDMCA). C)Thrifts were fully impacted by Regulation Q starting in that decade. D)Thrifts were affected by the Garn-St. Germain Depository Institutions Act.

C

The very first savings banks, created in the late 1700s and early to mid-1800s, were meant to serve what function? A)The first savings banks were focused on middle-class and wealthy families. B)The first savings banks were an attempt to provide financial services to poor and working-class families. C)The first savings banks operated like savings and loans, providing a place to save and a way to fund the building of homes for the poor. D)The first savings banks offered little on savings but charged high interest on loans.

C

When Lauren purchased shares in a mutual fund, she was charged a 5% fee at the time of the purchase. This is what kind of fee? A)12b-1 fee B)Back-end load C)Front-end load D)Advisory fee

C

Which of the following are two significant differences between thrifts and credit unions? A)Credit unions cater to wealthier depositors and are nonprofit; thrifts are for-profit and serve the working class. B)Thrifts are based on a common bond among depositors and cater to more middle class and wealthy savers. C)Credit unions are nonprofit and are owned by their members, or depositors, but thrifts are generally for-profit and have a wide variety of depositors. D)Thrifts are tax-exempt, but credit unions are not; credit unions have a wide variety of depositors.

C

Which of the following generally sells at a premium or discount from its NAV? A)Hedge fund B)Exchange-traded fund C)Close-ended fund D)Real estate investment trust

C

Which of the following has NOT been suggested as way to save Social Security? A)Raise the partial and full benefits age. B)Eliminate the Social Security cap .C)Continue to gradually raise the retirement age for full benefits to 79. D)Apply a "needs test."

C

Which of the following is NOT a type of loan provided by a consumer finance company? A)Home mortgage B)Auto loan C)Education loan D)Consumer durables

C

Which of the following statements best describes the current funding of Social Security and Medicare? A)Employers pay twice as much into Social Security and Medicare than employees do. B)Employers pay somewhat more into Social Security and Medicare than employees do. C)Employers and employees both pay the same amount into Social Security and Medicare. D)Employers pay somewhat less into Social Security and Medicare compared to employees.

C

Which of the following was a criticism of finance companies during the financial crisis? A)Not paying corporate income taxes B)Charging high interest rates C)Misrepresenting the risks of adjustable-rate mortgages D)Leasing equipment to firms

C

Which of these is an accurate description of a captive sales finance company? A)A finance company that has very high rates on loans it makes B)A finance company that must be used by a captive audience, for example, the finance company an auto dealer may recommend to someone purchasing a car C)A finance company owned by a parent company to help finance the goods sold by the parent company D)A finance company that sits within a bank holding company

C

Which of these shows adverse selection in providing health insurance? A)Insurance companies have incentives to avoid insuring those who have chronic health issues. B)Health premiums need to be higher for those who are more likely to suffer from chronic illness. C)The people who are most likely to suffer with poor health complications are the most likely to seek out health insurance. D)People are more likely to be careless with their own health if they have health insurance.

C

Which of these shows moral hazard in providing health insurance? A)Failing to mention your child's asthma, in hopes of getting care more completely covered by insurance B)Hiding the fact that you smoke in order to get less expensive insurance C)Eating whatever you like, with the thought that cholesterol-lowering drugs will take care of any adverse effects D)Refusing to get health insurance, even if that means paying a fine or fee of some type

C

Which of these statements best describes the collective growth of mutual funds from 2008 until 2017? A)The number of mutual funds remained the same between 2008 and 2017. B)The number of mutual funds increased approximately 1.5 times between 2008 and 2017. C)The number of mutual funds doubled between 2008 and 2017. D)The number of mutual funds tripled between 2008 and 2017.

C

Why were credit default swaps initially considered low risk? A)Interest rates were low, which lowered the associated risk. B)Credit default swaps were backed by the federal government C)Credit default swaps were backed by mortgage-backed securities. D)Insurance companies could easily cover any losses, as they were backed mostly by bonds.

C

__________ account for the largest portion of life insurance company total reserves. A)Equities B)Life insurance reserves C)Annuity contract reserves D)Bonds

C

Finance companies, one type of nonbank bank, only make loans; they generally do not take deposits.

True

Many companies now offer only defined contribution plans, either with or without any financial input on the part of the company.

True

Over the last decade or more, along with fewer defined pension plans being offered, many defined benefit pension plans are underfunded. That is, these plans simply will not have enough funds to make good on all the promises they made to employees.

True

The Federal Home Loan Bank System supplied low-cost funds so that thrifts could pay off their depositors in a bank run.

True

The co-pay is the amount of a loss that the insured must pay out of his/her own resources before an insurer pays for expenses related to the covered loss.

True

When the Resolution Trust Corporation sold off the assets of a failed Savings & Loan, depositors were paid off, but the owners were wiped out and the managers of the thrifts were fired.

True

How do co-pays distort incentives in the market for health care?

With co-pays, insured patients do not realize the true costs