Sample Final Problems & Exam 1 Questions
Finance companies generally attract less risky customers than do commercial banks.
False
Large banks tend to make business decisions based on personal ("soft") knowledge of customer's creditworthiness and business conditions in the local communities.
False
Leverage in a typical bank is smaller than leverage in a typical nonfinancial company since banks have capital requirements.
False
Moral hazard encourages financial insitutions to take less, rather than more, risk.
False
Most of the change in the number of commercial banks since 1990 has been due to bank failures.
False
Peer-to-peer lending platforms are not shadow banks as they focus on consumer loans.
False
Since Deutsche Bank's ROE grew manyfold from 2002-07, buying an equity share in Deutsche Bank in 2007 is likely to be a great investment. (5 points)
False
The primary objective of the 1933 Glass-Steagall Act was to prevent commercial banks from competing directly with commercial insurance companies.
False
Which of the following is not an expansionary monetary policy? Reducing the primary credit rate (discount rate) Large scale asset purchases Lowering the target range for federal funds rate Increasing the target range for federal funds rate
Increasing the target range for federal funds rate
Bank assets tend to have _____________ maturities and _____________ liquidity than/as bank liabilities.
Longer, lower
What is the primary function of finance companies?
Make loans to both individuals and corporations
Which of the following is not a category of capital under Basel III?
Tier III capital
Direct finance has become more important over time due to advances in information and financial technology
True
Finance companies differ from banks in that they do not accept deposits.
True
Ge capital was a finance company
True
In evaluating the risk-weighted asset value of foreign exchange forward contracts, the value of the current exposure can be either positive or zero.
True
Personal credit institutions (finance companies) may be willing to approve collateral that depository institutions do not find acceptable.
True
Requiring higher capital ratios often is proposed as a method to reduce the incentive to take an excessive risk because the moral-hazard risk-taking incentives are thought to decrease as the amount of net worth increases.
True
