Exam 1 Money banking and financial securities
During the past 30 years, reversal of some of the trends that have reshaped the financial industry are
- Changes in regulatory barriers - Financial innovation changes - Changes in Technology
The major suppliers of securities for capital markets are
- Corporations - governments
Financial institutions encourage investment by savers by offering investments in _____ , ______and _______
- Annuities - pension funds - life insurance
When a U.S. corporation or investor receives currency cash flows, the U.S. dollar value of those cash flows will _______ if the foreign currency ________ against the U.S dollar
- increase;appreciate -decrease;depreciation
From 1992 through 2015, U.S. investors holdings of foreign financial market debt securities increased by a factor of about
10x
When a financial institution accepts short-term deposits from investors and uses those funds to issue long-term loans to borrowers, they are engaging in
Asset transformation
The Volcker Rule forbids depository institutions from engaging in what type of risky trading activity?
Buying or selling derivatives for the banks own account
The major supplier of funds for secondary markets are
Households
The first-time issue of stock by a corporation going public is called
Initial public offering IPO
All financial institutions are exposed to _____ and _____ risk in the daily production of their services.
Technology;operational
Which of the following is NOT specified in the derivative security contract?
The final purpose for which the asset exchanged will be used
In terms of severity, the financial crisis of 2008 is generally considered to be
The worst recession in the U.S. since the great depression
True or False: The originate and distribute model contributed to the financial crisis because it allowed FI's to issue risky mortgages known that they could sell them before they defaulted
True
Two important characteristics of capital market securities are
- Maturity greater than one year - Wider price fluctuations than MM securities
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 - liquidity cost - price risk
The decline of the share of assets held by commercial banks between 1948 and 2016 is due to
- Strict capital regulations - Regulations imposed during the financial crisis - low interest rates
Two of the most important payment services provided by financial institutions to the economy are _______ and ________
- check clearing - wire transfers
In the "originate and hold" model, financial institutions are exposed to risks, including which of the following
- credit risk -liquidity risk - interest rate risk
The financial institutions that experienced a dramatic increase in their share of total FI assets during the period 1948 - 2016 are
- investment companies - securities broker/dealers - pension funds
In primary markets, the users of funds are frequently
Corporations needing funds for new projects
The risk that financial institutions face when doing business in foreign countries is called
Country or sovereign risk
When a financial institution hires employees to fund users on behalf of fund providers. they are said to be acting as
Delegated monitors
Financial institutions frequently pool small deposits from individual savers and invest the funds in large denomination securities. This is called
Denomination intermediation
In primary markets, fund users raise new capital through the sale of
Financial securities
The risk that the value of a foreign investment may change due to appreciation or depreciation of the foreign currency is
Foreign exchange risk
The risk that a financial institution will not have enough capital reserves to offset a sudden loss is called
Insolvency risk
The mismatch of maturities between liabilities and assets of financial institutions exposes them to
Interest rate risk
The preference of fund suppliers to choose to hold cash versus investing in long-term securities increases the cost of long-term borrowing. This cost can be best described as
Liquidity cost
The passage of Securities Act of 1934 designated that the _____ would be the regulator of financial markets and exchanges in the U.S.
Securities and Exchange Commission (SEC)
In secondary market transactions, funds are exchange with the help of _____ acting as an intermediary between the buyer and seller of an instrument
Securities brokers
The term "Brexit" refers to
The decision of the people of the United Kingdom to leave the European Union after 43 years
True or false: in the U.S., most money market securities are traded "over the counter" rather than on organized exchanges
True
As a result of increased globalization, movements in foreign financial markets now have _____ impact on U.S. financial markets
a much greater
A significant component of the money supply that is under the supervision of financial institution is
deposits at commercial banks and thrifts
A financial institution's average cost of monitoring is lower than the individual investor's due to
economies of scale
Traditional depository institutions find it difficult to compete with other financial institutions due to
higher costs due to regulation
Maturity intermediation may expose financial institutions to
interest rate risk
Secondary markets offer buyers of securities the ability to convert them to cash quickly at fair market value, and characteristics known as _____
liquidity
A financial institutions average cost of monitoring fund users is _________ than the individual investors cost
lower
IPO's are issued on the ______ and facilitated by ______
primary markets ; investment banks
In the U.S. savings banks and savings associations have been directed to provide financing primarily for
residential mortgages
