FIN3515 Study Questions

Financial institutions are required to maintain a deposit insurance cap of _____ per person per bank.

$250,000

Federal Reserve System is divided into how many districts?

12

To convert a single payment yield to a bond equivalent yield, you must multiply the single payment yield by _____.

365/360

True or false: The "originate and distribute" model contributed to the financial crisis because it allowed FI's to issue risky mortgages knowing they could sell them before they defaulted.

True

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 demand for loanable funds ________ as interest rates increase.

decreases

When a U.S. corporation or investor receives foreign currency cash flows, the U.S. dollar value of those cash flows will _________ if the foreign currency ________ against the U.S. dollar.

increase; appreciates decrease; depreciates

The bond equivalent yield equation can be described in words as the product of the ______ and the ______.

periodic rate; number of periods per year

Nominal interest rates tend to ________ over time.

vary

Two of the important payment services provided by financial institutions to the economy are _________ and _________.

wire transfers, check clearing

Four major functions of the Fed

- provide payment and other financial services - supervise and regulate depository institutions. - conduct monetary policy - manage the stability of the financial system

________ are sold in secondary financial markets by _________.

Financial instruments; agents in need of funds

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

When the Federal Reserve buys U.S. Treasury securities from the over-the-counter market, it _______ the supply of excess reserves and places _______ pressure on the federal funds rate.

increases, downward

The financial institutions that experienced a dramatic increase in their share of total FI assets during the period 1948 to 2019 are

investments companies; securities broker/dealers; pension funds

Federal funds loans are a(n) ________ on the balance sheet of the borrower and a(n) ________ on the balance sheet of the lender.

liability; asset

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

maturity intermediation

Secondary markets offer issuers of securities important information about how the issuer is performing and how much it will cost to raise additional capital. This information is conveyed through the _________.

security market price

If the expected rate of return, E(r), is less than the required rate of return, r, the security is __________ and investors will want to buy __________ of it.

underpriced; more