Question 1

If financial markets were perfect, financial intermediaries would

Accepted Answer

A)  be illegal. 
B)  handle roughly half of all finance. 
C)  be the conduit of all finance. 
D)  probably not exist. 
A)  be illegal. 
B)  handle roughly half of all finance. 
C)  be the conduit of all finance. 
D)  probably not exist. D

Question 2

Which of the following statements is incorrect?

Accepted Answer

A)  Regulation Q was eliminated as a result of DIDMCA and the Garn-St. Germain Act. 
B)  S&Ls in the early 1980s were primarily invested in deposits. 
C)  The rate spread between the average yield on assets and the average cost of funds for S&Ls in the early 1980s was negative. 
D)  In the early 1980s, the value of S&L assets fell below the value of S&L liabilities. 
A)  Regulation Q was eliminated as a result of DIDMCA and the Garn-St. Germain Act. 
B)  S&Ls in the early 1980s were primarily invested in deposits. 
C)  The rate spread between the average yield on assets and the average cost of funds for S&Ls in the early 1980s was negative. 
D)  In the early 1980s, the value of S&L assets fell below the value of S&L liabilities. B

Question 3

Non-traded securities are part of

Accepted Answer

A)  direct but not indirect finance. 
B)  indirect but not direct finance. 
C)  direct and indirect finance. 
D)  neither direct nor indirect finance. 
A)  direct but not indirect finance. 
B)  indirect but not direct finance. 
C)  direct and indirect finance. 
D)  neither direct nor indirect finance. A

Question 4

Nontraded securities are part of

Accepted Answer

A)  direct, but not indirect finance. 
B)  indirect, but not direct finance. 
C)  direct and indirect finance. 
D)  neither direct nor indirect finance. 
A)  direct, but not indirect finance. 
B)  indirect, but not direct finance. 
C)  direct and indirect finance. 
D)  neither direct nor indirect finance.

Question 5

After the repeal of Regulation Q, a problem for savings-and-loan associations (S&Ls)was that most of their assets were at __________ interest rates while their deposits were at __________ interest rates.

Accepted Answer

A)  low; low 
B)  low; high 
C)  high; low 
D)  high; high 
A)  low; low 
B)  low; high 
C)  high; low 
D)  high; high

Question 6

There is __________ "institutionalization" in U.S. financial markets, meaning a greater relative use of __________ finance.

Accepted Answer

A)  increasing; indirect 
B)  increasing; direct 
C)  decreasing; indirect 
D)  decreasing; direct 
A)  increasing; indirect 
B)  increasing; direct 
C)  decreasing; indirect 
D)  decreasing; direct

Question 7

Moral hazard is a problem

Accepted Answer

A)  peculiar to direct finance. 
B)  peculiar to mutual funds. 
C)  arising before a transaction is consummated. 
D)  arising after a transaction is consummated. 
A)  peculiar to direct finance. 
B)  peculiar to mutual funds. 
C)  arising before a transaction is consummated. 
D)  arising after a transaction is consummated.

Question 8

Which of the following statements is not true?

Accepted Answer

A)  Without financial intermediaries, small savers and small borrowers would often face expensive transaction costs. 
B)  Banks and other financial intermediaries reduce transaction costs. 
C)  The existence of financial intermediaries can be attributed to market imperfections. 
D)  Because of financial intermediaries, securities in financial markets are infinitely divisible. 
A)  Without financial intermediaries, small savers and small borrowers would often face expensive transaction costs. 
B)  Banks and other financial intermediaries reduce transaction costs. 
C)  The existence of financial intermediaries can be attributed to market imperfections. 
D)  Because of financial intermediaries, securities in financial markets are infinitely divisible.

Question 9

A drop in deposit rates, all else constant, __________ a bank's __________ risk.

Accepted Answer

A)  lowers; credit 
B)  lowers; interest rate 
C)  raises; credit 
D)  raises; interest rate 
A)  lowers; credit 
B)  lowers; interest rate 
C)  raises; credit 
D)  raises; interest rate

Question 10

__________ make(s)it easy for small savers to diversify their portfolios.

Accepted Answer

A)  Direct finance 
B)  Traded securities 
C)  Regulation Q 
D)  Financial intermediaries 
A)  Direct finance 
B)  Traded securities 
C)  Regulation Q 
D)  Financial intermediaries

Question 11

Regulation Q put a ceiling on

Accepted Answer

A)  bank loan rates. 
B)  loan rates at all depository institutions. 
C)  deposit rates. 
D)  the proportion of a savings-and-loan's assets made up of loans other than mortgages. 
A)  bank loan rates. 
B)  loan rates at all depository institutions. 
C)  deposit rates. 
D)  the proportion of a savings-and-loan's assets made up of loans other than mortgages.

Question 12

In a __________ plan, employees may choose __________.

Accepted Answer

A)  defined benefit; the assets they invest in 
B)  defined benefit; the benefits received during retirement 
C)  defined contribution; the assets they invest in 
D)  defined contribution; the benefits received during retirement 
A)  defined benefit; the assets they invest in 
B)  defined benefit; the benefits received during retirement 
C)  defined contribution; the assets they invest in 
D)  defined contribution; the benefits received during retirement

Question 13

Adverse selection is a problem

Accepted Answer

A)  unique to direct finance. 
B)  unique to indirect finance. 
C)  arising before a transaction is consummated. 
D)  arising after a transaction is consummated. 
A)  unique to direct finance. 
B)  unique to indirect finance. 
C)  arising before a transaction is consummated. 
D)  arising after a transaction is consummated.

Question 14

Which of the following statements is incorrect with respect to the 1980s?

Accepted Answer

A)  Corporate financing migrated from the short-term bank loan market to the commercial paper market. 
B)  Money market funds could offer transactions services coupled with a diversified money market investment vehicle at very low costs because of advances in computer technology. 
C)  Specialized monitoring services of commercial banks became more important because of new asset valuation models. 
D)  Innovations in information technology made some small borrowers more "bankable." 
A)  Corporate financing migrated from the short-term bank loan market to the commercial paper market. 
B)  Money market funds could offer transactions services coupled with a diversified money market investment vehicle at very low costs because of advances in computer technology. 
C)  Specialized monitoring services of commercial banks became more important because of new asset valuation models. 
D)  Innovations in information technology made some small borrowers more "bankable."

Question 15

When a financial intermediary purchases a nontraded claim of either a business or an individual, its main concern is with

Accepted Answer

A)  interest rate risk. 
B)  credit risk. 
C)  reinvestment rate risk. 
D)  None of the above. 
A)  interest rate risk. 
B)  credit risk. 
C)  reinvestment rate risk. 
D)  None of the above.

Question 16

Life insurance companies, because of the __________-term nature of their liabilities, prefer to hold __________-term assets.

Accepted Answer

A)  long; long 
B)  long; short 
C)  short; long 
D)  short; short 
A)  long; long 
B)  long; short 
C)  short; long 
D)  short; short

Question 17

If a bank has a lot of long-term loans, it will probably want to reduce interest rate risk by encouraging __________-term deposits, especially of interest rates are expected to __________ in the future.

Accepted Answer

A)  long; rise 
B)  long; fall 
C)  short; rise 
D)  short; fall 
A)  long; rise 
B)  long; fall 
C)  short; rise 
D)  short; fall

Question 18

Financial intermediaries are specialists in the production of

Accepted Answer

A)  market failure. 
B)  information. 
C)  traded assets. 
D)  commercial paper. 
A)  market failure. 
B)  information. 
C)  traded assets. 
D)  commercial paper.

Question 19

It is virtua+B78:F145lly impossible to save or lend nowadays without __________ being involved.

Accepted Answer

A)  traded securities 
B)  financial intermediaries 
C)  direct finance 
D)  disintermediation 
A)  traded securities 
B)  financial intermediaries 
C)  direct finance 
D)  disintermediation

Question 20

In the 1980s, banks lost many of their __________ borrowers, because these borrowers were able to sell their commercial paper to __________.

Accepted Answer

A)  small; savings-and-loan associations 
B)  small; money market mutual funds 
C)  large; savings-and-loan associations 
D)  large; money market mutual funds 
A)  small; savings-and-loan associations 
B)  small; money market mutual funds 
C)  large; savings-and-loan associations 
D)  large; money market mutual funds

Exam 11: The Nature of Financial Intermediation

If financial markets were perfect, financial intermediaries would

Which of the following statements is incorrect?

Non-traded securities are part of

Nontraded securities are part of

After the repeal of Regulation Q, a problem for savings-and-loan associations (S&Ls)was that most of their assets were at __________ interest rates while their deposits were at __________ interest rates.

There is __________ "institutionalization" in U.S. financial markets, meaning a greater relative use of __________ finance.

Moral hazard is a problem

Which of the following statements is not true?

A drop in deposit rates, all else constant, __________ a bank's __________ risk.

__________ make(s)it easy for small savers to diversify their portfolios.

Regulation Q put a ceiling on

In a __________ plan, employees may choose __________.

Adverse selection is a problem

Which of the following statements is incorrect with respect to the 1980s?

When a financial intermediary purchases a nontraded claim of either a business or an individual, its main concern is with

Life insurance companies, because of the __________-term nature of their liabilities, prefer to hold __________-term assets.

If a bank has a lot of long-term loans, it will probably want to reduce interest rate risk by encouraging __________-term deposits, especially of interest rates are expected to __________ in the future.

Financial intermediaries are specialists in the production of

It is virtua+B78:F145lly impossible to save or lend nowadays without __________ being involved.

In the 1980s, banks lost many of their __________ borrowers, because these borrowers were able to sell their commercial paper to __________.

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

After the repeal of Regulation Q, a problem for savings-and-loan associations (S&Ls)was that most of their assets were at interest rates while their deposits were at interest rates.

There is "institutionalization" in U.S. financial markets, meaning a greater relative use of finance.

A drop in deposit rates, all else constant, a bank's risk.

In a plan, employees may choose .

Life insurance companies, because of the -term nature of their liabilities, prefer to hold -term assets.

If a bank has a lot of long-term loans, it will probably want to reduce interest rate risk by encouraging -term deposits, especially of interest rates are expected to in the future.

In the 1980s, banks lost many of their borrowers, because these borrowers were able to sell their commercial paper to .