Question 1

A mutual life insurance company is owned and controlled by its

Accepted Answer

A)  partners. 
B)  managers. 
C)  stockholders. 
D)  policyholders. 
A)  partners. 
B)  managers. 
C)  stockholders. 
D)  policyholders. D

Question 2

The Gramm-Leach-Bliley Act of 1999

Accepted Answer

A)  allowed the creating of financial holding companies. 
B)  set conditions under which an FHC can set up a merchant bank. 
C)  brings the U.S. closer to the universal banking model. 
D)  does all of the above. 
A)  allowed the creating of financial holding companies. 
B)  set conditions under which an FHC can set up a merchant bank. 
C)  brings the U.S. closer to the universal banking model. 
D)  does all of the above. D

Question 3

In a(n)__________ insurance policy, the savings component is allocated among a menu of investment options.

Accepted Answer

A)  whole 
B)  term 
C)  universal 
D)  variable 
A)  whole 
B)  term 
C)  universal 
D)  variable D

Question 4

The net asset value of an open-end mutual fund is equal to the

Accepted Answer

A)  profits of the fund. 
B)  dividends paid out by the fund. 
C)  market value of the securities held by the fund. 
D)  price-earnings ratio of the fund. 
A)  profits of the fund. 
B)  dividends paid out by the fund. 
C)  market value of the securities held by the fund. 
D)  price-earnings ratio of the fund.

Question 5

The problem of vesting and funding are avoided by __________ pension plans.

Accepted Answer

A)  both defined benefit and defined contribution 
B)  defined benefit 
C)  defined contribution 
D)  neither defined benefit nor defined contribution 
A)  both defined benefit and defined contribution 
B)  defined benefit 
C)  defined contribution 
D)  neither defined benefit nor defined contribution

Question 6

A fully funded pension liability is one in which

Accepted Answer

A)  the Pension Benefit Guaranty Corporation insures full benefit payments. 
B)  enough money has been set aside to ensure that the promised pension can be paid out after allowing for interest payments. 
C)  the yield on the pension fund is equal to the inflation rate. 
D)  corporation pension contributions are equal to employee contributions. 
A)  the Pension Benefit Guaranty Corporation insures full benefit payments. 
B)  enough money has been set aside to ensure that the promised pension can be paid out after allowing for interest payments. 
C)  the yield on the pension fund is equal to the inflation rate. 
D)  corporation pension contributions are equal to employee contributions.

Question 7

Property and casualty insurance companies tend to invest heavily in municipal bonds because

Accepted Answer

A)  the bonds have higher yields than corporate bonds. 
B)  property and casualty insurance companies are required by regulators to hold at least 20 percent of their assets in the form of municipal bonds. 
C)  the bonds are tax-exempt. 
D)  they hold large state and local government pension funds, thus requiring them to hold an equal amount of municipal bonds. 
A)  the bonds have higher yields than corporate bonds. 
B)  property and casualty insurance companies are required by regulators to hold at least 20 percent of their assets in the form of municipal bonds. 
C)  the bonds are tax-exempt. 
D)  they hold large state and local government pension funds, thus requiring them to hold an equal amount of municipal bonds.

Question 8

Venture capital funds invest in the equity of

Accepted Answer

A)  start-up companies. 
B)  IPOs. 
C)  hedge funds. 
D)  convertible debt. 
A)  start-up companies. 
B)  IPOs. 
C)  hedge funds. 
D)  convertible debt.

Question 9

Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution is $2000 a year. Assuming a six percent rate of return, this pension plan is said to be

Accepted Answer

A)  fully funded. 
B)  partly funded. 
C)  unfunded. 
D)  fully vested. 
A)  fully funded. 
B)  partly funded. 
C)  unfunded. 
D)  fully vested.

Question 10

"Bootstrap financings" are buyouts financed by

Accepted Answer

A)  the company managers' own assets. 
B)  finance companies. 
C)  junk bonds. 
D)  new issuance of bonds. 
A)  the company managers' own assets. 
B)  finance companies. 
C)  junk bonds. 
D)  new issuance of bonds.

Question 11

Relative to life insurance companies, the liabilities of property and casualty insurance companies are

Accepted Answer

A)  longer-term. 
B)  more unpredictable. 
C)  less risky. 
D)  subject to higher taxes. 
A)  longer-term. 
B)  more unpredictable. 
C)  less risky. 
D)  subject to higher taxes.

Question 12

A mutual fund that charges a sales commission is a

Accepted Answer

A)  load fund. 
B)  no-load fund. 
C)  closed-end fund. 
D)  premium fund. 
A)  load fund. 
B)  no-load fund. 
C)  closed-end fund. 
D)  premium fund.

Question 13

The "primary" market is the market for

Accepted Answer

A)  hostile takeovers. 
B)  newly-issued securities. 
C)  equities of "blue chip" companies. 
D)  league tables. 
A)  hostile takeovers. 
B)  newly-issued securities. 
C)  equities of "blue chip" companies. 
D)  league tables.

Question 14

"Subordinated" debt is one form of __________ debt.

Accepted Answer

A)  mezzanine 
B)  uncollateralized 
C)  zero-coupon 
D)  risk-free 
A)  mezzanine 
B)  uncollateralized 
C)  zero-coupon 
D)  risk-free

Question 15

Because women have a longer average life span than men, they pay

Accepted Answer

A)  more for health insurance. 
B)  less for health insurance. 
C)  more for life insurance. 
D)  less for life insurance. 
A)  more for health insurance. 
B)  less for health insurance. 
C)  more for life insurance. 
D)  less for life insurance.

Question 16

Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution of $1200 a year. Assuming an eight percent rate of return, this pension plan is said to be

Accepted Answer

A)  fully funded. 
B)  partly funded. 
C)  unfunded. 
D)  fully vested. 
A)  fully funded. 
B)  partly funded. 
C)  unfunded. 
D)  fully vested.

Question 17

Unlike brokers, securities dealers

Accepted Answer

A)  operate in secondary markets. 
B)  risk capital losses. 
C)  trade "used" securities. 
D)  operate in primary markets. 
A)  operate in secondary markets. 
B)  risk capital losses. 
C)  trade "used" securities. 
D)  operate in primary markets.

Question 18

Universal life insurance was created in response to

Accepted Answer

A)  the popularity of whole life insurance. 
B)  the popularity of variable life insurance. 
C)  high interest rates. 
D)  deregulation of banking. 
A)  the popularity of whole life insurance. 
B)  the popularity of variable life insurance. 
C)  high interest rates. 
D)  deregulation of banking.

Question 19

In dollar terms the most important of all forms of property and casualty insurance is

Accepted Answer

A)  automobile liability insurance. 
B)  home owners insurance. 
C)  medical malpractice insurance. 
D)  fire insurance. 
A)  automobile liability insurance. 
B)  home owners insurance. 
C)  medical malpractice insurance. 
D)  fire insurance.

Question 20

Over 90 percent of life insurance companies are structured as __________ companies. Over 50 percent of industry assets are controlled by companies structured as __________ companies.

Accepted Answer

A)  mutual, mutual 
B)  mutual, stock 
C)  stock, mutual 
D)  stock, stock 
A)  mutual, mutual 
B)  mutual, stock 
C)  stock, mutual 
D)  stock, stock

Exam 13: Nondepository Financial Institutions

A mutual life insurance company is owned and controlled by its

The Gramm-Leach-Bliley Act of 1999

In a(n)__________ insurance policy, the savings component is allocated among a menu of investment options.

The net asset value of an open-end mutual fund is equal to the

The problem of vesting and funding are avoided by __________ pension plans.

A fully funded pension liability is one in which

Property and casualty insurance companies tend to invest heavily in municipal bonds because

Venture capital funds invest in the equity of

Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution is $2000 a year. Assuming a six percent rate of return, this pension plan is said to be

"Bootstrap financings" are buyouts financed by

Relative to life insurance companies, the liabilities of property and casualty insurance companies are

A mutual fund that charges a sales commission is a

The "primary" market is the market for

"Subordinated" debt is one form of __________ debt.

Because women have a longer average life span than men, they pay

Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution of $1200 a year. Assuming an eight percent rate of return, this pension plan is said to be

Unlike brokers, securities dealers

Universal life insurance was created in response to

In dollar terms the most important of all forms of property and casualty insurance is

Over 90 percent of life insurance companies are structured as __________ companies. Over 50 percent of industry assets are controlled by companies structured as __________ companies.

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

The Nature of Financial Intermediation

Depository 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

Over 90 percent of life insurance companies are structured as companies. Over 50 percent of industry assets are controlled by companies structured as companies.