Question 1

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

Accepted Answer

A) Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. 
B) To receive the benefits of diversification that households may not be able to achieve on their own. 
C) The FI has can benefit from combining funds and negotiating lower asset prices and transactions costs. 
D) The FI can provide insurance at relatively low cost that will protect funds under management. 
E) All of the options. 
A) Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. 
B) To receive the benefits of diversification that households may not be able to achieve on their own. 
C) The FI has can benefit from combining funds and negotiating lower asset prices and transactions costs. 
D) The FI can provide insurance at relatively low cost that will protect funds under management. 
E) All of the options.

Question 2

In recent years, the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

Accepted Answer

A) True 
 B)False

Question 3

The part of the money supply produced by depository institutions is referred to outside money because it is produced outside of the government.

Accepted Answer

A) True 
 B)False

Question 4

The charter values of FIs will be higher if regulators

Accepted Answer

A) increase the cost of entry by requiring more capital. 
B) restrict the number of activities permitted by FIs, thereby increasing potential profits. 
C) restrict the number of FIs that can operate in a given market. 
D) increase the cost of entry by requiring more capital and restrict the number of activities permitted by FIs, thereby increasing potential profits. 
E) increase the cost of entry by requiring more capital and restrict the number of FIs that can operate in a given market. 
A) increase the cost of entry by requiring more capital. 
B) restrict the number of activities permitted by FIs, thereby increasing potential profits. 
C) restrict the number of FIs that can operate in a given market. 
D) increase the cost of entry by requiring more capital and restrict the number of activities permitted by FIs, thereby increasing potential profits. 
E) increase the cost of entry by requiring more capital and restrict the number of FIs that can operate in a given market.

Question 5

Because FIs remove imperfections between households and corporations, households tend to save more than they would if FIs did not exist.

Accepted Answer

A) True 
 B)False

Question 6

Safety and soundness regulations include all of the following layers of protection EXCEPT

Accepted Answer

A) the provision of guaranty funds. 
B) requirements encouraging diversification of assets. 
C) the creation of money for those FIs in financial trouble. 
D) requiring minimum levels of capital. 
E) monitoring and surveillance. 
A) the provision of guaranty funds. 
B) requirements encouraging diversification of assets. 
C) the creation of money for those FIs in financial trouble. 
D) requiring minimum levels of capital. 
E) monitoring and surveillance.

Question 7

The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in

Accepted Answer

A) generating profits and lowering costs. 
B) risk measurement and management. 
C) investment advice and brokerage services. 
D) time intermediation and denomination mediation. 
E) derivative securities and interbank borrowing. 
A) generating profits and lowering costs. 
B) risk measurement and management. 
C) investment advice and brokerage services. 
D) time intermediation and denomination mediation. 
E) derivative securities and interbank borrowing.

Question 8

As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade,

Accepted Answer

A) banks became more financially stable. 
B) it became easier to measure the riskiness of individual loans. 
C) there was a dramatic increase in systematic risk of the financial system. 
D) the Federal Reserve decreased the number of services that banks could provide. 
E) it became more difficult for households to obtain credit. 
A) banks became more financially stable. 
B) it became easier to measure the riskiness of individual loans. 
C) there was a dramatic increase in systematic risk of the financial system. 
D) the Federal Reserve decreased the number of services that banks could provide. 
E) it became more difficult for households to obtain credit.

Question 9

All of the following are examples of participants in the shadow banking system EXCEPT

Accepted Answer

A) money market mutual funds (MMMFs). 
B) structured investment vehicles (SIVs). 
C) credit hedge funds. 
D) limited-purpose finance companies. 
E) credit unions. 
A) money market mutual funds (MMMFs). 
B) structured investment vehicles (SIVs). 
C) credit hedge funds. 
D) limited-purpose finance companies. 
E) credit unions.

Question 10

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation?

Accepted Answer

A) Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. 
B) Financial intermediation has become more costly because it is necessary to invest in high cost technology. 
C) Financial intermediation has been unaffected. 
D) Financial intermediation has become more costly as global firms exploit economies of scale and scope. 
E) Financial intermediation has become less risky as firms become adept at maintaining zero gap positions. 
A) Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. 
B) Financial intermediation has become more costly because it is necessary to invest in high cost technology. 
C) Financial intermediation has been unaffected. 
D) Financial intermediation has become more costly as global firms exploit economies of scale and scope. 
E) Financial intermediation has become less risky as firms become adept at maintaining zero gap positions.

Question 11

Investment companies are successful in attracting business away from banks and insurance companies primarily because they

Accepted Answer

A) guarantee higher rates of return on savers' funds. 
B) remove interest rate risk for the saver. 
C) have no liquidity risk. 
D) give savers cheaper access to the direct securities markets. 
E) offer lower loan rates. 
A) guarantee higher rates of return on savers' funds. 
B) remove interest rate risk for the saver. 
C) have no liquidity risk. 
D) give savers cheaper access to the direct securities markets. 
E) offer lower loan rates.

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

In recent years, the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

The part of the money supply produced by depository institutions is referred to outside money because it is produced outside of the government.

The charter values of FIs will be higher if regulators

Because FIs remove imperfections between households and corporations, households tend to save more than they would if FIs did not exist.

Safety and soundness regulations include all of the following layers of protection EXCEPT

The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in

As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade,

All of the following are examples of participants in the shadow banking system EXCEPT

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation?

Investment companies are successful in attracting business away from banks and insurance companies primarily because they

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

Exam 1: Why Are Financial Institutions Special

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

In recent years, the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

The part of the money supply produced by depository institutions is referred to outside money because it is produced outside of the government.

The charter values of FIs will be higher if regulators

Because FIs remove imperfections between households and corporations, households tend to save more than they would if FIs did not exist.

Safety and soundness regulations include all of the following layers of protection EXCEPT

The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in

As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade,

All of the following are examples of participants in the shadow banking system EXCEPT

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation?

Investment companies are successful in attracting business away from banks and insurance companies primarily because they

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters