Question 1

Why do insurance companies often find it necessary to purchase reinsurance?

Accepted Answer

Reinsurance is purchased when insurance

Question 2

Which insurance companies, life or property and casualty, would you think would invest more in long-term assets? Explain.

Accepted Answer

Life insurance companies would have more

Question 3

Whole life insurance differs from term life in which of the following ways?

Accepted Answer

A)  Whole life has a rising premium as the policyholder ages, but term life has a fixed premium. 
B)  Term life has a savings component while whole life is pure insurance. 
C)  Term life is usually more expensive than whole life. 
D)  Whole life is a combination of term life insurance and a savings account. 
A)  Whole life has a rising premium as the policyholder ages, but term life has a fixed premium. 
B)  Term life has a savings component while whole life is pure insurance. 
C)  Term life is usually more expensive than whole life. 
D)  Whole life is a combination of term life insurance and a savings account.

Question 4

The use of coinsurance clauses and deductibles is an attempt by insurance companies to deal with the problem of:

Accepted Answer

A)  non-payment of premiums. 
B)  adverse selection. 
C)  insufficient government regulation. 
D)  moral hazard. 
A)  non-payment of premiums. 
B)  adverse selection. 
C)  insufficient government regulation. 
D)  moral hazard.

Question 5

Government-sponsored enterprises like Fannie Mae and Freddie Mac usually borrow at interest rates:

Accepted Answer

A)  below what private lenders pay. 
B)  exceeding what private lenders pay. 
C)  that are the same as private lenders since they are really a private lender. 
D)  that are slightly below the federal funds rate. 
A)  below what private lenders pay. 
B)  exceeding what private lenders pay. 
C)  that are the same as private lenders since they are really a private lender. 
D)  that are slightly below the federal funds rate.

Question 6

Citigroup is an example of:

Accepted Answer

A)  an Edge Act corporation. 
B)  a foreign bank. 
C)  a financial holding company. 
D)  a unit bank. 
A)  an Edge Act corporation. 
B)  a foreign bank. 
C)  a financial holding company. 
D)  a unit bank.

Question 7

The Dodd-Frank does all of the following except:

Accepted Answer

A)  sets out new rules for financial institutions and markets. 
B)  repeals the Glass-Steagall Act of 1933. 
C)  requires closer government oversight over key establishments called systemically important financial institutions. 
D)  sharply alters the authorities of the government agencies that govern the financial sector. 
A)  sets out new rules for financial institutions and markets. 
B)  repeals the Glass-Steagall Act of 1933. 
C)  requires closer government oversight over key establishments called systemically important financial institutions. 
D)  sharply alters the authorities of the government agencies that govern the financial sector.

Question 8

Pension plans can be thought of as the opposite of life insurance because life insurance:

Accepted Answer

A)  costs far more than pension plans. 
B)  companies spread risk while pension plans are only spread within the company. 
C)  pays off when you die while the pension plan pays off if you don't. 
D)  pools the savings of many and pension plans do not. 
A)  costs far more than pension plans. 
B)  companies spread risk while pension plans are only spread within the company. 
C)  pays off when you die while the pension plan pays off if you don't. 
D)  pools the savings of many and pension plans do not.

Question 9

A unit bank is a bank that:

Accepted Answer

A)  only makes one type of loan, (i.e.; home mortgages.) 
B)  only offers savings accounts. 
C)  provides a myriad of financial services, so customers get all or most of their financial needs taken care of at the bank. 
D)  has no branches. 
A)  only makes one type of loan, (i.e.; home mortgages.) 
B)  only offers savings accounts. 
C)  provides a myriad of financial services, so customers get all or most of their financial needs taken care of at the bank. 
D)  has no branches.

Question 10

Finance companies perform all of the following functions, except:

Accepted Answer

A)  issue commercial paper and securities. 
B)  take deposits. 
C)  make loans. 
D)  lease equipment to firms. 
A)  issue commercial paper and securities. 
B)  take deposits. 
C)  make loans. 
D)  lease equipment to firms.

Question 11

Explain the difference between a pension fund that is a defined-contribution plan from one that is a defined-benefit.

Accepted Answer

A defined benefit plan has the participa

Question 12

In what way(s) can a pension plan be seen as the opposite of life insurance?

Accepted Answer

A pension plan pays off if you live; lif

Question 13

Which of the following statements best completes the following statement: "Over the past 40 years, the percentage(s) of assets for all financial intermediaries…"?

Accepted Answer

A)  controlled by banks has decreased as has the percentage for mutual funds while insurance companies have increased their percentage. 
B)  controlled by insurance companies and mutual funds has decreased and the percentage controlled by banks has increased. 
C)  controlled by banks and insurance companies has decreased while the percentage controlled by mutual funds and pensions has increased. 
D)  controlled by banks, insurance companies, mutual funds and pensions have all increased. 
A)  controlled by banks has decreased as has the percentage for mutual funds while insurance companies have increased their percentage. 
B)  controlled by insurance companies and mutual funds has decreased and the percentage controlled by banks has increased. 
C)  controlled by banks and insurance companies has decreased while the percentage controlled by mutual funds and pensions has increased. 
D)  controlled by banks, insurance companies, mutual funds and pensions have all increased.

Question 14

In the U.S. today:

Accepted Answer

A)  most banks are federally chartered. 
B)  most banks are state chartered. 
C)  there are approximately equal numbers of state and federally chartered banks. 
D)  all new banks are federally chartered. 
A)  most banks are federally chartered. 
B)  most banks are state chartered. 
C)  there are approximately equal numbers of state and federally chartered banks. 
D)  all new banks are federally chartered.

Question 15

Property and casualty insurers will hold assets of shorter maturities than life insurance companies because:

Accepted Answer

A)  shorter maturity assets usually have higher returns. 
B)  life insurance companies may find they need to get liquid unexpectedly. 
C)  property and casualty insurers can find themselves needing to get liquid unexpectedly. 
D)  life insurance companies generally take on more risk than property and casualty companies. 
A)  shorter maturity assets usually have higher returns. 
B)  life insurance companies may find they need to get liquid unexpectedly. 
C)  property and casualty insurers can find themselves needing to get liquid unexpectedly. 
D)  life insurance companies generally take on more risk than property and casualty companies.

Question 16

It has been argued that regulations can often be the source of innovation. Provide an example of this in the banking industry.

Accepted Answer

A good example of regulations leading to

Question 17

In most companies, an employee must work for a number of years before qualifying for pension benefits. This process is referred to as:

Accepted Answer

A)  a defined-benefit period. 
B)  vesting. 
C)  regulated contribution period. 
D)  mandatory benefit pending. 
A)  a defined-benefit period. 
B)  vesting. 
C)  regulated contribution period. 
D)  mandatory benefit pending.

Question 18

Insurance companies offer two basic type of insurance; these are:

Accepted Answer

A)  life insurance and property and casualty insurance. 
B)  life insurance and mutual funds. 
C)  property and casualty companies. 
D)  whole life and term life insurance companies. 
A)  life insurance and property and casualty insurance. 
B)  life insurance and mutual funds. 
C)  property and casualty companies. 
D)  whole life and term life insurance companies.

Question 19

As a result of technology, many small businesses today:

Accepted Answer

A)  are located closer to their bank. 
B)  are located further from their bank. 
C)  have more face-to-face interactions with their banker. 
D)  no longer need banks. 
A)  are located closer to their bank. 
B)  are located further from their bank. 
C)  have more face-to-face interactions with their banker. 
D)  no longer need banks.

Question 20

The Volcker rule in the Dodd-Frank Act does which of the following?

Accepted Answer

A)  Creates a host of new agencies to streamline the regulatory process 
B)  Increases oversight of specific institutions regarded as a systemic risk 
C)  Introduces significant regulation of hedge funds 
D)  Forbids insured depositories from proprietary trading 
A)  Creates a host of new agencies to streamline the regulatory process 
B)  Increases oversight of specific institutions regarded as a systemic risk 
C)  Introduces significant regulation of hedge funds 
D)  Forbids insured depositories from proprietary trading

Exam 13:Financial Industry Structure

Why do insurance companies often find it necessary to purchase reinsurance?

Which insurance companies, life or property and casualty, would you think would invest more in long-term assets? Explain.

Whole life insurance differs from term life in which of the following ways?

The use of coinsurance clauses and deductibles is an attempt by insurance companies to deal with the problem of:

Government-sponsored enterprises like Fannie Mae and Freddie Mac usually borrow at interest rates:

Citigroup is an example of:

The Dodd-Frank does all of the following except:

Pension plans can be thought of as the opposite of life insurance because life insurance:

A unit bank is a bank that:

Finance companies perform all of the following functions, except:

Explain the difference between a pension fund that is a defined-contribution plan from one that is a defined-benefit.

In what way(s) can a pension plan be seen as the opposite of life insurance?

Which of the following statements best completes the following statement: "Over the past 40 years, the percentage(s) of assets for all financial intermediaries…"?

In the U.S. today:

Property and casualty insurers will hold assets of shorter maturities than life insurance companies because:

It has been argued that regulations can often be the source of innovation. Provide an example of this in the banking industry.

In most companies, an employee must work for a number of years before qualifying for pension benefits. This process is referred to as:

Insurance companies offer two basic type of insurance; these are:

As a result of technology, many small businesses today:

The Volcker rule in the Dodd-Frank Act does which of the following?

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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