Question 1

The actual results of the McFadden Act included:

Accepted Answer

A)  increased efficiency of banking across the country. 
B)  a tight network of interconnected banks across the country. 
C)  the continued operation of small inefficient banks. 
D)  the elimination of banking monopolies. 
A)  increased efficiency of banking across the country. 
B)  a tight network of interconnected banks across the country. 
C)  the continued operation of small inefficient banks. 
D)  the elimination of banking monopolies.

Question 2

Accounts receivable loans provided by finance companies provide firms with:

Accepted Answer

A)  start-up capital. 
B)  the ability to turn a liability into an asset. 
C)  the ability to turn a relatively illiquid asset into liquidity. 
D)  inventory loans. 
A)  start-up capital. 
B)  the ability to turn a liability into an asset. 
C)  the ability to turn a relatively illiquid asset into liquidity. 
D)  inventory loans.

Question 3

Modern forms of insurance can be traced back to around:

Accepted Answer

A)  the early 1900s. 
B)  the early 1400s. 
C)  the mid 1800s. 
D)  the late 1700s. 
A)  the early 1900s. 
B)  the early 1400s. 
C)  the mid 1800s. 
D)  the late 1700s.

Question 4

Because most insurance companies insure many people, they do not have to worry about the problem of:

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  spreading of risk. 
D)  information asymmetry. 
A)  moral hazard. 
B)  adverse selection. 
C)  spreading of risk. 
D)  information asymmetry.

Question 5

The Bank Holding Company Act of 1956:

Accepted Answer

A)  significantly broadened the scope of what bank holding companies could do. 
B)  limited bank holding companies to operating only within their chartered state. 
C)  limited the scope of bank holding companies in terms of services offered. 
D)  repealed the McFadden Act of 1927. 
A)  significantly broadened the scope of what bank holding companies could do. 
B)  limited bank holding companies to operating only within their chartered state. 
C)  limited the scope of bank holding companies in terms of services offered. 
D)  repealed the McFadden Act of 1927.

Question 6

A homeowner discovers that a large tree in his yard is diseased and may fall in a bad windstorm and if it falls, it will likely destroy the garage. The cost to have the tree cut down is significant but the homeowner has an insurance policy and figures that if the tree falls and destroys the garage, the insurance company will pay, and the deductible is less than the cost to have the tree removed. This is an example of:

Accepted Answer

A)  information symmetry. 
B)  adverse selection. 
C)  moral hazard. 
D)  screening. 
A)  information symmetry. 
B)  adverse selection. 
C)  moral hazard. 
D)  screening.

Question 7

Banks exert some control over who will regulate them because banks:

Accepted Answer

A)  spend a lot of money contributing to political campaigns. 
B)  can switch their charter from state to federal and vice versa. 
C)  have the right to decide on which regulator will oversee their bank. 
D)  pay the salary of the regulator. 
A)  spend a lot of money contributing to political campaigns. 
B)  can switch their charter from state to federal and vice versa. 
C)  have the right to decide on which regulator will oversee their bank. 
D)  pay the salary of the regulator.

Question 8

Insurance companies perform all of the following functions performed by financial intermediaries except:

Accepted Answer

A)  transferring risk. 
B)  pooling the resources of small savers. 
C)  making large investments. 
D)  supplying liquidity. 
A)  transferring risk. 
B)  pooling the resources of small savers. 
C)  making large investments. 
D)  supplying liquidity.

Question 9

An Edge Act Corporation is:

Accepted Answer

A)  a company created so a U.S. bank can operate in more than one state. 
B)  a subsidiary of a bank created to provide insurance and securities services. 
C)  a company created by a non-bank corporation used to purchase and operate banks. 
D)  a subsidiary of a domestic bank that is established specifically to engage in international banking transactions. 
A)  a company created so a U.S. bank can operate in more than one state. 
B)  a subsidiary of a bank created to provide insurance and securities services. 
C)  a company created by a non-bank corporation used to purchase and operate banks. 
D)  a subsidiary of a domestic bank that is established specifically to engage in international banking transactions.

Question 10

Which of the following statements is false?

Accepted Answer

A)  Pension plans and life insurance are often both offered by the same institution. 
B)  Life insurance companies hold more in stocks than pension funds do. 
C)  Life insurance pays off when you die while the pension plan pays off if you don't. 
D)  They are both vehicles for saving. 
A)  Pension plans and life insurance are often both offered by the same institution. 
B)  Life insurance companies hold more in stocks than pension funds do. 
C)  Life insurance pays off when you die while the pension plan pays off if you don't. 
D)  They are both vehicles for saving.

Question 11

Catastrophe bonds or "cat bonds" were developed:

Accepted Answer

A)  by reinsurance companies to finance their growth. 
B)  as an alternative to purchasing reinsurance. 
C)  prior to the creation of reinsurance companies but are being phased out. 
D)  by the U.S. government to provide insurance against national disasters. 
A)  by reinsurance companies to finance their growth. 
B)  as an alternative to purchasing reinsurance. 
C)  prior to the creation of reinsurance companies but are being phased out. 
D)  by the U.S. government to provide insurance against national disasters.

Question 12

The financial crisis in the United States in 2007-2009 brought about all but which of the following changes:

Accepted Answer

A)  a rise in the number of unit banks. 
B)  an increase in the deposit share of the top four U.S. commercial banks. 
C)  the placement of the two government-sponsored enterprises for housing finance into conservatorship. 
D)  a run on money-market mutual funds. 
A)  a rise in the number of unit banks. 
B)  an increase in the deposit share of the top four U.S. commercial banks. 
C)  the placement of the two government-sponsored enterprises for housing finance into conservatorship. 
D)  a run on money-market mutual funds.

Question 13

Fannie Mae, Freddie Mac, and similar government-sponsored enterprises obtain their funds from:

Accepted Answer

A)  the U.S. Treasury. 
B)  the Federal Reserve. 
C)  issuing commercial paper and bonds. 
D)  both the U.S. Treasury and the Federal Reserve. 
A)  the U.S. Treasury. 
B)  the Federal Reserve. 
C)  issuing commercial paper and bonds. 
D)  both the U.S. Treasury and the Federal Reserve.

Question 14

In recent years the U.S. banking structure has changed in such a way that there are now:

Accepted Answer

A)  more banks. 
B)  fewer branches. 
C)  fewer banks but more branches. 
D)  fewer banks and fewer banks with branches. 
A)  more banks. 
B)  fewer branches. 
C)  fewer banks but more branches. 
D)  fewer banks and fewer banks with branches.

Question 15

From a transaction cost perspective, discuss why a firm may contract with an investment bank to underwrite or place an issue.

Accepted Answer

Investment banks generate their fees fro

Question 16

Owners and managers have cited three reasons for the creation of large financial firms or universal banks. What are these reasons?

Accepted Answer

The first is diversification: their prof

Question 17

Bank holding companies developed:

Accepted Answer

A)  to get around the limitations on bank branching. 
B)  so foreign banks could open branches in the U.S. 
C)  to circumvent the regulation by the Office of the Comptroller of the Currency. 
D)  so that unit banks could combine into larger banks. 
A)  to get around the limitations on bank branching. 
B)  so foreign banks could open branches in the U.S. 
C)  to circumvent the regulation by the Office of the Comptroller of the Currency. 
D)  so that unit banks could combine into larger banks.

Question 18

Many health insurers require a deductible where the policyholder pays the first part of any loss. The use of a deductible most directly treats the problem of:

Accepted Answer

A)  free riding. 
B)  adverse selection. 
C)  people going uninsured. 
D)  moral hazard. 
A)  free riding. 
B)  adverse selection. 
C)  people going uninsured. 
D)  moral hazard.

Question 19

Lloyd's of London is perhaps most known for:

Accepted Answer

A)  being the largest insurance company in the world. 
B)  going out of business when it insured too many odd risks. 
C)  offering insurance against unusual risks. 
D)  being the oldest insurance company in the world. 
A)  being the largest insurance company in the world. 
B)  going out of business when it insured too many odd risks. 
C)  offering insurance against unusual risks. 
D)  being the oldest insurance company in the world.

Question 20

A very controversial issue in many states currently is whether or not insurance companies should be allowed to use a person's credit history as a tool in determining the individual's automobile and homeowner insurance premium. Without getting into the legal or ethical issues, what do you think the insurance companies' motives might be for wanting to use the credit report?

Accepted Answer

This could be an information issue. It i

Exam 13:Financial Industry Structure

The actual results of the McFadden Act included:

Accounts receivable loans provided by finance companies provide firms with:

Modern forms of insurance can be traced back to around:

Because most insurance companies insure many people, they do not have to worry about the problem of:

The Bank Holding Company Act of 1956:

Banks exert some control over who will regulate them because banks:

Insurance companies perform all of the following functions performed by financial intermediaries except:

An Edge Act Corporation is:

Which of the following statements is false?

Catastrophe bonds or "cat bonds" were developed:

The financial crisis in the United States in 2007-2009 brought about all but which of the following changes:

Fannie Mae, Freddie Mac, and similar government-sponsored enterprises obtain their funds from:

In recent years the U.S. banking structure has changed in such a way that there are now:

From a transaction cost perspective, discuss why a firm may contract with an investment bank to underwrite or place an issue.

Owners and managers have cited three reasons for the creation of large financial firms or universal banks. What are these reasons?

Bank holding companies developed:

Many health insurers require a deductible where the policyholder pays the first part of any loss. The use of a deductible most directly treats the problem of:

Lloyd's of London is perhaps most known for:

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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