Question 1

Which of the below statements is FALSE?

Accepted Answer

A)  Absent from any balance sheet of a depository institution is interest rate risk exposure. 
B)  Managers must be willing to accept some exposure, but they can take various measures to address the interest rate sensitivity of the institution's liabilities and its assets. 
C)  Regulators impose restrictions on the degree of interest rate risk a depository institution may be exposed to. 
D)  A depository institution will have an asset/liability committee that is responsible for monitoring the interest rate risk exposure. 
A)  Absent from any balance sheet of a depository institution is interest rate risk exposure. 
B)  Managers must be willing to accept some exposure, but they can take various measures to address the interest rate sensitivity of the institution's liabilities and its assets. 
C)  Regulators impose restrictions on the degree of interest rate risk a depository institution may be exposed to. 
D)  A depository institution will have an asset/liability committee that is responsible for monitoring the interest rate risk exposure.

Question 2

Which of the below statements is FALSE?

Accepted Answer

A)  There are two sets of capital adequacy standards for S&Ls as for banks. 
B)  Until the early 2000s, S&Ls and all other lenders financed housing through traditional mortgages at interest rates fixed for the life of the loan. 
C)  For S&Ls, if interest rates rise above the interest rate on the mortgage loan, a negative spread will result, which must result eventually in insolvency. 
D)  With the high volatility of interest rates in the 1970s, followed by the historically high level of interest rates in the early 1980s, all depository institutions began to lose funds to competitors exempt from ceilings, such as the newly formed money market funds; this development forced some increase in ceilings. 
A)  There are two sets of capital adequacy standards for S&Ls as for banks. 
B)  Until the early 2000s, S&Ls and all other lenders financed housing through traditional mortgages at interest rates fixed for the life of the loan. 
C)  For S&Ls, if interest rates rise above the interest rate on the mortgage loan, a negative spread will result, which must result eventually in insolvency. 
D)  With the high volatility of interest rates in the 1970s, followed by the historically high level of interest rates in the early 1980s, all depository institutions began to lose funds to competitors exempt from ceilings, such as the newly formed money market funds; this development forced some increase in ceilings.

Question 3

Which of the below statements is FALSE?

Accepted Answer

A)  At one time, thrifts were permitted to accept deposits transferable by check (negotiable), or, as they are more popularly known, checking accounts. 
B)  Depository institutions are highly regulated because of the important role that they play in the country's financial system. 
C)  Demand deposit accounts are the principal means that individuals and business entities use for making payments, and government monetary policy is implemented through the banking system. 
D)  Securities held for the purpose of satisfying net withdrawals and customer loan demands are sometimes referred to as secondary reserves. 
A)  At one time, thrifts were permitted to accept deposits transferable by check (negotiable), or, as they are more popularly known, checking accounts. 
B)  Depository institutions are highly regulated because of the important role that they play in the country's financial system. 
C)  Demand deposit accounts are the principal means that individuals and business entities use for making payments, and government monetary policy is implemented through the banking system. 
D)  Securities held for the purpose of satisfying net withdrawals and customer loan demands are sometimes referred to as secondary reserves.

Question 4

The basic motivation behind creation of S&Ls was the providing of funds for financing the purchase of a home.

Accepted Answer

A) True 
 B)False

Question 5

S&Ls invest in short-term assets for ________.

Accepted Answer

A)  liquidity and non-regulatory purposes. 
B)  long-term and regulatory purposes. 
C)  operational and regulatory purposes. 
D)  operational and illiquidity purposes. 
A)  liquidity and non-regulatory purposes. 
B)  long-term and regulatory purposes. 
C)  operational and regulatory purposes. 
D)  operational and illiquidity purposes.

Question 6

As the structures of S&L balance sheets and the consequent maturity mismatch led to widespread disaster, the Garn-St. Germain Act of 1982 expanded the types of assets in which S&Ls could invest. The acceptable list of investments now includes ________.

Accepted Answer

A)  consumer loans . 
B)  nonconsumer loans. 
C)  municipal securities. 
D)  All of these 
A)  consumer loans . 
B)  nonconsumer loans. 
C)  municipal securities. 
D)  All of these

Question 7

Which of the below statements is TRUE?

Accepted Answer

A)  A depository institution seeks to earn a positive spread between the assets it invests in (deposits and other sources) and the cost of its funds (loans and securities). 
B)  Interest rate risk refers to the risk that a borrower will default on a loan obligation to the depository institution or that the issuer of a security that the depository institution holds will default on its obligation 
C)  Regulatory risk is the risk that regulators will change the rules so as to adversely impact the earnings of the institution. 
D)  If the spread will be positive, it will cost the depository institution more to finance the government securities than it will earn on the funds invested in those securities. 
A)  A depository institution seeks to earn a positive spread between the assets it invests in (deposits and other sources) and the cost of its funds (loans and securities). 
B)  Interest rate risk refers to the risk that a borrower will default on a loan obligation to the depository institution or that the issuer of a security that the depository institution holds will default on its obligation 
C)  Regulatory risk is the risk that regulators will change the rules so as to adversely impact the earnings of the institution. 
D)  If the spread will be positive, it will cost the depository institution more to finance the government securities than it will earn on the funds invested in those securities.

Question 8

Federal and state-chartered credit unions are referred to as "natural person" credit unions because they provide financial services to qualifying members of the general public.

Accepted Answer

A) True 
 B)False

Question 9

________ means that there is no stock outstanding, so technically the depositors are the owners.

Accepted Answer

A)  S&L owned 
B)  Institutionally owned 
C)  Corporate stock ownership 
D)  Mutually owned 
A)  S&L owned 
B)  Institutionally owned 
C)  Corporate stock ownership 
D)  Mutually owned

Question 10

Savings deposits (checking accounts) pay no interest and can be withdrawn upon demand.

Accepted Answer

A) True 
 B)False

Question 11

Besides facing credit risk and interest rate risk, a depository institution must be prepared to satisfy withdrawals of funds by depositors and to provide loans to customers. Identify and explain two ways that a depository institution can accommodate withdrawal and loan demand.

Accepted Answer

A depository institution can accommodate

Question 12

The principal source of funds for savings banks is deposits.

Accepted Answer

A) True 
 B)False

Question 13

Since 1970, the shares of all federally chartered credit unions have been insured by the ________.

Accepted Answer

A)  Central Liquidity Facility 
B)  National Credit Union Administration 
C)  U.S. Central Credit Union 
D)  National Credit Union Share Insurance Fund 
A)  Central Liquidity Facility 
B)  National Credit Union Administration 
C)  U.S. Central Credit Union 
D)  National Credit Union Share Insurance Fund

Question 14

Demand deposits pay interest, typically below market interest rates; do not have a specific maturity; and, usually can be withdrawn upon demand.

Accepted Answer

A) True 
 B)False

Question 15

What is a corporate credit union?

Accepted Answer

One might think that a corporate credit

Question 16

Although S&Ls had a comparative disadvantage in originating mortgage loans, they lacked the expertise to make commercial and corporate loans.

Accepted Answer

A) True 
 B)False

Question 17

By interest rate risk, we refer to the prospect that the selling price of the security will be less than its purchase price, resulting in a loss.

Accepted Answer

A) True 
 B)False

Question 18

The Garn-St. Germain Act, not only granted thrifts the right to offer money market demand accounts so that S&Ls could compete with money market funds, but also ________ the types of assets in which S&Ls could invest.

Accepted Answer

A)  limited 
B)  shortened 
C)  broadened 
D)  maintained 
A)  limited 
B)  shortened 
C)  broadened 
D)  maintained

Question 19

The purpose of credit unions is to serve their members' lending needs.

Accepted Answer

A) True 
 B)False

Question 20

After 1981, the bulk of the liabilities of S&Ls consisted of passbook savings accounts and time deposits.

Accepted Answer

A) True 
 B)False

Exam 3: Depository Institutions: Activities and Characteristics

Which of the below statements is FALSE?

Which of the below statements is FALSE?

Which of the below statements is FALSE?

The basic motivation behind creation of S&Ls was the providing of funds for financing the purchase of a home.

S&Ls invest in short-term assets for ________.

As the structures of S&L balance sheets and the consequent maturity mismatch led to widespread disaster, the Garn-St. Germain Act of 1982 expanded the types of assets in which S&Ls could invest. The acceptable list of investments now includes ________.

Which of the below statements is TRUE?

Federal and state-chartered credit unions are referred to as "natural person" credit unions because they provide financial services to qualifying members of the general public.

________ means that there is no stock outstanding, so technically the depositors are the owners.

Savings deposits (checking accounts) pay no interest and can be withdrawn upon demand.

Besides facing credit risk and interest rate risk, a depository institution must be prepared to satisfy withdrawals of funds by depositors and to provide loans to customers. Identify and explain two ways that a depository institution can accommodate withdrawal and loan demand.

The principal source of funds for savings banks is deposits.

Since 1970, the shares of all federally chartered credit unions have been insured by the ________.

Demand deposits pay interest, typically below market interest rates; do not have a specific maturity; and, usually can be withdrawn upon demand.

What is a corporate credit union?

Although S&Ls had a comparative disadvantage in originating mortgage loans, they lacked the expertise to make commercial and corporate loans.

By interest rate risk, we refer to the prospect that the selling price of the security will be less than its purchase price, resulting in a loss.

The Garn-St. Germain Act, not only granted thrifts the right to offer money market demand accounts so that S&Ls could compete with money market funds, but also ________ the types of assets in which S&Ls could invest.

The purpose of credit unions is to serve their members' lending needs.

After 1981, the bulk of the liabilities of S&Ls consisted of passbook savings accounts and time deposits.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters