Question 1

Why are consumers better off obtaining credit from sources other than consumer finance companies?

Accepted Answer

Consumer finance companies are separate corporations from retailers or manufacturing companies or are owned by banks.Typically,these companies charge higher interest rates and make loans to consumers who cannot obtain credit from other sources.

Question 2

Business finance companies also specialize in ________.

Accepted Answer

A)  leasing equipment 
B)  derivatives 
C)  securitization 
D)  mortgages 
A)  leasing equipment 
B)  derivatives 
C)  securitization 
D)  mortgages A

Question 3

A corporation in order to issue new shares will have to use ________.

Accepted Answer

A)  financial leverage 
B)  an investment bank 
C)  accumulated profits 
D)  debt 
A)  financial leverage 
B)  an investment bank 
C)  accumulated profits 
D)  debt B

Question 4

Which of the following is true?

Accepted Answer

A)  Insider information is public information. 
B)  Brokerage firms act as brokers, dealers, and investment bankers. 
C)  Dealers are pure intermediaries who act as agents. 
D)  Brokers make their living by selling securities at a higher price than what they paid for them. 
A)  Insider information is public information. 
B)  Brokerage firms act as brokers, dealers, and investment bankers. 
C)  Dealers are pure intermediaries who act as agents. 
D)  Brokers make their living by selling securities at a higher price than what they paid for them.

Question 5

Property insurance companies ________.

Accepted Answer

A)  cover losses of real property 
B)  pay a sum of money if noncatastrophic events occur 
C)  provide income if a person dies, is incapacitated by illness, or retires 
D)  protect against legal liability exposures 
A)  cover losses of real property 
B)  pay a sum of money if noncatastrophic events occur 
C)  provide income if a person dies, is incapacitated by illness, or retires 
D)  protect against legal liability exposures

Question 6

The Toronto Stock Exchange was established in ________.

Accepted Answer

A)  1852 
B)  1832 
C)  1822 
D)  1902 
A)  1852 
B)  1832 
C)  1822 
D)  1902

Question 7

Which of the following is a nonbank financial institution?

Accepted Answer

A)  A life insurance company 
B)  A credit union 
C)  A savings and loan association 
D)  A mutual fund 
A)  A life insurance company 
B)  A credit union 
C)  A savings and loan association 
D)  A mutual fund

Question 8

Which of the following funds make investments in new startup businesses?

Accepted Answer

A)  Capital buyout funds 
B)  Venture capital funds 
C)  Mutual funds 
D)  LBO funds 
A)  Capital buyout funds 
B)  Venture capital funds 
C)  Mutual funds 
D)  LBO funds

Question 9

Permanent life insurance is also known as ________.

Accepted Answer

A)  endowment insurance 
B)  term life insurance 
C)  dowry insurance 
D)  annuity insurance 
A)  endowment insurance 
B)  term life insurance 
C)  dowry insurance 
D)  annuity insurance

Question 10

The only insurance companies that are allowed to provide insurance that guarantees the timely repayment of bond principal and interest when a debt issuer defaults are ________.

Accepted Answer

A)  monoline insurance companies 
B)  bond insurance companies 
C)  debt insurance companies 
D)  credit insurance companies 
A)  monoline insurance companies 
B)  bond insurance companies 
C)  debt insurance companies 
D)  credit insurance companies

Question 11

How does the economic concept of adverse selection apply to the lending activities of insurers? Provide an example.

Accepted Answer

In the case of an insurance policy,moral

Question 12

List insurance management practices for lowering adverse selection and moral hazard.

Accepted Answer

Insurance management practices include:

Question 13

Issuing a ________ is the same as providing insurance on the debt instrument because,just like insurance,it makes a payment to the holder when there is a negative credit event.

Accepted Answer

A)  debit note 
B)  debit-default swap 
C)  credit-default swap 
D)  credit note 
A)  debit note 
B)  debit-default swap 
C)  credit-default swap 
D)  credit note

Question 14

Market-neutral strategies include buying a(n)________ security and sell ________ of a higher valued security

Accepted Answer

A)  cheap; more 
B)  cheap; less 
C)  expensive; less 
D)  expensive; more 
A)  cheap; more 
B)  cheap; less 
C)  expensive; less 
D)  expensive; more

Question 15

Reinsurance ________.

Accepted Answer

A)  allows the insured to reduce the premium by accepting a portion of the risk that would otherwise be allocated to the insurance company 
B)  allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to another company in exchange for a portion of the premium 
C)  allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to the insured in exchange for a rebate on the premium 
D)  None of the above 
A)  allows the insured to reduce the premium by accepting a portion of the risk that would otherwise be allocated to the insurance company 
B)  allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to another company in exchange for a portion of the premium 
C)  allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to the insured in exchange for a rebate on the premium 
D)  None of the above

Question 16

Individual life insurance ________.

Accepted Answer

A)  is regulated by the Bank of Canada 
B)  is sold one policy at a time 
C)  has been extremely volatile over time 
D)  is sold to a group of people at a time 
A)  is regulated by the Bank of Canada 
B)  is sold one policy at a time 
C)  has been extremely volatile over time 
D)  is sold to a group of people at a time

Question 17

Examples of crown finance companies are ________.

Accepted Answer

A)  the Bank of Canada and the Office of the Superintendent of Financial Institutions Canada 
B)  the Bank of Canada and Canada Deposit Insurance Corporation 
C)  Farm Credit Canada and Export Development Canada 
D)  Both A and B of the above 
A)  the Bank of Canada and the Office of the Superintendent of Financial Institutions Canada 
B)  the Bank of Canada and Canada Deposit Insurance Corporation 
C)  Farm Credit Canada and Export Development Canada 
D)  Both A and B of the above

Question 18

Which of the following transactions would involve an investment bank?

Accepted Answer

A)  New shares of stock are issued by a corporation. 
B)  One corporation selling shares of another corporation. 
C)  A pension fund manager buys a bond in the secondary market. 
D)  An investor buying shares on the TSX. 
A)  New shares of stock are issued by a corporation. 
B)  One corporation selling shares of another corporation. 
C)  A pension fund manager buys a bond in the secondary market. 
D)  An investor buying shares on the TSX.

Question 19

To reduce adverse selection,insurance providers collect information on policyholders.This is known as ________.

Accepted Answer

A)  screening 
B)  provision 
C)  deduction 
D)  coinsurance 
A)  screening 
B)  provision 
C)  deduction 
D)  coinsurance

Question 20

Life insurance company regulation is the responsibility of ________.

Accepted Answer

A)  the OSFI and Assuris 
B)  the Bank of Canada and Assuris 
C)  the OSFI and the CDIC 
D)  the OSFI and the Bank of Canada 
A)  the OSFI and Assuris 
B)  the Bank of Canada and Assuris 
C)  the OSFI and the CDIC 
D)  the OSFI and the Bank of Canada

Exam 12: Nonbank Finance

Why are consumers better off obtaining credit from sources other than consumer finance companies?

Business finance companies also specialize in ________.

A corporation in order to issue new shares will have to use ________.

Which of the following is true?

Property insurance companies ________.

The Toronto Stock Exchange was established in ________.

Which of the following is a nonbank financial institution?

Which of the following funds make investments in new startup businesses?

Permanent life insurance is also known as ________.

The only insurance companies that are allowed to provide insurance that guarantees the timely repayment of bond principal and interest when a debt issuer defaults are ________.

How does the economic concept of adverse selection apply to the lending activities of insurers? Provide an example.

List insurance management practices for lowering adverse selection and moral hazard.

Issuing a ________ is the same as providing insurance on the debt instrument because,just like insurance,it makes a payment to the holder when there is a negative credit event.

Market-neutral strategies include buying a(n)________ security and sell ________ of a higher valued security

Reinsurance ________.

Individual life insurance ________.

Examples of crown finance companies are ________.

Which of the following transactions would involve an investment bank?

To reduce adverse selection,insurance providers collect information on policyholders.This is known as ________.

Life insurance company regulation is the responsibility of ________.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

Market-neutral strategies include buying a(n) security and sell of a higher valued security