Question 1

In many cases, life insurance companies will require applicants to take a physical.This is done to avoid the problem of:

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) free riding. 
D) transaction costs. 
A) adverse selection. 
B) moral hazard. 
C) free riding. 
D) transaction costs.

Question 2

Universal banks are:

Accepted Answer

A) firms that engage in banking services across many countries. 
B) firms that engage a wide array of financial and non-financial activities. 
C) banks that make direct investment in non-financial firms. 
D) multinational corporations that own U.S.banks. 
A) firms that engage in banking services across many countries. 
B) firms that engage a wide array of financial and non-financial activities. 
C) banks that make direct investment in non-financial firms. 
D) multinational corporations that own U.S.banks.

Question 3

Why do you think Congress and the President are reluctant to fix the problems (identified in the text) with the Social Security System?

Accepted Answer

As the text points out, the system canno

Question 4

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 5

Many states prohibited bank branching because of all of the following except:

Accepted Answer

A) they feared the concentration and monopoly power of large banks. 
B) they generated significant revenue from issuing bank charters. 
C) they wanted to protect the profits of banks since they generated tax revenue from these profits. 
D) the McFadden Act of 1927. 
A) they feared the concentration and monopoly power of large banks. 
B) they generated significant revenue from issuing bank charters. 
C) they wanted to protect the profits of banks since they generated tax revenue from these profits. 
D) the McFadden Act of 1927.

Question 6

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 7

Lloyd's of London has a reputation for insuring:

Accepted Answer

A) only low risk stable enterprises. 
B) unique and sometimes very odd situations. 
C) only physical structures to minimize the risks to their underwriters. 
D) only marine-related risks. 
A) only low risk stable enterprises. 
B) unique and sometimes very odd situations. 
C) only physical structures to minimize the risks to their underwriters. 
D) only marine-related risks.

Question 8

The interest rate at which banks lend each other Eurodollars is known as:

Accepted Answer

A) the international federal funds rate. 
B) the London Interbank Offered Rate. 
C) the discount rate. 
D) the International Prime Rate. 
A) the international federal funds rate. 
B) the London Interbank Offered Rate. 
C) the discount rate. 
D) the International Prime Rate.

Question 9

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 10

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 11

Which of the following is an accurate statement about universal banks?

Accepted Answer

A) In Germany universal banks do everything under one roof, including direct investment in the shares of nonfinancial firms. 
B) In Germany the provision of insurance, banking, and securities must be done by separate corporations. 
C) As in Germany, universal banks in the United States do everything under one roof, including direct investment in the shares of nonfinancial firms. 
D) Universal banks in the United States account for the largest share of financial intermediary assets. 
A) In Germany universal banks do everything under one roof, including direct investment in the shares of nonfinancial firms. 
B) In Germany the provision of insurance, banking, and securities must be done by separate corporations. 
C) As in Germany, universal banks in the United States do everything under one roof, including direct investment in the shares of nonfinancial firms. 
D) Universal banks in the United States account for the largest share of financial intermediary assets.

Question 12

The sharp reduction in the number of banks that has occurred since the mid-1990s has been due primarily to:

Accepted Answer

A) bank failures from increased competition. 
B) bank mergers. 
C) the closing of banks by federal regulators. 
D) the revoking of state bank charters. 
A) bank failures from increased competition. 
B) bank mergers. 
C) the closing of banks by federal regulators. 
D) the revoking of state bank charters.

Question 13

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 14

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 15

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 16

With the U.S.Social Security System, the burden of funding the system rests on:

Accepted Answer

A) the current workers. 
B) the retirees. 
C) the federal government. 
D) the Social Security Administration. 
A) the current workers. 
B) the retirees. 
C) the federal government. 
D) the Social Security Administration.

Question 17

The reinsurance market is characterized as having:

Accepted Answer

A) a few buyers and many sellers. 
B) many buyers and sellers. 
C) few buyers and sellers. 
D) many buyers and a few sellers. 
A) a few buyers and many sellers. 
B) many buyers and sellers. 
C) few buyers and sellers. 
D) many buyers and a few sellers.

Question 18

Many insurance companies sell group policies that cover all of the employees at a particular firm, or all of the members of a particular organization.How could this policy help to overcome the problem of adverse selection?

Accepted Answer

By requiring all of the members of the f

Question 19

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 20

Often Eurodollar deposits earn higher returns than U.S.bank deposits for all of the following reasons except:

Accepted Answer

A) Eurodollar deposits are not subject to U.S.reserve requirements. 
B) the bank does not have to pay deposit insurance premiums on these deposits. 
C) regulatory compliance may be more costly for a foreign bank than a U.S.bank. 
D) taxes on the profits on banks outside the U.S.may be lower on banks inside the U.S. 
A) Eurodollar deposits are not subject to U.S.reserve requirements. 
B) the bank does not have to pay deposit insurance premiums on these deposits. 
C) regulatory compliance may be more costly for a foreign bank than a U.S.bank. 
D) taxes on the profits on banks outside the U.S.may be lower on banks inside the U.S.

Exam 13: Financial Industry Structure

In many cases, life insurance companies will require applicants to take a physical.This is done to avoid the problem of:

Universal banks are:

Why do you think Congress and the President are reluctant to fix the problems (identified in the text) with the Social Security System?

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

Many states prohibited bank branching because of all of the following except:

In the U.S.today:

Lloyd's of London has a reputation for insuring:

The interest rate at which banks lend each other Eurodollars is known as:

As a result of technology, many small businesses today:

Catastrophe bonds or "cat bonds" were developed:

Which of the following is an accurate statement about universal banks?

The sharp reduction in the number of banks that has occurred since the mid-1990s has been due primarily to:

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

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

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

With the U.S.Social Security System, the burden of funding the system rests on:

The reinsurance market is characterized as having:

Many insurance companies sell group policies that cover all of the employees at a particular firm, or all of the members of a particular organization.How could this policy help to overcome the problem of adverse selection?

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

Often Eurodollar deposits earn higher returns than U.S.bank deposits for all of the following reasons except:

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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