Question 1

Reinsurance is used by insurance companies faced with:

Accepted Answer

A) the prospects of a large but diversified risk. 
B) inadequate capital to handle a potential loss. 
C) insolvency. 
D) the problem of moral hazard. 
A) the prospects of a large but diversified risk. 
B) inadequate capital to handle a potential loss. 
C) insolvency. 
D) the problem of moral hazard.

Question 2

What is the basic difference(s) between term and whole life insurance?

Accepted Answer

Term life insurance is just life insuran

Question 3

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 is

Question 4

Defined-benefit plans:

Accepted Answer

A) are more common than defined contribution plans. 
B) pay a pension based on the amount contributed into the plan by the employee and employer. 
C) do not require any responsibility on the part of the employer for the employees' retirement income; it is based on employee contributions. 
D) usually require an employee to work a very long time for the same employer in order to reap a large benefit. 
A) are more common than defined contribution plans. 
B) pay a pension based on the amount contributed into the plan by the employee and employer. 
C) do not require any responsibility on the part of the employer for the employees' retirement income; it is based on employee contributions. 
D) usually require an employee to work a very long time for the same employer in order to reap a large benefit.

Question 5

A person who discovers that he/she has advanced stages of cancer and calls his/her life insurance agent to double his/her insurance policy is an example of:

Accepted Answer

A) a moral hazard risk. 
B) the risk of adverse selection. 
C) the problem of information symmetry. 
D) risk spreading. 
A) a moral hazard risk. 
B) the risk of adverse selection. 
C) the problem of information symmetry. 
D) risk spreading.

Question 6

Within the insurance industry a common saying is that insurance works because of the "law of large numbers".What do you think is meant by this?

Accepted Answer

The law of large numbers means that insu

Question 7

How might Freddie Mac and Fannie Mae have contributed to the financial crisis experienced in the United States in 2007-2009?

Accepted Answer

Prior to the financial crisis Federal Re

Question 8

The Riegle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to diversify themselves geographically.Has this geographical expansion resulted in the harm to consumers that early supporters of anti-branching laws feared? Explain.

Accepted Answer

As the text points out, the results have

Question 9

One result of the Riegle-Neal Interstate Banking and Branching Efficiency Act was that:

Accepted Answer

A) banking system efficiency decreased. 
B) banks became less geographically diversified. 
C) banking system efficiency increased. 
D) banks became less geographically diversified and banking system efficiency decreased. 
A) banking system efficiency decreased. 
B) banks became less geographically diversified. 
C) banking system efficiency increased. 
D) banks became less geographically diversified and banking system efficiency decreased.

Question 10

Which of the following is not true about the information and advice investment bankers provide to clients?

Accepted Answer

A) It is public information that the bank compiles and makes available to anyone. 
B) It is highly valued if the fees paid for it are any indication of its value. 
C) It is often used to identify possible acquisition and merger candidates. 
D) It helps improve the allocation of resources across the economy. 
A) It is public information that the bank compiles and makes available to anyone. 
B) It is highly valued if the fees paid for it are any indication of its value. 
C) It is often used to identify possible acquisition and merger candidates. 
D) It helps improve the allocation of resources across the economy.

Question 11

The gap between LIBOR and the expected Federal Reserve policy interest rate provides a key measure of which of the following:

Accepted Answer

A) the direction of movement of the Euro relative to the U.S.dollar on the foreign exchange market. 
B) the persistence and intensity of the liquidity crisis. 
C) the expected length of a coming global recession. 
D) the movement of the U.S.stock market. 
A) the direction of movement of the Euro relative to the U.S.dollar on the foreign exchange market. 
B) the persistence and intensity of the liquidity crisis. 
C) the expected length of a coming global recession. 
D) the movement of the U.S.stock market.

Question 12

What is the source of regulatory competition in banking? Discuss how the focus of this competition has changed over time.

Accepted Answer

Regulatory competition in banking is the

Question 13

One way insurance companies deal with the problem of adverse selection is by:

Accepted Answer

A) charging the same price to everyone. 
B) screening applicants. 
C) monitoring policyholders after they have purchased insurance. 
D) spreading the risk in the same geographic area. 
A) charging the same price to everyone. 
B) screening applicants. 
C) monitoring policyholders after they have purchased insurance. 
D) spreading the risk in the same geographic area.

Question 14

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 15

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 16

The number of banks in the U.S.has fallen almost by half in the past twenty years or so.Was this the result of bank failures or were some due to another cause? Explain.

Accepted Answer

While some banks have certainly failed o

Question 17

Insurance company assets will include:

Accepted Answer

A) stocks and bonds. 
B) only bonds. 
C) only stocks. 
D) only U.S.Treasury securities. 
A) stocks and bonds. 
B) only bonds. 
C) only stocks. 
D) only U.S.Treasury securities.

Question 18

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 19

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 20

Which of the following is an example of the economies of scope argument for increased profits for large financial holding companies?

Accepted Answer

A) Financial holding companies offer a wide array of services under one name. 
B) Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size. 
C) Financial holding companies face declining average costs per dollar of deposits. 
D) The profitability of financial holding companies relies on one particular line of business. 
A) Financial holding companies offer a wide array of services under one name. 
B) Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size. 
C) Financial holding companies face declining average costs per dollar of deposits. 
D) The profitability of financial holding companies relies on one particular line of business.

Exam 13: Financial Industry Structure

Reinsurance is used by insurance companies faced with:

What is the basic difference(s) between term and whole life insurance?

Defined-benefit plans:

A person who discovers that he/she has advanced stages of cancer and calls his/her life insurance agent to double his/her insurance policy is an example of:

Within the insurance industry a common saying is that insurance works because of the "law of large numbers".What do you think is meant by this?

How might Freddie Mac and Fannie Mae have contributed to the financial crisis experienced in the United States in 2007-2009?

The Riegle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to diversify themselves geographically.Has this geographical expansion resulted in the harm to consumers that early supporters of anti-branching laws feared? Explain.

One result of the Riegle-Neal Interstate Banking and Branching Efficiency Act was that:

Which of the following is not true about the information and advice investment bankers provide to clients?

The gap between LIBOR and the expected Federal Reserve policy interest rate provides a key measure of which of the following:

What is the source of regulatory competition in banking? Discuss how the focus of this competition has changed over time.

One way insurance companies deal with the problem of adverse selection is by:

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

Lloyd's of London is perhaps most known for:

The number of banks in the U.S.has fallen almost by half in the past twenty years or so.Was this the result of bank failures or were some due to another cause? Explain.

Insurance company assets will include:

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

The actual results of the McFadden Act included:

Which of the following is an example of the economies of scope argument for increased profits for large financial holding companies?

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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