Question 1

Which of the following is an adequate definition of an asset transformer?

Accepted Answer

A)  A corporation that issues financial claims that are more attractive to household savers than the claims issued by other corporations. 
B)  An FI that issues financial claims that are more attractive to household savers than the claims issued by other FIs. 
C)  A corporation that issues financial claims that are more attractive to household savers than the claims directly issued by FIs. 
D)  An FI that issues financial claims that are more attractive to household savers than the claims directly issued by corporations. 
A)  A corporation that issues financial claims that are more attractive to household savers than the claims issued by other corporations. 
B)  An FI that issues financial claims that are more attractive to household savers than the claims issued by other FIs. 
C)  A corporation that issues financial claims that are more attractive to household savers than the claims directly issued by FIs. 
D)  An FI that issues financial claims that are more attractive to household savers than the claims directly issued by corporations.

Question 2

A loan covenant is:

Accepted Answer

A)  a legal clause in a borrowing contract that requires the lender to avoid certain actions. 
B)  a legal clause in a borrowing contract that requires the lender to take certain actions. 
C)  a legal clause in a borrowing contract that requires the borrower to take certain actions. 
D)  a legal clause in a borrowing contract that requires the borrower to either take certain actions or avoid certain actions. 
A)  a legal clause in a borrowing contract that requires the lender to avoid certain actions. 
B)  a legal clause in a borrowing contract that requires the lender to take certain actions. 
C)  a legal clause in a borrowing contract that requires the borrower to take certain actions. 
D)  a legal clause in a borrowing contract that requires the borrower to either take certain actions or avoid certain actions.

Question 3

Which of the following statements is true?

Accepted Answer

A)  The lower the net regulatory burden on FIs, the more inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
B)  The higher the net regulatory burden on FIs, the more inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
C)  The higher the net regulatory burden on FIs, the less inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
D)  None of the listed options are correct. 
A)  The lower the net regulatory burden on FIs, the more inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
B)  The higher the net regulatory burden on FIs, the more inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
C)  The higher the net regulatory burden on FIs, the less inefficiently they produce any given set of financial services from a private (FI) owner's perspective. 
D)  None of the listed options are correct.

Question 4

In the principal-agent relationship between savers and a borrowing firm the savers are the agents and the borrowing firm is the principal.

Accepted Answer

A) True 
 B)False

Question 5

Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk.

Accepted Answer

A) True 
 B)False

Question 6

Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (Reserve Bank of Australia) to the rest of the economy primarily because:

Accepted Answer

A)  loans to corporations are part of the money supply. 
B)  bank loans are highly regulated. 
C)  depository institutions provide a large amount of credit to finance residential real estate. 
D)  DI deposits are a major portion of the money supply. 
A)  loans to corporations are part of the money supply. 
B)  bank loans are highly regulated. 
C)  depository institutions provide a large amount of credit to finance residential real estate. 
D)  DI deposits are a major portion of the money supply.

Question 7

In the traditional 'originate-to-hold' banking model, where a DI takes short-term deposits and uses them to make loans, the bank usually holds these loans until maturity. This exposes the bank to increased:

Accepted Answer

A)  operating costs. 
B)  interest rate and liquidity risk. 
C)  increased monitoring costs 
D)  All of the listed options are correct. 
A)  operating costs. 
B)  interest rate and liquidity risk. 
C)  increased monitoring costs 
D)  All of the listed options are correct.

Question 8

Net regulatory burden is defined as the difference between the:

Accepted Answer

A)  private costs of regulations and the private benefits for the producers of financial services. 
B)  public costs of regulations and the public benefits for the producers of financial services. 
C)  private costs of regulations and the public benefits for the producers of financial services. 
D)  public costs of regulations and the private benefits for the producers of financial services. 
A)  private costs of regulations and the private benefits for the producers of financial services. 
B)  public costs of regulations and the public benefits for the producers of financial services. 
C)  private costs of regulations and the public benefits for the producers of financial services. 
D)  public costs of regulations and the private benefits for the producers of financial services.

Question 9

Secondary securities are securities issued by FIs and backed by:

Accepted Answer

A)  the real assets of the FI. 
B)  primary securities. 
C)  guarantees. 
D)  any type of collateral. 
A)  the real assets of the FI. 
B)  primary securities. 
C)  guarantees. 
D)  any type of collateral.

Question 10

Which of the following statements is true?

Accepted Answer

A)  Agency costs arise whenever economic agents enter into a contract in a world of incomplete information. 
B)  Monitoring costs are part of overall agency costs. 
C)  The more difficult and costly it is to collect information, the more likely it is that contracts will be broken. 
D)  Agency costs arise whenever economic agents enter into a contract in a world of incomplete information, monitoring costs are part of overall agency costs and the more difficult and costly it is to collect information, the more likely it is that contracts will be broken. 
A)  Agency costs arise whenever economic agents enter into a contract in a world of incomplete information. 
B)  Monitoring costs are part of overall agency costs. 
C)  The more difficult and costly it is to collect information, the more likely it is that contracts will be broken. 
D)  Agency costs arise whenever economic agents enter into a contract in a world of incomplete information, monitoring costs are part of overall agency costs and the more difficult and costly it is to collect information, the more likely it is that contracts will be broken.

Question 11

What does APCA and APRA stand for?

Accepted Answer

A)  Australian Payments Clearing Association; Australian Prudential Regulatory Association. 
B)  Australian Payments and Cheques Association; Australian Payments and Regulatory Authority. 
C)  Australian Payments Cheques Association; Australian Prudential Regulatory Association. 
D)  Australian Payments Clearing Association; Australian Prudential Regulatory Authority. 
A)  Australian Payments Clearing Association; Australian Prudential Regulatory Association. 
B)  Australian Payments and Cheques Association; Australian Payments and Regulatory Authority. 
C)  Australian Payments Cheques Association; Australian Prudential Regulatory Association. 
D)  Australian Payments Clearing Association; Australian Prudential Regulatory Authority.

Question 12

The ability of an economic agent to reduce risk by holding a number of securities in a portfolio is called:

Accepted Answer

A)  asset management. 
B)  efficiency. 
C)  arbitrage. 
D)  diversification. 
A)  asset management. 
B)  efficiency. 
C)  arbitrage. 
D)  diversification.

Question 13

Safety and soundness regulations include all of the following layers of protection except:

Accepted Answer

A)  the provision of guaranty funds. 
B)  requirements encouraging diversification of assets. 
C)  the creation of money for those FIs in financial trouble. 
D)  requiring minimum levels of capital. 
A)  the provision of guaranty funds. 
B)  requirements encouraging diversification of assets. 
C)  the creation of money for those FIs in financial trouble. 
D)  requiring minimum levels of capital.

Question 14

Which of the following statements is true?

Accepted Answer

A)  The RBA controls outside money, while inside money is determined by the private banking system. 
B)  The RBA controls inside money, while outside money is determined by the private banking system. 
C)  The RBA controls both inside and outside money. 
D)  The private banking system controls both inside and outside money. 
A)  The RBA controls outside money, while inside money is determined by the private banking system. 
B)  The RBA controls inside money, while outside money is determined by the private banking system. 
C)  The RBA controls both inside and outside money. 
D)  The private banking system controls both inside and outside money.

Question 15

In its role as a delegated monitor, an FI:

Accepted Answer

A)  keeps track of required interest and principal payments on loans it originates. 
B)  works with financially distressed borrowers in danger of defaulting on their loans. 
C)  holds portfolios of loans that they continue to service. 
D)  All of the listed options are correct. 
A)  keeps track of required interest and principal payments on loans it originates. 
B)  works with financially distressed borrowers in danger of defaulting on their loans. 
C)  holds portfolios of loans that they continue to service. 
D)  All of the listed options are correct.

Question 16

Which of the following are areas of institution-specific specialness?

Accepted Answer

A)  money supply transmission 
B)  payment services 
C)  intergenerational transfers 
D)  All of the listed options are correct. 
A)  money supply transmission 
B)  payment services 
C)  intergenerational transfers 
D)  All of the listed options are correct.

Question 17

Which of the following is an adequate definition of broad money?

Accepted Answer

A)  Currency plus bank current deposits of the private non-bank sector. 
B)  'M1' plus borrowings from the private sector by non-bank financial institutions less the latter's holdings of currency ad bank deposits. 
C)  'M3' plus borrowings from the private sector by non-bank financial institutions. 
D)  None of the listed options are correct. 
A)  Currency plus bank current deposits of the private non-bank sector. 
B)  'M1' plus borrowings from the private sector by non-bank financial institutions less the latter's holdings of currency ad bank deposits. 
C)  'M3' plus borrowings from the private sector by non-bank financial institutions. 
D)  None of the listed options are correct.

Question 18

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system except:

Accepted Answer

A)  encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. 
B)  encouraging banks to limit lending to a single customer to no more than 10 per cent of capital. 
C)  the provision of deposit insurance. 
D)  the periodic monitoring of banks. 
A)  encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. 
B)  encouraging banks to limit lending to a single customer to no more than 10 per cent of capital. 
C)  the provision of deposit insurance. 
D)  the periodic monitoring of banks.

Question 19

Which of the following is not a major function of financial intermediaries?

Accepted Answer

A)  brokerage services 
B)  asset transformation services 
C)  information production 
D)  management of the nation's money supply 
A)  brokerage services 
B)  asset transformation services 
C)  information production 
D)  management of the nation's money supply

Question 20

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

Accepted Answer

A)  Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. 
B)  To receive the benefits of diversification that households may not be able to achieve on their own. 
C)  The FI can benefit from combining funds and negotiating lower asset prices and transaction costs. 
D)  All of the listed options are correct. 
A)  Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. 
B)  To receive the benefits of diversification that households may not be able to achieve on their own. 
C)  The FI can benefit from combining funds and negotiating lower asset prices and transaction costs. 
D)  All of the listed options are correct.

Which of the following is an adequate definition of an asset transformer?

A loan covenant is:

Which of the following statements is true?

In the principal-agent relationship between savers and a borrowing firm the savers are the agents and the borrowing firm is the principal.

Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk.

Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (Reserve Bank of Australia) to the rest of the economy primarily because:

In the traditional 'originate-to-hold' banking model, where a DI takes short-term deposits and uses them to make loans, the bank usually holds these loans until maturity. This exposes the bank to increased:

Net regulatory burden is defined as the difference between the:

Secondary securities are securities issued by FIs and backed by:

Which of the following statements is true?

What does APCA and APRA stand for?

The ability of an economic agent to reduce risk by holding a number of securities in a portfolio is called:

Safety and soundness regulations include all of the following layers of protection except:

Which of the following statements is true?

In its role as a delegated monitor, an FI:

Which of the following are areas of institution-specific specialness?

Which of the following is an adequate definition of broad money?

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system except:

Which of the following is not a major function of financial intermediaries?

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 1: Why Are Financial Institutions Special

Which of the following is an adequate definition of an asset transformer?

A loan covenant is:

Which of the following statements is true?

In the principal-agent relationship between savers and a borrowing firm the savers are the agents and the borrowing firm is the principal.

Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk.

Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (Reserve Bank of Australia) to the rest of the economy primarily because:

In the traditional 'originate-to-hold' banking model, where a DI takes short-term deposits and uses them to make loans, the bank usually holds these loans until maturity. This exposes the bank to increased:

Net regulatory burden is defined as the difference between the:

Secondary securities are securities issued by FIs and backed by:

Which of the following statements is true?

What does APCA and APRA stand for?

The ability of an economic agent to reduce risk by holding a number of securities in a portfolio is called:

Safety and soundness regulations include all of the following layers of protection except:

Which of the following statements is true?

In its role as a delegated monitor, an FI:

Which of the following are areas of institution-specific specialness?

Which of the following is an adequate definition of broad money?

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system except:

Which of the following is not a major function of financial intermediaries?

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters