Question 1

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 2

One way that a bank could offer non-bank services across more than one state was to:

Accepted Answer

A) File for a foreign bank charter 
B) Be a federally chartered bank rather than a state chartered bank 
C) Create a bank holding company 
D) Become a central bank 
A) File for a foreign bank charter 
B) Be a federally chartered bank rather than a state chartered bank 
C) Create a bank holding company 
D) Become a central bank

Question 3

Citigroup is an example of:

Accepted Answer

A) An Edge Act corporation 
B) A foreign bank 
C) A financial holding company 
D) A unit bank 
A) An Edge Act corporation 
B) A foreign bank 
C) A financial holding company 
D) A unit bank

Question 4

The main risk that investment banks face from their underwriting services is:

Accepted Answer

A) The client will not pay for the service 
B) The company issuing the securities will go bankrupt 
C) The price investors pay for the security is less than the guaranteed price to the issuing firm 
D) The price paid by investors exceeds the guaranteed price to the issuing firm 
A) The client will not pay for the service 
B) The company issuing the securities will go bankrupt 
C) The price investors pay for the security is less than the guaranteed price to the issuing firm 
D) The price paid by investors exceeds the guaranteed price to the issuing firm

Question 5

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 6

The Glass-Steagall Act of 1933:

Accepted Answer

A) Required commercial banks to sell off their investment banking operations 
B) Eliminated the FDIC 
C) Required federally chartered banks to meet the branching restrictions of the states 
D) Required all state banks to get federal charters 
A) Required commercial banks to sell off their investment banking operations 
B) Eliminated the FDIC 
C) Required federally chartered banks to meet the branching restrictions of the states 
D) Required all state banks to get federal charters

Question 7

From a transaction cost perspective, discuss why a firm may contract with an investment bank to underwrite or place an issue.

Accepted Answer

Investment banks generate their fees fro

Question 8

In the early years of the Great Depression, 1929-1933:

Accepted Answer

A) Over one half of all U.S.banks failed 
B) Two-thirds of U.S.banks failed 
C) More than a third of all U.S.banks failed 
D) A little less than one-quarter of U.S.banks failed 
A) Over one half of all U.S.banks failed 
B) Two-thirds of U.S.banks failed 
C) More than a third of all U.S.banks failed 
D) A little less than one-quarter of U.S.banks failed

Question 9

The dual banking system in the U.S.today refers to:

Accepted Answer

A) A bank's ability to issue checking and saving accounts 
B) A bank's ability to own another financial institution 
C) The ability of banks to be either federally or state chartered 
D) A deposit institution's decision to be either a bank or a savings and loan 
A) A bank's ability to issue checking and saving accounts 
B) A bank's ability to own another financial institution 
C) The ability of banks to be either federally or state chartered 
D) A deposit institution's decision to be either a bank or a savings and loan

Question 10

Explain why a domestic bank in the U.S.might create a subsidiary bank in a foreign location like the Cayman Islands.

Accepted Answer

A U.S.domestic bank may find it profitab

Question 11

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 improves 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 improves the allocation of resources across the economy

Question 12

The category of financial intermediaries called securities firms includes each of the following, except:

Accepted Answer

A) Mutual funds 
B) Brokerages 
C) Investment banks 
D) Credit unions 
A) Mutual funds 
B) Brokerages 
C) Investment banks 
D) Credit unions

Question 13

Why do insurance companies often find it necessary to purchase re-insurance?

Accepted Answer

Reinsurance is purchased when insurance

Question 14

Which of the following statements best completes the following statement: "Over the past 30 years, the percentage(s) of assets for all financial intermediaries¼"?

Accepted Answer

A) controlled by banks has decreased as has the percentage for mutual funds while insurance companies have increased their percentage 
B) controlled by insurance companies and mutual funds has decreased and the percentage controlled by banks has increased 
C) controlled by banks and insurance companies has decreased while the percentage controlled by mutual funds and pensions has increased 
D) controlled by banks, insurance companies, mutual funds and pensions have all increased 
A) controlled by banks has decreased as has the percentage for mutual funds while insurance companies have increased their percentage 
B) controlled by insurance companies and mutual funds has decreased and the percentage controlled by banks has increased 
C) controlled by banks and insurance companies has decreased while the percentage controlled by mutual funds and pensions has increased 
D) controlled by banks, insurance companies, mutual funds and pensions have all increased

Question 15

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 16

Accounts receivables loans provided by finance companies provide firms with:

Accepted Answer

A) Start-up capital 
B) The ability to turn a liability into an asset 
C) The ability to turn a relatively illiquid asset into liquidity 
D) Inventory loans 
A) Start-up capital 
B) The ability to turn a liability into an asset 
C) The ability to turn a relatively illiquid asset into liquidity 
D) Inventory loans

Question 17

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 18

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 are well diversified so risk is reduced 
D) The profitability of financial holding companies does not rely 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 are well diversified so risk is reduced 
D) The profitability of financial holding companies does not rely on one particular line of business

Question 19

The U.S.has many banks because:

Accepted Answer

A) Small banks are more profitable than large banks 
B) Many states outlawed bank branching 
C) The Great Depression caused the failure of the large banks, leaving many small banks 
D) The Glass-Steagall Act forced the splitting up of large banks 
A) Small banks are more profitable than large banks 
B) Many states outlawed bank branching 
C) The Great Depression caused the failure of the large banks, leaving many small banks 
D) The Glass-Steagall Act forced the splitting up of large banks

Question 20

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

Exam 13: Financial Industry Structure

Lloyd's of London has a reputation for insuring:

One way that a bank could offer non-bank services across more than one state was to:

Citigroup is an example of:

The main risk that investment banks face from their underwriting services is:

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?

The Glass-Steagall Act of 1933:

From a transaction cost perspective, discuss why a firm may contract with an investment bank to underwrite or place an issue.

In the early years of the Great Depression, 1929-1933:

The dual banking system in the U.S.today refers to:

Explain why a domestic bank in the U.S.might create a subsidiary bank in a foreign location like the Cayman Islands.

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

The category of financial intermediaries called securities firms includes each of the following, except:

Why do insurance companies often find it necessary to purchase re-insurance?

Which of the following statements best completes the following statement: "Over the past 30 years, the percentage(s) of assets for all financial intermediaries¼"?

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

Accounts receivables loans provided by finance companies provide firms with:

Universal banks are:

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

The U.S.has many banks because:

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

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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