Question 1

Which of the following statements is true?

Accepted Answer

A) Primary securities are securities issued by corporations and backed by the real assets of those corporations. 
B) Secondary securities are securities issued by corporations and backed by the real assets of those corporations. 
C) Dominant securities are securities issued by corporations and backed by the real assets of those corporations. 
D) Preliminary securities are securities issued by corporations and backed by the real assets of those corporations. 
A) Primary securities are securities issued by corporations and backed by the real assets of those corporations. 
B) Secondary securities are securities issued by corporations and backed by the real assets of those corporations. 
C) Dominant securities are securities issued by corporations and backed by the real assets of those corporations. 
D) Preliminary securities are securities issued by corporations and backed by the real assets of those corporations. A

Question 2

FIs are better able to manage the risk of mismatching maturities of assets and liabilities than household savers.

Accepted Answer

A) True 
 B)False  True

Question 3

Negative externalities exist in the depository sector when:

Accepted Answer

A) the fear of DI insolvency leads to bank deposit runs 
B) lending activity is impaired or constrained 
C) there are delays in disbursements from insolvent DIs 
D) All of the listed options are correct. 
A) the fear of DI insolvency leads to bank deposit runs 
B) lending activity is impaired or constrained 
C) there are delays in disbursements from insolvent DIs 
D) All of the listed options are correct. D

Question 4

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 5

The part of the money supply produced by the private banking system is called:

Accepted Answer

A) inside money 
B) outside money 
C) indirect money 
D) None of the options listed.The private banking system does not produce part of the money supply. 
A) inside money 
B) outside money 
C) indirect money 
D) None of the options listed.The private banking system does not produce part of the money supply.

Question 6

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Accepted Answer

A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets. 
A) The bank failure usually leads to a government bailout. 
B) There are fewer steel manufacturers than there are banks. 
C) The large bank failure reduces credit availability throughout the economy. 
D) Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets.

Question 7

Price risk refers to:

Accepted Answer

A) the risk that the sale price of an asset will be lower than the purchase price of that asset. 
B) the risk that the purchase price of an asset will be lower than the sale price of that asset. 
C) the risk that the sale price of an asset will be higher than the purchase price of that asset. 
D) None of the listed options are correct. 
A) the risk that the sale price of an asset will be lower than the purchase price of that asset. 
B) the risk that the purchase price of an asset will be lower than the sale price of that asset. 
C) the risk that the sale price of an asset will be higher than the purchase price of that asset. 
D) None of the listed options are correct.

Question 8

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 9

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

Question 10

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 11

When a DI makes a shift from an 'originate-to-hold' banking model to an 'originate-to-distribute' banking model, the change is likely to result in:

Accepted Answer

A) increased operating costs 
B) increased interest rate and liquidity risk 
C) decreased monitoring costs 
D) decreased fee income 
A) increased operating costs 
B) increased interest rate and liquidity risk 
C) decreased monitoring costs 
D) decreased fee income

Question 12

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 13

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 14

Which of the following statements is true?

Accepted Answer

A) FI losses are borne by equity holders last; hence they are junior claimants to an FI's assets. 
B) FI losses are borne by equity holders last; hence they are senior claimants to an FI's assets. 
C) FI losses are borne by equity holders first; hence they are junior claimants to an FI's assets. 
D) FI losses are borne by equity holders first; hence they are senior claimants to an FI's assets. 
A) FI losses are borne by equity holders last; hence they are junior claimants to an FI's assets. 
B) FI losses are borne by equity holders last; hence they are senior claimants to an FI's assets. 
C) FI losses are borne by equity holders first; hence they are junior claimants to an FI's assets. 
D) FI losses are borne by equity holders first; hence they are senior claimants to an FI's assets.

Question 15

What are the entry costs for the financial intermediation sector in Australia? Would you consider entry to be easy or difficult? Explain.

Accepted Answer

Increasing or decreasing the cost of ent

Question 16

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 17

Which of the following statements is true?

Accepted Answer

A) Loan contracts are bank debt contracts that generally have longer term to maturity than bond contracts. 
B) The longer term nature of loans allows the financial intermediary to exercise more monitoring power and control over the borrower. 
C) When bank loan contracts are sufficiently long term, the banker almost becomes like an insider to the firm. 
D) None of the listed options are correct. 
A) Loan contracts are bank debt contracts that generally have longer term to maturity than bond contracts. 
B) The longer term nature of loans allows the financial intermediary to exercise more monitoring power and control over the borrower. 
C) When bank loan contracts are sufficiently long term, the banker almost becomes like an insider to the firm. 
D) None of the listed options are correct.

Question 18

An action by an economic agent that imposes costs on other economic agents is referred to as a:

Accepted Answer

A) negative endogenous reaction 
B) positive endogenous reaction 
C) positive externality 
D) negative externality 
A) negative endogenous reaction 
B) positive endogenous reaction 
C) positive externality 
D) negative externality

Question 19

Which of the following statements is true?

Accepted Answer

A) The more diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky and illiquid the claims. 
B) The less diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky and illiquid the claims. 
C) The more diversified a financial intermediary, the lower the probability that it will default on its obligations and the more risky but also the more liquid the claims. 
D) The more diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky but also the more liquid the claims. 
A) The more diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky and illiquid the claims. 
B) The less diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky and illiquid the claims. 
C) The more diversified a financial intermediary, the lower the probability that it will default on its obligations and the more risky but also the more liquid the claims. 
D) The more diversified a financial intermediary, the higher the probability that it will default on its obligations and the more risky but also the more liquid the claims.

Question 20

By acting as a delegated monitor, financial intermediaries reduce the degree of information imperfection and asymmetry between the ultimate suppliers and users of funds.

Accepted Answer

A) True 
 B)False

Which of the following statements is true?

FIs are better able to manage the risk of mismatching maturities of assets and liabilities than household savers.

Negative externalities exist in the depository sector when:

Which of the following statements is true?

The part of the money supply produced by the private banking system is called:

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Price risk refers to:

Which of the following statements is true?

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:

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

When a DI makes a shift from an 'originate-to-hold' banking model to an 'originate-to-distribute' banking model, the change is likely to result in:

What does APCA and APRA stand for?

A loan covenant is:

Which of the following statements is true?

What are the entry costs for the financial intermediation sector in Australia? Would you consider entry to be easy or difficult? Explain.

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

Which of the following statements is true?

An action by an economic agent that imposes costs on other economic agents is referred to as a:

Which of the following statements is true?

By acting as a delegated monitor, financial intermediaries reduce the degree of information imperfection and asymmetry between the ultimate suppliers and users of funds.

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters

Exam 1: Why Are Financial Institutions Special

Which of the following statements is true?

FIs are better able to manage the risk of mismatching maturities of assets and liabilities than household savers.

Negative externalities exist in the depository sector when:

Which of the following statements is true?

The part of the money supply produced by the private banking system is called:

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

Price risk refers to:

Which of the following statements is true?

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:

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

When a DI makes a shift from an 'originate-to-hold' banking model to an 'originate-to-distribute' banking model, the change is likely to result in:

What does APCA and APRA stand for?

A loan covenant is:

Which of the following statements is true?

What are the entry costs for the financial intermediation sector in Australia? Would you consider entry to be easy or difficult? Explain.

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

Which of the following statements is true?

An action by an economic agent that imposes costs on other economic agents is referred to as a:

Which of the following statements is true?

By acting as a delegated monitor, financial intermediaries reduce the degree of information imperfection and asymmetry between the ultimate suppliers and users of funds.

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters