Question 1

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 2

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 3

Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (RBA) 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 4

Lehman Brothers defaulted during the global financial crisis.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which function of an FI reduces transaction and information costs between a corporation and an individual and may encourage a higher rate of savings?

Accepted Answer

A) brokerage services 
B) asset transformation services 
C) information production services 
D) money supply management 
A) brokerage services 
B) asset transformation services 
C) information production services 
D) money supply management

Question 7

Agency costs are costs relating to the risk that the owners and managers of firms that receive savers' funds will take action with those funds contrary to the best interests of the saver.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true?

Accepted Answer

A) Bank failures may destroy household savings and restrict a firm's access to credit. 
B) Bank failures may create doubts in savers' minds regarding the stability and solvency of financial intermediaries in general. 
C) Bank failures may threaten the stability of the financial system. 
D) All of the listed options are correct. 
A) Bank failures may destroy household savings and restrict a firm's access to credit. 
B) Bank failures may create doubts in savers' minds regarding the stability and solvency of financial intermediaries in general. 
C) Bank failures may threaten the stability of the financial system. 
D) All of the listed options are correct.

Question 9

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 10

In most countries regulators require financial intermediaries to hold a minimum level of cash reserves against their deposits.There is no such regulation in Australia.

Accepted Answer

A) True 
 B)False

Question 11

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is:

Accepted Answer

A) because diversification allows an FI to predict more accurately the expected returns on its asset portfolio 
B) significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive 
C) because individual savers cannot benefit from risk diversification 
D) All of the listed options are correct. 
A) because diversification allows an FI to predict more accurately the expected returns on its asset portfolio 
B) significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive 
C) because individual savers cannot benefit from risk diversification 
D) All of the listed options are correct.

Question 12

None of the commercial banks in Australia defaulted during the global financial crisis.

Accepted Answer

A) True 
 B)False

Question 13

FIs perform their intermediary function in two ways:

Accepted Answer

A) They specialise as brokers between savers and users and they directly control the quantity of outside money in the economy. 
B) They serve as asset transformers by purchasing primary securities and issuing secondary securities and by purchasing secondary securities and issuing primary securities. 
C) They serve as asset transformers by purchasing secondary securities and issuing primary securities and they directly control the quantity of outside money in the economy. 
D) They specialise as brokers between savers and users and they serve as asset transformers by purchasing primary securities and issuing secondary securities. 
A) They specialise as brokers between savers and users and they directly control the quantity of outside money in the economy. 
B) They serve as asset transformers by purchasing primary securities and issuing secondary securities and by purchasing secondary securities and issuing primary securities. 
C) They serve as asset transformers by purchasing secondary securities and issuing primary securities and they directly control the quantity of outside money in the economy. 
D) They specialise as brokers between savers and users and they serve as asset transformers by purchasing primary securities and issuing secondary securities.

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

Which of the following is an adequate definition of a delegated monitor?

Accepted Answer

A) An economic agent appointed to act on behalf of large groups of agents and principals in collecting information and/or investing funds. 
B) An economic agent appointed to act on behalf of large groups of principals in collecting information and/or investing funds. 
C) An economic agent appointed to act on behalf of smaller agents in collecting information and/or investing funds. 
D) An economic agent appointed to act on behalf of smaller principals in collecting information and/or investing funds. 
A) An economic agent appointed to act on behalf of large groups of agents and principals in collecting information and/or investing funds. 
B) An economic agent appointed to act on behalf of large groups of principals in collecting information and/or investing funds. 
C) An economic agent appointed to act on behalf of smaller agents in collecting information and/or investing funds. 
D) An economic agent appointed to act on behalf of smaller principals in collecting information and/or investing funds.

Question 16

Which of the following statements is true?

Accepted Answer

A) Household savers are likely to be attracted to direct investments in corporate securities because of lower monitoring costs compared to using financial intermediaries. 
B) Household savers are likely to be attracted to direct investments in corporate securities because of lower liquidity costs compared to using financial intermediaries. 
C) Household savers are likely to be attracted to direct investments in corporate securities because of lower price risk compared to using financial intermediaries. 
D) None of the listed options are correct. 
A) Household savers are likely to be attracted to direct investments in corporate securities because of lower monitoring costs compared to using financial intermediaries. 
B) Household savers are likely to be attracted to direct investments in corporate securities because of lower liquidity costs compared to using financial intermediaries. 
C) Household savers are likely to be attracted to direct investments in corporate securities because of lower price risk compared to using financial intermediaries. 
D) None of the listed options are correct.

Question 17

Which of the following statements is false?

Accepted Answer

A) A financial intermediary specialises in the production of information. 
B) A financial intermediary reduces its risk exposure by pooling its assets. 
C) A financial intermediary benefits society by providing a mechanism for payments. 
D) A financial intermediary acts as a lender of last resort. 
A) A financial intermediary specialises in the production of information. 
B) A financial intermediary reduces its risk exposure by pooling its assets. 
C) A financial intermediary benefits society by providing a mechanism for payments. 
D) A financial intermediary acts as a lender of last resort.

Question 18

The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk

Accepted Answer

A) True 
 B)False

Question 19

Which of the following refers to the term 'maturity intermediation'?

Accepted Answer

A) creation of a secondary market mature enough to withstand volatility 
B) overcoming constraints to buying assets imposed by large minimum denomination size 
C) mismatching the maturities of assets and liabilities 
D) reducing information costs or imperfections between households and corporations 
A) creation of a secondary market mature enough to withstand volatility 
B) overcoming constraints to buying assets imposed by large minimum denomination size 
C) mismatching the maturities of assets and liabilities 
D) reducing information costs or imperfections between households and corporations

Question 20

Explain the causes of the global financial crisis (GFC) and outline how and why the Australian government implemented the financial claims scheme.

Accepted Answer

The main cause of the global financial c

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

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

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

Lehman Brothers defaulted during the global financial crisis.

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

Which function of an FI reduces transaction and information costs between a corporation and an individual and may encourage a higher rate of savings?

Agency costs are costs relating to the risk that the owners and managers of firms that receive savers' funds will take action with those funds contrary to the best interests of the saver.

Which of the following statements is true?

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

In most countries regulators require financial intermediaries to hold a minimum level of cash reserves against their deposits.There is no such regulation in Australia.

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is:

None of the commercial banks in Australia defaulted during the global financial crisis.

FIs perform their intermediary function in two ways:

Which of the following statements is true?

Which of the following is an adequate definition of a delegated monitor?

Which of the following statements is true?

Which of the following statements is false?

The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk

Which of the following refers to the term 'maturity intermediation'?

Explain the causes of the global financial crisis (GFC) and outline how and why the Australian government implemented the financial claims scheme.

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

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

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

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

Lehman Brothers defaulted during the global financial crisis.

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

Which function of an FI reduces transaction and information costs between a corporation and an individual and may encourage a higher rate of savings?

Agency costs are costs relating to the risk that the owners and managers of firms that receive savers' funds will take action with those funds contrary to the best interests of the saver.

Which of the following statements is true?

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

In most countries regulators require financial intermediaries to hold a minimum level of cash reserves against their deposits.There is no such regulation in Australia.

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is:

None of the commercial banks in Australia defaulted during the global financial crisis.

FIs perform their intermediary function in two ways:

Which of the following statements is true?

Which of the following is an adequate definition of a delegated monitor?

Which of the following statements is true?

Which of the following statements is false?

The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk

Which of the following refers to the term 'maturity intermediation'?

Explain the causes of the global financial crisis (GFC) and outline how and why the Australian government implemented the financial claims scheme.

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