Financial Institutions Management: A Risk Management Approach 10th Edition by Anthony Saunders Test
D. deposit insurance, open market operations, and discount window borrowing.
E. deposit insurance protection.
71. The asset transformation function of FIs typically involves
A. receipt of securities through electronic payments systems.
B. altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio.
C. granting loans to transform funds deficit units into funds surplus units.
D. investing short-term funds in off-balance sheet activities.
E. transferring of funds from one generation to another.
72. Which of the following refers to the possibility that a firm's owners or managers will take actions contrary to the promises contained in the covenants of the securities the firm issues to raise funds?
A. Liquidity risk.
B. Price risk.
C. Credit risk.
D. Intermediation.
E. Agency costs.
73. Which of the following refers to the term "maturity intermediation"?
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.
E. The transfer of wealth from one generation to the next.
74. Traditionally, regulation of FIs in the U.S. has been
A. minimal, as evidenced by the recent financial crisis.
B. extensive, as a result of the importance of FI to the economy.
C. minimal, because the free market is allowed to allocate financial resources.
D. extensive, because banks have monopoly power.
E. no different from regulation of nonfinancial firms.
75. Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy primarily because
A. loans to corporations are part of the money supply.
B. bank loans are highly regulated.
C. savings institutions provide a large amount of credit to finance residential real estate.
D. DI deposits are a major portion of the money supply.
E. U.S. DIs compete with foreign financial institutions.
76. Which of the following measures the difference between the private costs of regulations and the private benefits of those regulations for the producers of financial services?
A. Capital adequacy.
B. Agency costs.
C. Net regulatory burden.
D. Charter value.
E. Liquidity risk.
77. What is globalization?
A. The process that causes an FI to focus more intensely on their own domestic market.
B. Acceptance of the Federal Reserve as the regulator of the world financial system.
C. Usually refers to the initiation of GLOBEX, a new international financial communications and trading system.
D. The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions.
E. Joint ownership of international electronic payments systems.
78. Negative externalities exist in the depository sector when
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. banks that are healthy suffer when another bank nears insolvency.
E. All of the options.
79. Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?
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.
E. Everyone needs money, but not everyone needs steel.
80. Why do households prefer to use FIs as intermediaries to invest their surplus funds?
A. Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information.