polling questions after ch 12 - final Flashcards
What is the largest financial market by daily trading volume?
Foreign exchange
A stronger dollar has what impact on inflation?
It reduces inflation by making imports less expensive
Why is margin so important for derivatives markets?
For exchange traded instruments and some OTC contracts, margin is required to ensure performance
Why are financial market infrastructure and utilities so important for derivatives markets
- They provide the systems used for clearing, settling, or recording payments and transactions
- For cleared transactions, they guarantee performance through the collection of margin
- Failure of one or more of these institutions could create systemic risk as they are widely used by financial institutions
What difference is there between a “futures contract and a forward contract?
Futures are an exchange traded standardized agreement whereas forwards are customized and traded over the counter
What is the major difference between an options contract and a forward, futures, or swap contract?
An options contract gives you the right but not the obligation to buy or sell in the future at a specified price
What was the most frequently used index for the floating interest rate of an interest rate or cross currency swap?
LIBOR
Why is LIBOR being discontinued as an index for swaps and loans?
LIBOR was being widely quoted by the banks even though there was little volume to support these quotes thus it was subject to manipulation
Over the past twenty years has the number of banks increased or decreased?
decreased substantially
The number of branches continues to increase. T or F
false
The Largest Source of Net Income for Traditional Banks Is?
net interest income
The largest source of bank funding is?
deposits
The largest percentage of a bank’s assets are…
loan
True or False: In general, the return on commercial loans meets or exceeds the banks required rate of return
False
Why do banks continue to consolidate?
Primarily for scale - that is to combine functions and reduce cost
Which of the following is true about FDIC insurance?
- The specified amount of deposits per person insured by the FDIC was increased during the financial crisis from $100,000 to $250,000
- was created in 1933 in response to runs on banks.
- Is funded by banks through risk-based insurance premiums
- Is a key aspect of the safety and soundness of the banking and financial system
The Basel Committee on Banking Supervision and U.S. Bank Regulators Require that Banks Maintain Capital in Proportion to:
risk weighted assets
Why are bank regulatory ratings important?
Deficiencies can limit the bank’s activities and distract the institution from carrying out strategic objectives.
true or false: If bank regulatory ratings are poor, bank regulators can remove senior managers and insist on changes to the Board of Directors.
true
What is Moral Hazard?
The act of taking on more risk because of protection from adverse consequences
For savings institutions, the primary source of funding is ___ and the primary asset class is _____
deposits; real estate
Which of the following was NOT a major reason for the savings institution crisis in the late 1980s?
large losses on loans to less-developed countries
The resolution trust company…
was formed as part of the Financial Institution Reform, Recovery and Enforcement Act and liquidated over 700 savings and loans with $350 billion in assets.
Which of the following is NOT a main source of funding for finance companies
deposits
A wholly owned subsidiary whose primary purpose is to finance sales of the parent company’s products and services, provide wholesale financing to distributors of the parent company’s products, and purchase receivables of the parent company is a…
captive finanance subsidiary
What financial institution asset was at the heart of the great recession and banking crises going back 40 years?
real estate
True / False - Some mutual fund companies are systemically important?
true
Which asset category accounts for the largest percentage share of mutual fund assets?
equity funds
Which asset category accounts for the largest percentage share of money market fund assets?
Repurchase Agreements (Repo)
Which of the following is NOT a service that is commonly performed by a securities firm?
taking deposits
