polling questions after ch 12 - final

Question 1

What is the largest financial market by daily trading volume?

Answer 1

Foreign exchange

Question 2

A stronger dollar has what impact on inflation?

Answer 2

It reduces inflation by making imports less expensive

Question 3

Why is margin so important for derivatives markets?

Answer 3

For exchange traded instruments and some OTC contracts, margin is required to ensure performance

Question 4

Why are financial market infrastructure and utilities so important for derivatives markets

Answer 4

• 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

Question 5

What difference is there between a “futures contract and a forward contract?

Answer 5

Futures are an exchange traded standardized agreement whereas forwards are customized and traded over the counter

Question 6

What is the major difference between an options contract and a forward, futures, or swap contract?

Answer 6

An options contract gives you the right but not the obligation to buy or sell in the future at a specified price

Question 7

What was the most frequently used index for the floating interest rate of an interest rate or cross currency swap?

Answer 7

LIBOR

Question 8

Why is LIBOR being discontinued as an index for swaps and loans?

Answer 8

LIBOR was being widely quoted by the banks even though there was little volume to support these quotes thus it was subject to manipulation

Question 9

Over the past twenty years has the number of banks increased or decreased?

Answer 9

decreased substantially

Question 10

The number of branches continues to increase. T or F

Answer 10

false

Question 11

The Largest Source of Net Income for Traditional Banks Is?

Answer 11

net interest income

Question 12

The largest source of bank funding is?

Answer 12

deposits

Question 13

The largest percentage of a bank’s assets are…

Answer 13

loan

Question 14

True or False: In general, the return on commercial loans meets or exceeds the banks required rate of return

Answer 14

False

Question 15

Why do banks continue to consolidate?

Answer 15

Primarily for scale - that is to combine functions and reduce cost

Question 16

Which of the following is true about FDIC insurance?

Answer 16

• 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

Question 17

The Basel Committee on Banking Supervision and U.S. Bank Regulators Require that Banks Maintain Capital in Proportion to:

Answer 17

risk weighted assets

Question 18

Why are bank regulatory ratings important?

Answer 18

Deficiencies can limit the bank’s activities and distract the institution from carrying out strategic objectives.

Question 19

true or false: If bank regulatory ratings are poor, bank regulators can remove senior managers and insist on changes to the Board of Directors.

Answer 19

true

Question 20

What is Moral Hazard?

Answer 20

The act of taking on more risk because of protection from adverse consequences

Question 21

For savings institutions, the primary source of funding is ___ and the primary asset class is _____

Answer 21

deposits; real estate

Question 22

Which of the following was NOT a major reason for the savings institution crisis in the late 1980s?

Answer 22

large losses on loans to less-developed countries

Question 23

The resolution trust company…

Answer 23

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.

Question 24

Which of the following is NOT a main source of funding for finance companies

Answer 24

deposits

Question 25

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…

Answer 25

captive finanance subsidiary

Question 26

What financial institution asset was at the heart of the great recession and banking crises going back 40 years?

Answer 26

real estate

Question 27

True / False - Some mutual fund companies are systemically important?

Answer 27

true

Question 28

Which asset category accounts for the largest percentage share of mutual fund assets?

Answer 28

equity funds

Question 29

Which asset category accounts for the largest percentage share of money market fund assets?

Answer 29

Repurchase Agreements (Repo)

Question 30

Which of the following is NOT a service that is commonly performed by a securities firm?

Answer 30

taking deposits