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40Qs Money and Banking

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1. Thrifts invest in mortgages for which of the following reasons?
a. Tax incentives provided by Congress.
b. To reduce interest rate risk.
c. They have the management expertise to specialize in mortgages.
d. Both a and c.

2. All of the following are important sources of liquidity for thrifts except:
a. purchasing federal funds.
b. issuing commercial paper.
c. buying mortgage-backed bonds.
d. advances from Federal Home Loan Banks.

3. The expense categories for thrifts, from largest to smallest, are
a. non-interest expense, interest expense, provision for loan losses.
b. provision for loan losses, non-interest expense, and interest expense.
c. interest expense, non-interest expense, and provision for loan losses.
d. tax expense, interest expense, and provision for loan losses.

4. The major assets of savings and loans are:
a. mortgage-backed securities.
b. construction loans.
c. residential mortgages.
d. cash and investment accounts.

5. Thrift institutions are chartered by
a. states only.
b. the federal government only.
c. both states and the federal government
d. none of the above.

6. Almost all thrift financial institutions are insured by _________ deposit insurance.
a. state
b. federal
c. private
d. group

7. Which of the following statements is not true?
a. Credit unions pay federal income taxes.
b. To use the services of a credit union one must be a member.
c. Credit unions have been exempt from antitrust laws.
d. The total number of credit unions is declining in the United States.

8. All of the following serve as an advantage for credit unions except
a. small size.
b. sponsor support.
c. federal income tax exemption.
d. payroll deduction.

9. In contrast to depository institutions, finance companies tend to
a. obtain their funds in large amounts, lend in small amounts.
b. obtain their funds in small amounts, lend in large amounts.
c. have a greater proportion of deposit sources of funds
d. be less flexible in their ability to branch.

10. The major assets of large finance companies are
a. certificates of deposit.
b. cash, ready to be loaned out.
c. loan receivables.
d. commercial paper.

11. Credit unions are chartered by
a. state governments.
b. the National Credit Union Administration.
c. the Comptroller of the Currency.
d. either a or b

12. Of the following, which type of life insurance policy would probably accumulate the least amount of funds for investment in capital market securities?
a. term insurance
b. whole life insurance
c. annuity
d. universal life insurance

13. Which statement is not true about life insurance companies?
a. they have relatively predictable inflows and outflows.
b. their liabilities are long-term in nature.
c. they invest heavily in short-term highly marketable securities.
d. they sell contracts that offer financial protection against premature death and against living too long.

14. Which statement is not true about casualty insurance companies?
a. they are subject to federal income tax.
b. they invest heavily in municipal bonds.
c. they have more predictable cash flows related to claims than life insurance companies.
d. they invest in corporate stock.

15. Which one of the following types of casualty insurance policy would a bank purchase if it wants to protect itself against economic loss from bank tellers who might embezzle cash?
a. liability insurance
b. fidelity bond
c. surety bond
d. marine insurance

16. Traditionally, pension funds were:
a. government-insured
b. defined contribution
c. fully contributory
d. defined benefit

17. A pension plan feature that provides employees with the right to future retirement income, even if the employee terminates employment, is called:
a. unvested.
b. vested.
c. under funded.
d. funded.

18. Keogh plans and IRAs are
a. government sponsored retirement programs.
b. noninsured retirement plans.
c. individual retirement programs.
d. pay-as-you-go programs.

19. Life insurance companies tend to be larger than casualty insurance companies because of
a. their special income tax exclusions.
b. the characteristics of their term policies.
c. the inability to accumulate policyholders.
d. the long-term, accumulative nature of whole life policies.

20. Which one of the following statements about universal life insurance is not true?
a. Cash contributions, net of term premiums, are invested at market rates.
b. The policyholder may vary the level of insurance coverage.
c. The policy does not qualify for the special federal tax exclusion of income built up inside the contract.
d. The amount of policyholder contribution each year is the difference between the contributions and the price of a one-year term policy.

21. Insurance companies have to deal with the concept of adverse selection, which is
a. the practice of low-risk insured seeking low premiums.
b. high-risk persons are more likely to purchase insurance.
c. insureds are likely to increase their risky behavior.
d. Insurance salespersons try to sell their most profitable policies.

22. All but one of the following was an important result of the ERISA Act of 1974:
a. strengthen the fiduciary responsibilities of pension fund trustees.
b. increased the number of pension funds at small businesses
c. established reporting and disclosure requirements
d. provided insurance for failed pension funds.

23. The difference between an insured versus a noninsured pension plan is
a. the insured plan is insured under the Pension Benefit Guaranty Corporation, while the noninsured is not.
b. the insured plan is a government pension fund; the noninsured is in the private sector.
c. the insured plan obligations are issued by a life insurance company with promises to pay specific amounts in the future, while the noninsured are managed by a trustee with no guarantee of amounts distributed in the future.
d. the employer of the insured guarantees payments, but not so in the case of the uninsured.

24. While life insurance protects the insured against the economic consequences of premature death, annuities protects against
a. the economic consequences of living too long.
b. varying interest rates.
c. aggressive beneficiaries.
d. default by life insurance companies.

25. Private pension plans are
a. available only to people who work.
b. illegal.
c. pensions provided by and to non-governmental, private sector businesses, organizations, and their workers.
d. a personal financial plan provided for a fee by a financial planner.

26. Social security is a _________ pension plan.
a. fully funded
b. private
c. pay-as-you go
d. noncontributory

27. In the U.S., the major regulator of insurance firms is the
a. State insurance regulator
b. Treasury Department
d. Federal Reserve Banks
e. SEC

28. All of the following were the objectives of the Glass-Steagall Act except
a. discouraging speculation in financial markets.
b. limiting bank mergers when the merger might adversely affect competition.
c. preventing conflict of interest and self-dealing.
d. restoring confidence in the commercial banking system.
e. All of the above were the objectives of the Glass-Steagall Act.

29. All of the following are the major services of investment banking firms excepta.
a. making commercial loans
b. bringing new security issues to market
c. trading securities
d. brokerage

30. Full-service brokerage service includes
a. origination, underwriting, and sales.
b. registration of securities, storage of securities, and execution of trades.
c. execution of trades, investment advice, and margin credit.
d. cash management service, private placements, and security distribution.

31. All of the following are associated with the origination function of investment banking except
a. design of the security to fit the needs of the market and the issuing firms.
b. filing of the required registration statements.
c. obtain a credit rating on a debt issue.
d. commit to a specific price to the issuing firm and attempt to sell the security in the market.

32. Which of the following is true about private placement?
a. The underwriting function is avoided.
b. The extremes of high credit quality firms and low or unknown credit quality firms use private placements.
c. The terms may be negotiated between the issuer and the investors.
d. The sale of securities must be restricted to a small group of accredited investors.
e. All of the above is true.

33. The Glass-Steagall Act of 1933 separated
a. insurance from credit.
b. investment banking from mutual funds.
c. investment banking from commercial banking.
d. insurance from mutual funds.

34. Which of the following laws is not associated with financial reform legislation in the wake of the Great Depression?
a. Securities Act - yes
b. Securities Exchange Act - yes
c. Glass-Steagall Act
d. Financial Services Modernization Act

35. If a company has never offered securities to the public, the investment banking will offer the securities in the primary market as
a. a seasoned offering.
b. a rights offering.
c. an IPO.
d. a private placement
e. a best efforts offering.

36. Venture capital investments are characterized by all of the following except
a. Substantial control over management decision
b. Low-risk investments with low return
c. A share of capital appreciation
d. Serves as intermediate financing between founders' capital and the IPO

37. When an investment banker holds a security inventory to make market in a security it has just
underwritten, it is performing the ________ function in the market.
a. registration
b. dealer
c. broker
d. advisory

38. A(n) _________ is a “market-maker” in securities and trades on a bid/ask basis.
a. broker
b. arbitrager
c. dealer
d. investment banker

39. Universal banks were/are:
a. commercial banks operating in the U.S. prior to 1980.
b. financial institutions outside of the U.S. that can engage in deposit taking, making loans, brokerage
activities, securities underwriting, and offering insurance services.
c. investment banks operating in the U.S. prior to 1980.
d. commercial banks that can also sell universal life insurance policies.
e. none of the above.

40. Which of the following is true about a best-efforts offering?
a. The investment bank is compensated based on the number of securities sold.
b. The risk of the securities not selling or not selling at a desired price is borne by the issuing firm, not the investment bank.
c. Typically, the smaller and more risky issuers are forced to use this type of offering.
d. All of the above is true.

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