Chapter 03
Financial Services: Finance Companies
True / False Questions
1. Finance companies differ from banks in that they do not accept deposits. TRUE
2. Finance companies have been among the slowest growing FI groups in recent years. FALSE
3. General Elec...
,Chapter 01 - Why Are Financial Institutions Special?
Chapter 01
Why Are Financial Institutions Special?
True / False Questions
1. Currently (2015) J. P. Morgan Chase is the largest bank holding company in the world and
operations in 60 countries.
FALSE
2. As of 2015, U.S. FIs held assets totaling over $29 trillion.
TRUE
3. Financial institutions act as intermediaries between suppliers and users of money.
TRUE
4. If a household invests in corporate securities and does not supervise how the funds are
invested or used by the corporation, the risk of not earning the desired return or not having the
funds returned increase.
TRUE
5. If not done by FIs, the process of monitoring the actions of borrowers would reduce the
attractiveness and increase the risk of investing in corporate debt and equity by individuals.
TRUE
6. Failure to monitor the actions of firms in a timely and complete fashion after purchasing
securities in that firm exposes the investor to agency costs.
TRUE
, Chapter 01 - Why Are Financial Institutions Special?
7. The risk that the sale price of an asset will be less than the purchase price of an asset is
called liquidity risk.
FALSE
8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise
less monitoring power and control over the borrower.
FALSE
9. FIs typically provide secondary claims to household savers that have inferior liquidity than
primary securities of corporations such as equity and bonds.
FALSE
10. An FI is exposed to liquidity risk because the average maturity of assets and the average
maturity of liabilities are often different on the FIs balance sheet.
FALSE
11. When an FI functions as a broker, they are selling a financial asset that they have created
and will continue to hold on their balance sheet.
FALSE
12. An FI acting as an agent in matching savers and borrowers of funds can attain economies
of scale and provide this service more efficiently than either the saver or borrower could on
their own.
TRUE
13. Financial institutions are subject to economies of scale in the collection of information.
TRUE
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