With the Test Bank for [Financial Institutions Management A Risk Management Approach,Saunders,8e], exam preparation has never been easier. Official exams and answers, practice questions, and strategic insights all at your fingertips. Transform your study sessions and pass the class effortlessly in .
Chapter 01 Why Are Financial Institutions Special? True / False Questions 1. Currently (2012) J.P. Morgan Chase is the largest bank holding company in the world and operations in 60 countries. True False 2. As of 2012, U.S. FIs held assets totaling over $27 trillion True False 3. Financial institutions act as intermediaries between suppliers and demanders of money. True False 4. If a household invests in corporate securities and does not sup ervise 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 False 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 False 6. Failure to monitor the actions of firms in a timel y and complete fashion after purchasing securities in that firm exposes the investor to agency costs. True False 7. The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk. True False 8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise less monitoring power and control over the borrower. True False 9. FIs typically provide secondary claims to household savers that have inferior li quidity than primary securities of corporations such as equity and bonds. True 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 . True 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. True 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 False 13. Financial institutions are subject to economies of scale in the collection of information. True False 14. As an asset transformer, the FI issues financial claims that are more attractive to household savers than the claims directly issued by corporations. True False 15. The asset transformation function of an FI is to issue primary financial claims to corporations while purchasing primary claims issued by households and other investors. True False 16. Secondary securities are securities that serve as collat eral for primary securities. True False 17. FIs are independent market entities that create financial assets whose value is the transformation of financial risk. True False 18. The more costly it is to supervise the use of funds by a borrower, the less likely a saver will encounter agency costs. True False 19. As a delegated monitor, an FI's actions reduce agency costs. True False 20. The ability of diversification to eliminate much of the risk from the asset side of the balance sheet of an FI is the result of choosing assets that are less than perfectly positively correlated. True False 21. Research shows that there is a significant reduction in risk achieved by investing in as few as 8 different securities. True False 22. Depository institutions serve as the primary conduit through which monetary policy actions impact the economy. True False 23. The liabilities of depository institutions are significant components of the money supply. True False 24. The goal of credit allocation is the encouragement of FIs to diversity the composition of their assets. True False
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller PracticeExams. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $30.48. You're not tied to anything after your purchase.
