Question 1

Money market deposit accounts offer which of the following?
A)limited check-writing privileges
B)higher interest than other checkable deposits
C)Both of the above are correct.
D)None of the above is correct.

Accepted Answer

Money market deposit accounts offer both limited check-writing privileges and higher interest rates than other checkable deposits.

Question 2

The largest source of funds for commercial banks is which of the following?
A)deposits
B)loans
C)fed funds
D)borrowings

Accepted Answer

Deposits are the primary source of funds for commercial banks, as they collect funds from their customers through various types of deposit accounts such as savings accounts, current accounts, fixed deposits, etc. These deposits provide the banks with substantial funds that they can use to lend and earn interest.

Question 3

A bank's liquidity needs can best be satisfied by holding
A)small business loans.
B)Treasury bills.
C)long-term Treasury securities.
D)both small business loans and long-term Treasury securities.

Accepted Answer

Holding Treasury bills is the best choice for satisfying a bank's liquidity needs because they are short-term securities with a high degree of liquidity, meaning they can easily be sold on the open market if the bank needs quick access to cash. Small business loans and long-term Treasury securities are not as liquid and may take longer to sell or convert into cash.

Question 4

For what reason do banks hold reserves?
A)to meet safety objectives
B)to meet liquidity objectives
C)to meet Federal Reserve requirements
D)All of the above are correct

Accepted Answer

Banks hold reserves for multiple reasons, including safety objectives to protect against unexpected losses, liquidity objectives to meet customer withdrawals and loan demands, and to meet Federal Reserve requirements for maintaining a minimum reserve ratio.

Question 5

The capital base is the value of a bank's
A)assets plus the value of its liabilities.
B)Fed funds minus repurchase agreements.
C)assets minus the value of its liabilities.
D)time deposits minus the value of its liabilities.

Accepted Answer

The capital base is the amount by which a bank's assets exceed its liabilities. Therefore, it is calculated as assets minus liabilities. Choices A, B, and D do not accurately reflect the calculation of a bank's capital base.

Question 6

Savings and loan associations were originally known as which of the following?
A)savings associations
B)national thrift leagues
C)continental banks
D)building and loan associations

Accepted Answer

Building and loan associations were the original name for savings and loan associations. These institutions were created to help people save money and provide low-interest loans for home ownership.

Question 7

Savings and loan associations were originally known as which of the following?
A)provident Loan Societies
B)building and loan associations
C)continental banks
D)loan sharks

Accepted Answer

Building and loan associations were the original name for savings and loan associations, which were first established in the United States in the mid-1800s to help promote home ownership and savings among working-class Americans. Provident Loan Societies were a type of charitable organization that provided small loans to the poor, while continental banks and loan sharks are unrelated to the history of savings and loan associations.

Question 8

Savings and loan associations were developed to primarily help
A)finance international trade.
B)promote large business loans.
C)finance the construction and purchase of new housing.
D)provide insurance services.

Accepted Answer

Savings and loan associations were created to provide financial assistance to individuals seeking to finance the building or purchase of new homes. They typically offered lower interest rates and longer payment terms than other types of lenders.

Question 9

Major sources of funds for savings associations include which of the following?
A)time deposits
B)checkable deposits
C)savings deposits
D)All of the above are correct.

Accepted Answer

Savings associations, also known as thrifts or savings and loan associations, primarily gather funds through various types of deposits, including time deposits (such as certificates of deposit), checkable deposits (like checking accounts), and savings deposits. These deposits are major sources of funds for these institutions, allowing them to provide loans and other financial services.

Question 10

Which of the following intermediaries uses its funds primarily to acquire mortgage loans?
A)commercial banks
B)savings associations
C)credit unions
D)finance companies

Accepted Answer

Savings associations, also known as thrifts, are financial institutions that primarily use their funds to acquire mortgage loans for their customers. They are similar to commercial banks in terms of the services they offer, but their focus is on mortgage lending. Credit unions and finance companies may offer mortgage loans, but it is not their primary focus.

Question 11

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 did which of the following?
A)expanded the assets savings and loan associations could acquire
B)created a new federal regulatory structure for the savings and loan industry
C)reduced savings and loan associations required capital
D)All of the above are correct.

Accepted Answer

FIRREA created a new federal regulatory structure for the savings and loan industry. While it did expand the assets that savings and loan associations could acquire, it also increased their required capital, making choice A incorrect. Choice C is also incorrect as it describes a reduction in required capital, which is not accurate.

Question 12

The largest asset of credit unions is
A)checkable deposits.
B)large time deposits.
C)consumer credit.
D)mortgages.

Accepted Answer

The answer of The largest asset of credit unions is
A)checkable...

Question 13

Interest-earning checking accounts at credit unions are called which of the following?
A)time deposits
B)interest accounts
C)fed fund accounts
D)share draft accounts

Accepted Answer

Interest-earning checking accounts at credit unions are called share draft accounts. Time deposits are certificates of deposit (CDs) where the funds must stay in the account for a set period of time. Interest accounts are a general term that can refer to different types of accounts, including savings accounts or money market accounts. Fed fund accounts are accounts that banks or credit unions use to transfer funds between each other.

Question 14

By definition, credit union members must share a common bond; therefore a credit union can cater to
A)an employer
B)a church
C)a labor union
D)All of the above

Accepted Answer

Credit unions are formed by people who have a common bond, which can be based on their employer, their place of worship, or their labor union, among other things. As a result, credit unions can serve all of the above groups, as well as other groups that share a common connection or interest.

Question 15

A difference between credit unions and commercials banks is that
A)credit unions are tax exempt
B)credit unions are not regulated by the federal government
C)credit unions do not offer transactions deposits
D)commercial banks are tax exempt

Accepted Answer

Credit unions are tax exempt because they are not-for-profit organizations that are owned by their members, whereas commercial banks are taxed because they are for-profit businesses.

Question 16

Casualty and life insurance benefits that over time offer the public protection from the often catastrophic financial effects of theft, accidents, natural disasters, and death are called
A)contingent claims.
B)savings deposits.
C)time deposits.
D)transactions deposits.

Accepted Answer

Casualty and life insurance benefits are a type of contingent claim, as they only pay out if a specific event (such as an accident or death) occurs. Savings deposits, time deposits, and transaction deposits are types of bank accounts and do not offer protection from theft, accidents, natural disasters, or death.

Question 17

Which is the largest asset held by life insurance companies?
A)corporate and foreign bonds
B)government and agency securities
C)equities
D)mortgages

Accepted Answer

Corporate and foreign bonds are typically the largest asset category for life insurance companies because they provide a predictable stream of income, which aligns with the companies' need to manage long-term liabilities.

Question 18

The largest single class of investors in equities is which of the following?
A)credit unions
B)savings associations
C)commercial banks
D)pension funds

Accepted Answer

Pension funds are the largest single class of investors in equities, as they manage retirement savings for millions of people and invest a significant portion of their portfolios in stocks. Credit unions, savings associations, and commercial banks are not typically major players in the equity market.

Question 19

Which of the following provide protection against unexpected occurrences to homes and automobiles in exchange for paid premiums?
A)pension funds
B)casualty companies
C)life insurance companies
D)All of the above are correct.

Accepted Answer

Casualty companies provide protection for unexpected occurrences to homes and automobiles in exchange for paid premiums. Pension funds and life insurance companies are not involved in providing such protection.

Question 20

What functions do mutual funds perform for the public?
A)They acquire and pool funds from the public.
B)They invest the funds in capital market instruments.
C)They return the income received minus a management fee.
D)All of the above are functions of mutual funds.

Accepted Answer

Mutual funds acquire and pool funds from the public, invest those funds in capital market instruments, and return the income received minus a management fee. Therefore, all of the above choices are functions performed by mutual funds for the public.

Quiz 8: An Introduction to Financial Intermediaries and Risk

Money market deposit accounts offer which of the following?

The largest source of funds for commercial banks is which of the following?

A bank's liquidity needs can best be satisfied by holding

For what reason do banks hold reserves?

The capital base is the value of a bank's

Savings and loan associations were originally known as which of the following?

Savings and loan associations were originally known as which of the following?

Savings and loan associations were developed to primarily help

Major sources of funds for savings associations include which of the following?

Which of the following intermediaries uses its funds primarily to acquire mortgage loans?

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 did which of the following?

The largest asset of credit unions is

Interest-earning checking accounts at credit unions are called which of the following?

By definition, credit union members must share a common bond; therefore a credit union can cater to

A difference between credit unions and commercials banks is that

Casualty and life insurance benefits that over time offer the public protection from the often catastrophic financial effects of theft, accidents, natural disasters, and death are called

Which is the largest asset held by life insurance companies?

The largest single class of investors in equities is which of the following?

Which of the following provide protection against unexpected occurrences to homes and automobiles in exchange for paid premiums?

What functions do mutual funds perform for the public?