Financial Markets & Institutions, Saunders 8th Edition Study Guide

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What factors are encouraging financial institutions to offer overlapping financial services such as banking, investment banking, brokerage, etc.? I. Regulatory changes allowing institutions to offer more services II. Technological improvements reducing the cost of providing financial services III. Increasing competition from full‐service global financial institutions IV. Reduction in the need to manage risk at financial institutions A. I only B. II and III only C. I, II, and III only D. I, II, and IV only E. I, II, III, and IV C. I, II, and III only _________ and __________ allow a financial intermediary to offer safe liquid liabilities such as deposits while investing the depositors' money in riskier illiquid assets A. Diversification; high equity returns B. Price risk; collateral C. Free riders; regulations D. Monitoring; diversification E. Primary markets; foreign exchange markets D. Monitoring; diversification Match the intermediary with the characteristic that best describes its function. I. Provide protection from adverse events. II. Pool funds of small savers and invest in either money or capital markets. III. Provide consumer loans and real estate loans funded by deposits. IV. Accumulate and transfer wealth from work period to retirement period. V. Underwrite and trade securities and provide brokerage services. 1. Thrifts 2. Insurers 3. Pension funds 4. Securities firms and investment banks 5. Mutual funds A. 1, 3, 2, 5, 4 B. 4, 2, 3, 5, 1 C. 2, 5, 1, 3, 4 D. 2, 4, 5, 3, 1 E. 5, 1, 3, 2, 4 C. 2, 5, 1, 3, 4 Secondary markets help support primary markets because secondary markets I. offer primary market purchasers liquidity for their holdings. II. update the price or value of the primary market claims. III. reduce the cost of trading the primary market claims. A. I only B. II only C. I and II only D. II and III only E. I, II, and III E. I, II, and III Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because A. FIs can diversify away some of their risk. B. FIs closely monitor the riskiness of their assets. C. the federal government requires them to do so. D. FIs can diversify away some of their risk and closely monitor the riskiness of their assets. E. FIs can diversify away some of their risk and the federal government requires them to do so. D. FIs can diversify away some of their risk and closely monitor the riskiness of their assets.ñ Households are increasingly likely to both directly purchase securities (perhaps via a broker) and also place some money with a bank or thrift to meet different needs. Match up the given investor's desire with the appropriate intermediary or direct security. I. Money likely to be needed within six months II. Money to be set aside for college in 10 years III. Money to provide supplemental retirement income IV. Money to be used to provide for children in the event of death 1. Depository institutions 2. Insurer 3. Pension fund 4. Stocks or bonds A. 2, 3, 4, 1 B. 1, 4, 2, 3 C. 3, 2, 1, 4 D. 1, 4, 3, 2 E. 4, 2, 1, 3 D. 1, 4, 3, 2 Insolvency risk at a financial intermediary (FI) is the risk A. that promised cash flows from loans and securities held by FIs may not be paid in full. B. incurred by an FI when the maturities of its assets and liabilities do not match. C. that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices. D. incurred by an FI when its investments in technology do not result in cost savings or revenue growth. E. risk that an FI may not have enough capital to offset a sudden decline in the value of its assets. E. risk that an FI may not have enough capital to offset a sudden decline in the value of its assets. Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because A. loans to corporations are part of the money supply. B. bank and thrift loans are tightly regulated. C. U.S. DIs compete with foreign financial institutions. D. DI deposits are a major portion of the money supply. E. thrifts provide a large amount of credit to finance residential real estate. D. DI deposits are a major portion of the money supply.