Banking and Financial Institutions
Chapter Exam Questions
Course Introduction
This course offers a comprehensive overview of the structure, functions, and operations of banking and financial institutions within both domestic and international contexts. Students will explore the roles of commercial banks, investment banks, credit unions, and nonbank financial intermediaries, examining how these institutions facilitate the flow of funds, manage risks, and contribute to economic development. Emphasis is placed on regulatory frameworks, recent trends in financial innovation, risk assessment, and the impact of global events on financial systems. Through case studies and practical examples, students develop a nuanced understanding of the challenges and opportunities facing modern financial institutions.
Recommended Textbook
Financial Markets and Institutions 9th Edition by Jeff Madura
Available Study Resources on Quizplus
25 Chapters
1757 Verified Questions
1757 Flashcards
Source URL: https://quizplus.com/study-set/3310 Page 2
Chapter 1: Role of Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/65710
Sample Questions
Q1) Which of the following transactions would not be considered a secondary market transaction?
A)An individual investor purchases some existing shares of stock in IBM through his broker.
B)An institutional investor sells some Disney stock through its broker.
C)A firm that was privately held engages in an offering of stock to the public.
D)All of the above are secondary market transactions.
Answer: C
Q2) Treasury bonds have a maturity of one to three years.
A)True
B)False
Answer: False
Q3) Securities are certificates that represent a claim on the provider of funds. A)True
B)False
Answer: True
Q4) When a depository institution offers a loan, it is acting as a creditor.
A)True
B)False
Answer: True
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Determination of Interest Rates
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/65709
Sample Questions
Q1) If interest rates are ____, ____ projects will have positive NPVs.
A)higher; more
B)lower; more
C)lower; no
D)none of the above
Answer: B
Q2) The required return to implement a given business project will be ____ if interest rates are lower.This implies that businesses will demand a ____ quantity of loanable funds when interest rates are lower.
A)greater; lower
B)lower; greater
C)lower; lower
D)greater; greater
Answer: B
Q3) The relationship between interest rates and expected inflation is often referred to as the loanable funds theory.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Structure of Interest Rates
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/65708
Sample Questions
Q1) A theory states that while investors and borrowers may normally concentrate on a particular natural maturity market, conditions may cause them to change maturity markets.This theory is called the
A)liquidity premium theory.
B)efficient markets theory.
C)pure expectations theory.
D)preferred habitat theory.
Answer: D
Q2) If the Treasury uses a relatively large proportion of ____ debt to finance the deficit, this may place upward pressure on ____ interest rates, and corporations may reduce their investment in fixed assets.
A)long-term; long-term
B)long-term; short-term
C)short-term; long-term
D)B and C
Answer: A
Q3) Yield curves are always upward sloping.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Functions of the Fed
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/65707
Sample Questions
Q1) Which of the following is an action that the Fed uses to increase or decrease the money supply?
A)buying or selling Treasury securities in the secondary market
B)adjusting the tax rate imposed on income earned on Treasury securities
C)adjusting the coupon rate on Treasury bonds
D)selling Treasury securities in the primary market
Q2) ____ includes only currency held by the public and checking deposits as well as savings accounts and small time deposits, money market deposit accounts, and some other items.
A)M1
B)M2
C)M3
D)None of the above
Q3) The purchase of government securities by someone other than the Fed results in
A)an overall increase in funds among commercial banks.
B)an overall decrease in funds among commercial banks.
C)offsetting changes in funds at commercial banks.
D)an increase in securities maintained by the Fed.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Monetary Policy
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/65706
Sample Questions
Q1) Which of the following is not an indicator of inflation?
A)housing price indexes
B)wage rates
C)oil prices
D)consumer confidence surveys
Q2) If the Fed uses a passive monetary policy during weak economic conditions,
A)it increases money supply substantially.
B)it reduces money supply substantially.
C)it allows the economy to fix itself.
D)it focuses on monetizing the debt.
Q3) According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.
A)True
B)False
Q4) When both inflation and unemployment are relatively high, there is more disagreement among FOMC members about the proper monetary policy to implement.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Money Markets
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/65705
Sample Questions
Q1) The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be
A)eliminated.
B)reduced.
C)increased.
D)unchanged (there is no effect).
Q2) You purchase a six-month (182-day) T-bill with a $10,000 par value for $9,700.The Treasury bill discount is ____ percent.
A)5.93
B)6.12
C)6.20
D)6.02
E)none of the above
Q3) Junk commercial paper is commercial paper that is not rated or rated low.
A)True
B)False
Q4) T-bills do not offer coupon payments but are sold at a discount from par value. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Bond Markets
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/65704
Sample Questions
Q1) When would a firm most likely call bonds?
A)after interest rates have declined
B)if interest rates do not change
C)after interest rates increase
D)just before the time at which interest rates are expected to decline
Q2) Treasury bond auctions are normally conducted only at the beginning of each year.
A)True
B)False
Q3) ____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.
A)Bearer
B)Registered
C)Treasury
D)Corporate
Q4) The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Bond Valuation and Risk
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/65703
Sample Questions
Q1) Assume a bond with a $1,000 par value and an 11 percent coupon rate, two years remaining to maturity, and a 10 percent yield to maturity.The modified duration of this bond is
A)1.73 years.
B)1.71 years.
C)1.90 years.
D)none of the above
Q2) The prices of ____-coupon and ____ maturities are most sensitive to changes in the required rate of return.
A)low; short
B)low; long
C)high; short
D)high; long
Q3) The market value of long-term bonds is ____ sensitive to interest rate movements; as interest rates fall, the market value of long-term bonds ____.
A)slightly; rises
B)very; rises
C)very; declines
D)slightly; declines
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Mortgage Markets
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/65702
Sample Questions
Q1) Use an amortization schedule.A 15-year $100,000 mortgage has a fixed mortgage rate of 9 percent.In the first month, the total mortgage payment is $____, and $____ of this amount represents payment of interest.
A)1,014; 264
B)1,241; 750
C)1,014; 750
D)none of the above
Q2) During a weak economy, the credit risk to a financial institution from investing in mortgage-backed securities representing subprime mortgages is ____ than that of mortgage-backed securities representing prime mortgages.
A)equal to
B)slightly less than
C)more than
D)substantially less than
Q3) Borrowers who have a lower level of income relative to the periodic loan payments are more likely to default on their mortgages.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Stock Offerings and Investor Monitoring
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/65701
Sample Questions
Q1) A firm can best avoid the time lag between registering new securities with the SEC and actually selling them by
A)use of proxy.
B)shelf-registration.
C)use of a margin call.
D)use of preemptive rights.
Q2) A firm has a current stock price of $15.32.The firm's annual dividend is $1.14 per share.The firm's dividend yield is
A).74 percent.
B)1.34 percent.
C)7.44 percent.
D)1.14 percent.
Q3) The laws of the financial information that must be provided by public companies is similar among all developed countries.
A)True
B)False
Q4) The government enforcement of securities laws varies among countries.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Stock Valuation and Risk
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/65700
Sample Questions
Q1) The arbitrage pricing theory (APT) differs from the capital asset pricing model (CAPM) in that it suggests that stock prices
A)are influenced only by the market itself.
B)can be influenced by a set of factors in addition to the market.
C)are not influenced at all by the market.
D)cannot be influenced at all by the industry factors.
Q2) Fabrizio, Inc.is expected to generate earnings of $1.50 per share this year.If the mean ratio of share price to expected earnings of competitors in the same industry is 20, then the stock price per share is $____.
A)13.33
B)3.00
C)20.00
D)30.00
E)none of the above
Q3) Stock price volatility increased during the credit crisis.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Market Microstructure and Strategies
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/65699
Sample Questions
Q1) A margin call from a broker means that the investor is required to provide more collateral (cash or stocks) or sell the stock.
A)True
B)False
Q2) A short seller
A)anticipates that the price of the stock sold short will increase.
B)earns the difference between what he initially paid for the stock versus what he later sell the stock for.
C)makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made.
D)is essentially lending the stock to another investor and will ultimately receive that stock back from that investor.
E)none of the above
Q3) The bid-ask spread is negatively related to A)order costs.
B)inventory costs.
C)risk
D)trading volume.
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Financial Futures Markets
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/65698
Sample Questions
Q1) Stock index futures are priced ____ than the stock index itself.
A)higher
B)lower
C)either higher or lower
D)none of the above
Q2) Laura sells an S&P 500 futures contract with a September settlement date when the index is 1,750.By the settlement date, the S&P 500 index falls to 1,400.The return on Laura's position in the S&P 500 futures contract is ____ percent.
A)F1F1F1S1 F1F1F1020
B)F1F1F1S1 F1F1F1010
C)25
D)20
E)0
Q3) Financial leverage, when used in association with a futures contract, ____ the positive returns and ____ losses.
A)magnifies; reduces B)reduces; magnifies C)magnifies; magnifies D)reduces; reduces
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Options Markets
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/65697
Sample Questions
Q1) European-style stock options
A)are long-term options (at least one year until expiration at the time they are created).
B)can be exercised after the expiration date.
C)can be exercised any time until the expiration date.
D)none of the above
Q2) Refer to Exhibit 14-1.Kombs net gain from this strategy is $____.
A)F1F1F1S1 F1F1F102,687.50
B)2,687.50
C)2,375.00
D)7,437.50
E)none of the above
Q3) If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.
A)exercise the option; greater
B)exercise the option; less
C)let the option expire; greater
D)let the option expire; less
E)A and D
To view all questions and flashcards with answers, click on the resource link above.
16
Chapter 15: Swap Markets
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/65696
Sample Questions
Q1) The advantage of a rate-capped interest rate swap (relative to a plain vanilla swap) to a party exchanging floating payments for fixed payments is that
A)there is a minimum limit set on interest rate payments received.
B)there is a maximum limit set on the interest payments it will provide.
C)it receives an up-front fee.
D)none of the above
Q2) There is risk that a firm involved in an interest rate swap may not meet its payment obligations; this risk is called systemic risk.
A)True
B)False
Q3) AIG's financial problems were attributed to:
A)its weak returns on its investments in Treasury securities.
B)its potential losses from its life insurance policies.
C)fraud from avoiding taxes on its gains from credit default swaps.
D)its potential losses from credit default swaps.
Q4) Interest rate floors are commonly used to hedge against lower interest rates.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Foreign Exchange Derivative Markets
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/65695
Sample Questions
Q1) If British interest rates suddenly increase substantially relative to U.S.interest rates, the demand by U.S.investors for British pounds ____, the supply of British pounds to be sold in exchange for dollars ____, and the British pound will ____.
A)increases; decreases; appreciate B)increases; decreases; depreciate C)decreases; increases; appreciate D)decreases; increases; depreciate E)none of the above
Q2) If the demand for British pounds ____, the pound will ____, other things being equal.
A)increases; appreciate B)decreases; appreciate C)increases; depreciate D)B and C
Q3) Financial institutions rarely use the forward market. A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Commercial Bank Operations
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/65694
Sample Questions
Q1) Obtaining funds through ____ is not a common source of funds for banks to satisfy a temporary deficiency of funds?
A)issuing bonds
B)the federal funds market
C)repurchase agreements
D)borrowing from the Federal Reserve
Q2) ____ are the largest bank source of funds (as a percentage of total liabilities).
A)Small-denomination time deposits
B)Federal funds borrowed
C)Transaction deposits
D)Bonds
E)Savings deposits (including MMDAs)
Q3) When a bank obtains funds through ____, households are not a common provider of the funds.
A)NOW accounts
B)retail CDs
C)passbook savings accounts
D)NCDs
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Bank Regulation
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/65693
Sample Questions
Q1) All Fed member banks must hold
A)private insurance on deposits.
B)FDIC insurance on deposits.
C)both FDIC and private insurance on deposits.
D)none of the above
Q2) The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk.
A)True
B)False
Q3) A federal bank charter is issued by the
A)Comptroller of the Currency.
B)Securities and Exchange Commission.
C)U.S.Treasury.
D)Federal Reserve.
E)none of the above
Q4) The provision of a letter of credit by a bank to issue commercial paper issued by a corporation is an example of an off-balance sheet commitment.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Bank Management
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/65692
Sample Questions
Q1) Which of the following financial institutions would be most willing to swap variable-rate payments for fixed-rate payments in order to reduce exposure to interest rate risk?
A)one whose assets and liabilities are equally interest-rate sensitive
B)one whose assets are more interest-rate sensitive than its liabilities
C)one whose liabilities are more interest-rate sensitive than its assets
D)one whose gap ratio is equal to 1.0
Q2) If a bank attempts to reduce exposure to interest rate risk by replacing long-term marketable securities with more floating-rate commercial loans, it is likely that the bank's
A)default risk would decrease.
B)default risk would increase.
C)liquidity risk would increase.
D)liquidity risk would decrease.
E)B and C
Q3) Banks are more liquid as a result of securitization because it allows them to request repayment of the loan principal from the borrower upon demand.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Bank Performance
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/65691
Sample Questions
Q1) The loan loss provision should increase during periods when loan losses are more likely, such as during a recessionary period.
A)True
B)False
Q2) The risk premium on a commercial bank is ____ related to economic growth and ____ related to management skills.
A)positively; negatively
B)positively; positively
C)negatively; negatively
D)negatively; positively
Q3) A bank's ROA ____ account for taxes on earnings.A bank's ROE ____ account for taxes on earnings.
A)does; does B)does; does not
C)does not; does not
D)does not; does
Q4) The loan loss provision should increase during periods of high economic growth.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Thrift Operations
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/65690
Sample Questions
Q1) Because credit unions do not issue stock, they are technically sole proprietorships.
A)True
B)False
Q2) Today, savings institutions are not permitted to invest in junk bonds.
A)True
B)False
Q3) Although adjustable-rate mortgages reduce the adverse impact of ____ interest rates, they also reduce the favorable impact of ____ interest rates.
A)rising; rising
B)declining; declining
C)rising; declining
D)declining; rising
E)none of the above
Q4) Deposits at credit unions are called
A)NOW accounts.
B)money market deposit accounts.
C)shares.
D)credit union deposit accounts.
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Finance Operations
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/65689
Sample Questions
Q1) ____ finance companies concentrate on purchasing credit contracts from retailers and dealers.
A)Consumer
B)Sales
C)Commercial
D)None of the above
Q2) Finance companies are most likely to compete with which of the following institutions for consumer loans?
A)commercial banks
B)securities firms
C)pension funds
D)insurance companies
E)none of the above
Q3) Most finance companies are commonly exposed to all forms of risk below except ____ risk.
A)exchange rate
B)interest rate
C)liquidity
D)credit
To view all questions and flashcards with answers, click on the resource link above.
Page 24
Chapter 23: Mutual Fund Operations
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/65688
Sample Questions
Q1) Which of the following is not disclosed in the prospectus?
A)the minimum amount of investment required
B)the investment objective of the funds
C)the fees incurred by the mutual fund
D)all of the above are disclosed
Q2) Mutual funds composed of stocks that have potential for very high growth, but may also be unproven, are called
A)income funds.
B)capital appreciation funds.
C)specialty funds.
D)dividend funds.
Q3) A mutual fund's performance is usually unrelated to market conditions.
A)True
B)False
Q4) ____ are most likely to invest in mortgages.
A)Stock mutual funds
B)Bond mutual funds
C)Load funds
D)Closed-end funds
E)none of the above
Page 25
To view all questions and flashcards with answers, click on the resource link above.
Chapter 24: Securities Operations
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/65687
Sample Questions
Q1) Which of the following services do securities firms not provide?
A)origination
B)underwriting stock
C)distribution of stock
D)advising
E)securities firms provide all of the services above.
Q2) Which of the following services do securities firms (IBFs) not provide?
A)origination
B)underwriting stock
C)distribution of stock
D)advising
E)IBFs provide all of the services above
Q3) An order placed by an investors seeking to sell stock when the price reaches a specified minimum is a ____ order.
A)market
B)stop-loss
C)limit
D)none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Insurance and Pension Fund Operations
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/65686
Sample Questions
Q1) The composition of the stocks in a pension fund's portfolio is determined by the fund's portfolio managers.
A)True
B)False
Q2) Which type of life insurance policy specifically accommodates the needs of people who need more insurance now than later?
A)whole life
B)term
C)decreasing term
D)universal life
Q3) Pension funds commonly engage in interest rate swaps to hedge the exposure of their bond and mortgage portfolios to ____ risk.
A)exchange rate
B)reinvestment rate
C)interest rate
D)credit
E)none of the above
To view all questions and flashcards with answers, click on the resource link above. Page 27