CHAPTER 1 – Part 3
TRUE/FALSE QUESTIONS
1. Deposits in a credit union by a household are an example of direct finance.
2. Sales finance companies specialize in mortgage lending.
3. Pension funds transfer spending power from the work period to the retirement period.
4. Life insurance liabilities are generally more predictable than property and casualty insurer claims.
MULTIPLE CHOICE QUESTIONS
1. Which of the following does not take deposits?
a. commercial banks.
b. savings and loan associations.
c. credit unions.
d. finance companies.
2. Pension funds tend to invest in
a. higher-yielding long-term securities
b. money market securities exclusively
c. government securities exclusively
d. debt securities only
3. Which of the following would tend to hold the most corporate bonds as a percent of investments?
a. life insurance company
b. credit union
c. mutual savings bank
4. Money market mutual funds are a strong competitor for
a. depository institutions.
b. the stock market.
c. finance companies.
d. the real estate market.
5. An S&L taking short-term deposits and financing local land development is engaging in
a. speculation.
b. maturity intermediation.
c. securities trading
d. currency transformation
6. Bank credit risk diversification occurs when
a. adding loans to the portfolio increases the liquidity of the loan portfolio.
b. loans are sold to other banks
c. adding loans to the portfolio decreases the variability of the loan portfolio.
d. bank loans are repaid by the borrowers.
7. The only “deposit-type” institutions that do not operate for profit are
a. thrift institutions
b. credit unions
c. pension funds
d. commercial banks
8. Credit unions are _____ institutions; pension funds are _______ institutions.
a. depository; contractual
b. contractual; depository
c. federal ; money market
d. depository; depository
9. The financial institution that is the largest issuer of commercial paper is
a. commercial banks.
b. finance companies.
c. property-casualty insurance companies.
d. pension funds.
10. Federal agencies issue high quality securities and invest primarily in claims issued by
a. businesses that are “too big to fail”.
b. the U.S. Treasury to finance government deficits.
c. agricultural or housing-related sectors which have limited access to private credit.
d. foreign governments
11. Potential effects of yield fluctuations on security prices and reinvestment income represent
a. credit risk.
b. liquidity risk.
c. foreign exchange risk.
d. interest rate risk.
12. Thrift institutions include
a. commercial banks.
b. pension funds.
c. federal agencies.
d. savings associations.
13. Small investors are likely to invest in the money market ______through .
a. directly; commercial paper
b. directly; their credit union
c. indirectly; negotiable CDs
d. indirectly; money market mutual funds
14. Credit union checking accounts are called
a. commercial paper.
b. share accounts.
c. certificates of deposit.
d. share drafts.
15. Large industrial U.S. corporations are involved in the money market by
a. investing excess cash balances.
b. buying and selling goods on credit in international trade.
c. issuing commercial papers and short-term corporate notes.
d. all of the above
16. Which one of the following is a contractual institution?
a. credit union
b. finance company
c. thrift institution
d. life insurance company
17. Which of the following institutions provides risk protection from events such as automobile
accidents?
a. finance company
b. property and casualty insurer
c. pension fund
d. mutual fund
18. Match the financial institutions with the characteristic that best describes its function.
I. Pool funds of small savers and invest in either money or capital markets
II. Provide economic protection from adverse events
III. Provide consumer loans and real estate loans funded by deposits
IV. Underwrite and trade securities and provide brokerage services
V. Accumulate and transfer wealth from work period to retirement period
1. Credit unions
2. Insurance companies
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. 5, 2, 1, 4, 3
d. 2, 4, 5, 3, 1
e. 5, 1, 3, 2, 4
Answers
True or False
1 F 2 F 3 T
4 T
MCQ
1 D 2 A 3 A
4 A 5 B 6 C
7 B 8 A 9 B
10 C 11 D 12 D
13 D 14 D 15 D
16 D 17 B 18 C
