Question 1

Which of the following is true?

Accepted Answer

A)  Securitization develops most easily in markets where financial assets are heterogeneous.
B)  Securitization reduces interest rate risk for the issuer of asset-backed securities.
C)  Securitization turns relatively liquid assets into illiquid assets.
D)  Securitization increased rapidly in the 1980s but then decreased.

Question 2

Of the following, which is not considered an important factor in recent financial innovations?

Accepted Answer

A)  volatile interest rates
B)  inflation
C)  decreased competition in financial markets
D)  changes in regulation

Question 3

An interest rate swap agreement is which of the following?

Accepted Answer

A)  A standardized contract to buy and sell financial assets in the future at an interest rate set today
B)  an agreement between two parties to trade principal payments at a later date regardless of the interest rate
C)  an agreement between two parties to trade interest payment streams
D)  None of the above is correct.

Question 4

Derivatives

Accepted Answer

A)  allow for the unbundling of risks.
B)  can be sold separately to those most willing and able to bear the risk.
C)  derive their value from the underlying asset.
D)  All of the above are true of derivatives.

Question 5

Which of the following is false?

Accepted Answer

A)  Swaps allow two parties to hedge interest rate risk for a long period of time, often up to say 15 years.
B)  Interest rate swaps allow two parties to trade interest rate streams so that inflows more closely match outflows.
C)  A fall in interest rates will hurt an intermediary that is holding fixed rate assets and variable rate liabilities.
D)  Swaps originated in 1982.

Question 6

Which of the following is false?

Accepted Answer

A)  An electronic funds transfer system eliminates the need for a deposit account.
B)  Electronic payments account for about 90 percent of the dollar value of all payments.
C)  Examples of electronic funds transfer systems include ATM machines, point-of-sale terminals, cash cards, debt cards, and Internet banking.
D)  Many employers currently pay employees by crediting their employees' checking accounts rather than issuing checks.

Question 7

Which of the following regulations was not instituted as part of banking reform in the 1930s?

Accepted Answer

A)  Regulation Q
B)  deposit insurance
C)  reserve requirements
D)  separation of commercial and investment banking

Question 8

Benefits and costs of financial innovation are

Accepted Answer

A)  dependent.
B)  interdependent.
C)  co-dependent.
D)  independent.

Question 9

A repurchase agreement is best described as

Accepted Answer

A)  an agreement exchanged in the overnight borrowing and selling of reserves.
B)  a kind of time deposit that pays a market rate of interest and can be resold in a secondary market.
C)  an agreement to use dollar-denominated deposits from abroad to fund domestic loans.
D)  a secured loan with a government security serving as collateral.

Question 10

Which of the following is not a nondeposit liability?

Accepted Answer

A)  fed funds
B)  repurchase agreements
C)  large negotiable CDs
D)  eurodollar borrowings

Question 11

Interest rate swaps can guarantee that

Accepted Answer

A)  inflows more closely match outflows.
B)  participants never hold fixed-rate instruments.
C)  participants never hold variable-rate instruments.
D)  all intermediaries will hold both fixed-rate and variable-rate assets.

Question 12

Of the following, which is not considered an important factor in recent financial innovations?

Accepted Answer

A)  stable interest rates
B)  volatile prices
C)  increased competition in financial markets
D)  technological advancement in payment technologies

Question 13

To curb loans to stock speculators, limits were put on the proportion of stock purchases that could be financed by borrowing. These limits are called

Accepted Answer

A)   Regulation Q.
B)   margin requirements.
C)   Regulation
D)   the Gramm-Leach-Bliley limits.

Question 14

Which of the following is considered a characteristic of a nondeposit liability?

Accepted Answer

A)  freedom from reserve requirements
B)  subject to Regulation Q ceilings
C)  regulated interest rates
D)  subject to slightly lower reserve requirements than deposit liabilities

Question 15

Which of the following played a part in financial innovation during the past 30 years?

Accepted Answer

A)  technological advances in telecommunications
B)  increased geographic barriers to banking
C)  reduced competition from other intermediaries and nonfinancial firms
D)  All of the above played a part.

Question 16

_______________________is a contract that transfer the default risk of a loan from the holder of the loan to a guarantor who receives a fee for accepting the risk.

Accepted Answer

A)  A put option
B)  A call option
C)  A futures agreement
D)  A credit derivative

Question 17

The term deregulation refers to which of the following?

Accepted Answer

A)  redefining the regulations
B)  adding updated regulations
C)  dismantling regulations
D)  deleting outdated regulations and redefining appropriate regulations

Exam 10: Financial Innovation

Benefits and costs of financial innovation are

Correct Answer
verified

The term deregulation refers to which of the following?

Correct Answer
verified

Which of the following is considered a characteristic of a nondeposit liability?

Correct Answer
verified

Which of the following is not a nondeposit liability?

Correct Answer
verified

_______________________is a contract that transfer the default risk of a loan from the holder of the loan to a guarantor who receives a fee for accepting the risk.

Correct Answer
verified

Which of the following is false?

Correct Answer
verified

Of the following, which is not considered an important factor in recent financial innovations?

Correct Answer
verified

Derivatives

Correct Answer
verified

A repurchase agreement is best described as

Correct Answer
verified

An interest rate swap agreement is which of the following?

Correct Answer
verified

Which of the following played a part in financial innovation during the past 30 years?

Correct Answer
verified

Which of the following is true?

Correct Answer
verified

Which of the following is false?

Correct Answer
verified

To curb loans to stock speculators, limits were put on the proportion of stock purchases that could be financed by borrowing. These limits are called

Correct Answer
verified

Of the following, which is not considered an important factor in recent financial innovations?

Correct Answer
verified

Interest rate swaps can guarantee that

Correct Answer
verified

Which of the following regulations was not instituted as part of banking reform in the 1930s?

Correct Answer
verified

Exam 10: Financial Innovation

Benefits and costs of financial innovation are

Correct AnswerverifiedShow Answer

The term deregulation refers to which of the following?

Correct AnswerverifiedShow Answer

Which of the following is considered a characteristic of a nondeposit liability?

Correct AnswerverifiedShow Answer

Which of the following is not a nondeposit liability?

Correct AnswerverifiedShow Answer

_______________________is a contract that transfer the default risk of a loan from the holder of the loan to a guarantor who receives a fee for accepting the risk.

Correct AnswerverifiedShow Answer

Which of the following is false?

Correct AnswerverifiedShow Answer

Of the following, which is not considered an important factor in recent financial innovations?

Correct AnswerverifiedShow Answer

Derivatives

Correct AnswerverifiedShow Answer

A repurchase agreement is best described as

Correct AnswerverifiedShow Answer

An interest rate swap agreement is which of the following?

Correct AnswerverifiedShow Answer

Which of the following played a part in financial innovation during the past 30 years?

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following is false?

Correct AnswerverifiedShow Answer

To curb loans to stock speculators, limits were put on the proportion of stock purchases that could be financed by borrowing. These limits are called

Correct AnswerverifiedShow Answer

Of the following, which is not considered an important factor in recent financial innovations?

Correct AnswerverifiedShow Answer

Interest rate swaps can guarantee that

Correct AnswerverifiedShow Answer

Which of the following regulations was not instituted as part of banking reform in the 1930s?

Correct AnswerverifiedShow Answer

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