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FINA 365 (UNL – Jinsook Lee) Exam 1 Verified Update!!!!! Practice Questions &
Detailed Rationales (Complete verified 2026–2027 Edition)
Instructions: This comprehensive practice exam covers all core
domains tested on FINA 365 Exam 1 at the University of
Nebraska–Lincoln. Each question includes four answer choices,
the correct answer, and a detailed rationale. Content is aligned
with the course's coverage of Chapters 1–4: Introduction to
Financial Institutions and Markets, Determinants of Interest
Rates, Depository Institutions (Commercial Banks), and the
Structure of Central Banks and the Federal Reserve System.
Domain 1: Introduction to Financial Institutions and Markets
(Questions)
1. What is the primary function of financial institutions (FIs) in
the economy?
A) To eliminate all financial risk
B) To act as intermediaries between surplus units (savers) and
deficit units (borrowers)
C) To set interest rates for the entire economy
D) To print money and control inflation
Answer: B.
Rationale: FIs channel funds from surplus units (households
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with savings) to deficit units (firms and individuals needing
capital). They do not eliminate risk (A), set all rates (C), or print
money (D).
2. In a world without financial institutions, households would
be less willing to invest in corporate securities because:
A) They would face price risk, may lack sufficient funds, and
cannot monitor corporations as effectively as FIs
B) Corporate securities would be risk-free
C) The government would prohibit such investments
D) Interest rates would always be higher
Answer: A.
Rationale: Without FIs, households face price risk when selling
securities, may not have enough funds to purchase them, and
lack the monitoring capability that FIs provide. These are all
valid reasons.
3. Which of the following is a special function performed by
FIs at the macro level?
A) Interbank lending and investing
B) Transmission of monetary policy
C) Denomination intermediation
D) Credit allocation
Answer: A.
Rationale: Interbank lending and investing is not a macro-level
special function of FIs. Macro functions include transmission of
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monetary policy (B), denomination intermediation (C), and
credit allocation (D).
4. The Financial Services Modernization Act of 1999:
A) Created the Federal Reserve System
B) Repealed the Glass-Steagall barriers between commercial
banking, insurance, and investment banking
C) Established the FDIC
D) Required banks to hold more capital
Answer: B.
Rationale: The Financial Services Modernization Act (Gramm-
Leach-Bliley Act) of 1999 repealed the Glass-Steagall Act's
barriers, allowing commercial banking, insurance, and
investment banking to operate under the same ownership
structure.
5. Which of the following repealed the 1933 Glass-Steagall
barriers?
A) Competitive Equality in Banking Act (1987)
B) Garn-St. Germain Depository Institutions Act (1982)
C) Financial Institutions Reform Recovery and Enforcement Act
(1989)
D) Financial Services Modernization Act (1999)
Answer: D.
Rationale: The Financial Services Modernization Act of 1999
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repealed the Glass-Steagall barriers between commercial
banking, insurance, and investment banking.
6. Safety and soundness regulations include all of the
following layers of protection EXCEPT:
A) Requirements encouraging diversification of assets
B) The creation of money for those FIs in financial trouble
C) Requiring minimum levels of capital
D) Monitoring and surveillance
Answer: B.
Rationale: Safety and soundness regulation includes
diversification (A), capital requirements (C), monitoring (D), and
guaranty funds. The creation of money for troubled FIs is not
part of this framework.
7. The Community Reinvestment Act and the Home Mortgage
Disclosure Act were both passed to provide incentives to
comply with:
A) Credit allocation regulation
B) Entry regulation
C) Investor protection regulation
D) Consumer protection regulation
Answer: D.
Rationale: Both laws were passed as consumer protection
regulations to ensure fair lending practices and disclosure.
FINA 365 (UNL – Jinsook Lee) Exam 1 Verified Update!!!!! Practice Questions &
Detailed Rationales (Complete verified 2026–2027 Edition)
Instructions: This comprehensive practice exam covers all core
domains tested on FINA 365 Exam 1 at the University of
Nebraska–Lincoln. Each question includes four answer choices,
the correct answer, and a detailed rationale. Content is aligned
with the course's coverage of Chapters 1–4: Introduction to
Financial Institutions and Markets, Determinants of Interest
Rates, Depository Institutions (Commercial Banks), and the
Structure of Central Banks and the Federal Reserve System.
Domain 1: Introduction to Financial Institutions and Markets
(Questions)
1. What is the primary function of financial institutions (FIs) in
the economy?
A) To eliminate all financial risk
B) To act as intermediaries between surplus units (savers) and
deficit units (borrowers)
C) To set interest rates for the entire economy
D) To print money and control inflation
Answer: B.
Rationale: FIs channel funds from surplus units (households
, Page |2
with savings) to deficit units (firms and individuals needing
capital). They do not eliminate risk (A), set all rates (C), or print
money (D).
2. In a world without financial institutions, households would
be less willing to invest in corporate securities because:
A) They would face price risk, may lack sufficient funds, and
cannot monitor corporations as effectively as FIs
B) Corporate securities would be risk-free
C) The government would prohibit such investments
D) Interest rates would always be higher
Answer: A.
Rationale: Without FIs, households face price risk when selling
securities, may not have enough funds to purchase them, and
lack the monitoring capability that FIs provide. These are all
valid reasons.
3. Which of the following is a special function performed by
FIs at the macro level?
A) Interbank lending and investing
B) Transmission of monetary policy
C) Denomination intermediation
D) Credit allocation
Answer: A.
Rationale: Interbank lending and investing is not a macro-level
special function of FIs. Macro functions include transmission of
, Page |3
monetary policy (B), denomination intermediation (C), and
credit allocation (D).
4. The Financial Services Modernization Act of 1999:
A) Created the Federal Reserve System
B) Repealed the Glass-Steagall barriers between commercial
banking, insurance, and investment banking
C) Established the FDIC
D) Required banks to hold more capital
Answer: B.
Rationale: The Financial Services Modernization Act (Gramm-
Leach-Bliley Act) of 1999 repealed the Glass-Steagall Act's
barriers, allowing commercial banking, insurance, and
investment banking to operate under the same ownership
structure.
5. Which of the following repealed the 1933 Glass-Steagall
barriers?
A) Competitive Equality in Banking Act (1987)
B) Garn-St. Germain Depository Institutions Act (1982)
C) Financial Institutions Reform Recovery and Enforcement Act
(1989)
D) Financial Services Modernization Act (1999)
Answer: D.
Rationale: The Financial Services Modernization Act of 1999
, Page |4
repealed the Glass-Steagall barriers between commercial
banking, insurance, and investment banking.
6. Safety and soundness regulations include all of the
following layers of protection EXCEPT:
A) Requirements encouraging diversification of assets
B) The creation of money for those FIs in financial trouble
C) Requiring minimum levels of capital
D) Monitoring and surveillance
Answer: B.
Rationale: Safety and soundness regulation includes
diversification (A), capital requirements (C), monitoring (D), and
guaranty funds. The creation of money for troubled FIs is not
part of this framework.
7. The Community Reinvestment Act and the Home Mortgage
Disclosure Act were both passed to provide incentives to
comply with:
A) Credit allocation regulation
B) Entry regulation
C) Investor protection regulation
D) Consumer protection regulation
Answer: D.
Rationale: Both laws were passed as consumer protection
regulations to ensure fair lending practices and disclosure.
