FIN 390 EXAM 1 STUDY GUIDE
Functions of Financial Intermediaries - Answers - Brokerage, asset transformation,
payment services
Five risks for Financial Institutions - Answers - Liquidity, maturity, mismatches default,
underwriting risk, operating risk
Underwriting - Answers - an arrangement under which an investment banker agrees to
purchase all shares of a public offering at an agreed-upon price
Pros of Financial Institutions - Answers - 1. reduced info cost
2. liquidity & price risk
3. reduced transaction/trading costs (commission)
4. maturity intermediation
5. Credit Allocation
6. Transmission of Monetary Policy
7. Intergenerational wealth transfer (insurance companies)
8. Payment services
9. Denomination Intermediation
Types of Regulation of FI - Answers - 1. Safety and soundness
2. Monetary Policy
3. Credit Allocation
4. Consumer Protection
5. Investor Protection
6. Entry regulations
Reason for FI Regulation - Answers - Negative externalities ( if they fail), Net regulatory
burden
Monitoring Cost - Answers - Example: Outlay in monetary expense to track the credit
risk of borrowers
Monetary Policy - Answers - Actions that utilize the money supply in an effort to impact
macroeconomic activity
- Depository Institutions (DI) play an important role in the transmission of monetary
policy.
- DI deposits are a major portion of the money supply
Maturity intermediation - Answers - The process of funding assets of one maturity with
liabilities of another
Credit Allocation Regulation - Answers - Regulation supporting the lending to socially
important sectors of the economy
Functions of Financial Intermediaries - Answers - Brokerage, asset transformation,
payment services
Five risks for Financial Institutions - Answers - Liquidity, maturity, mismatches default,
underwriting risk, operating risk
Underwriting - Answers - an arrangement under which an investment banker agrees to
purchase all shares of a public offering at an agreed-upon price
Pros of Financial Institutions - Answers - 1. reduced info cost
2. liquidity & price risk
3. reduced transaction/trading costs (commission)
4. maturity intermediation
5. Credit Allocation
6. Transmission of Monetary Policy
7. Intergenerational wealth transfer (insurance companies)
8. Payment services
9. Denomination Intermediation
Types of Regulation of FI - Answers - 1. Safety and soundness
2. Monetary Policy
3. Credit Allocation
4. Consumer Protection
5. Investor Protection
6. Entry regulations
Reason for FI Regulation - Answers - Negative externalities ( if they fail), Net regulatory
burden
Monitoring Cost - Answers - Example: Outlay in monetary expense to track the credit
risk of borrowers
Monetary Policy - Answers - Actions that utilize the money supply in an effort to impact
macroeconomic activity
- Depository Institutions (DI) play an important role in the transmission of monetary
policy.
- DI deposits are a major portion of the money supply
Maturity intermediation - Answers - The process of funding assets of one maturity with
liabilities of another
Credit Allocation Regulation - Answers - Regulation supporting the lending to socially
important sectors of the economy
