Financial Markets & Institutions, Saunders, Study Homework 1-
1. What factors are encouraging financial institutions to offer overlapping
financial services such as
banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial ser-
vices
III. Increasing competition from full service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A. I only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV <Ans> C. I, II, and III only
2. and allow a financial intermediary to offer safe liquid
liabilities such as deposits while investing the depositors' money in riskier
illiquid assets
A. Diversification; high equity returns
B. Price risk; collateral
C. Free riders; regulations
,D. Monitoring; diversification
E. Primary markets; foreign exchange markets <Ans> D. Monitoring;
diversification
3. Match the intermediary with the characteristic that best describes its func-
tion.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
,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. 2, 5, 1, 3, 4
D. 2, 4, 5, 3, 1
E. 5, 1, 3, 2, 4 <Ans> C. 2, 5, 1, 3, 4
4. Secondary markets help support primary markets because secondary mar-
kets
I. offer primary market purchasers liquidity for their holdings.
II. update the price or value of the primary market claims.
III. reduce the cost of trading the primary market claims.
A. I only
B. II only
C. I and II only
D. II and III only
E. I, II, and III <Ans> E. I, II, and III
5. Financial intermediaries (FIs) can offer savers a safer, more liquid invest-
ment than a capital market
security, even though the intermediary invests in risky illiquid instruments
because
, A. FIs can diversify away some of their risk.
B. FIs closely monitor the riskiness of their assets.
C. the federal government requires them to do so.
D. FIs can diversify away some of their risk and closely monitor the riskiness
of their assets.
E. FIs can diversify away some of their risk and the federal government
requires them to do so. <Ans> D. FIs can diversify away some of their risk and
closely monitor the riskiness of their assets.ñ
6. Households are increasingly likely to both directly purchase securities
(perhaps via a broker) and also
place some money with a bank or thrift to meet different needs. Match up the
1. What factors are encouraging financial institutions to offer overlapping
financial services such as
banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial ser-
vices
III. Increasing competition from full service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A. I only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV <Ans> C. I, II, and III only
2. and allow a financial intermediary to offer safe liquid
liabilities such as deposits while investing the depositors' money in riskier
illiquid assets
A. Diversification; high equity returns
B. Price risk; collateral
C. Free riders; regulations
,D. Monitoring; diversification
E. Primary markets; foreign exchange markets <Ans> D. Monitoring;
diversification
3. Match the intermediary with the characteristic that best describes its func-
tion.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
,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. 2, 5, 1, 3, 4
D. 2, 4, 5, 3, 1
E. 5, 1, 3, 2, 4 <Ans> C. 2, 5, 1, 3, 4
4. Secondary markets help support primary markets because secondary mar-
kets
I. offer primary market purchasers liquidity for their holdings.
II. update the price or value of the primary market claims.
III. reduce the cost of trading the primary market claims.
A. I only
B. II only
C. I and II only
D. II and III only
E. I, II, and III <Ans> E. I, II, and III
5. Financial intermediaries (FIs) can offer savers a safer, more liquid invest-
ment than a capital market
security, even though the intermediary invests in risky illiquid instruments
because
, A. FIs can diversify away some of their risk.
B. FIs closely monitor the riskiness of their assets.
C. the federal government requires them to do so.
D. FIs can diversify away some of their risk and closely monitor the riskiness
of their assets.
E. FIs can diversify away some of their risk and the federal government
requires them to do so. <Ans> D. FIs can diversify away some of their risk and
closely monitor the riskiness of their assets.ñ
6. Households are increasingly likely to both directly purchase securities
(perhaps via a broker) and also
place some money with a bank or thrift to meet different needs. Match up the
