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  1. Which of the following statements concerning nonbank thrift institutions is (are) correct?
    (RM 467)

    I They are important in financial markets for mortgages, corporate stocks and bonds, and consumer savings and offer a number of new services.

    II As they compete with banks offering the same services for the same customers, they are getting to be more like commercial banks.  

    A. I only   
    B. Both I and II   
    C. Neither I nor II 
    D. II only   
    B. Both I and II 

    Both statements correctly describe characteristics of nonbank thrift institutions.
     
    (this multiple choice question has been scrambled)
  2. All the following statements concerning savings and loan associations are correct, EXCEPT:
    (RM 467-470)  

    A. They emphasize mortgages rather than short-term loans, and loans to households rather than to businesses.   
    B. Savings deposits are their most important assets, and mortgages on homes are their most important liabilities.   
    C. Chartered by the states and federal government, they may have insured deposits.   
    D. They may offer credit card services. 
    B. Savings deposits are their most important assets, and mortgages on homes are their most important liabilities. 

    Savings deposits are the most important liabilities of savings and loan associations, and real estate mortgages are their most important assets.
    (this multiple choice question has been scrambled)
  3. Which of the following investments is offered as result of a loan securitization?
    (RM 468)  

    A. Collateralized mortgage obligation   
    B. Residential home mortgage   
    C. Money market deposit account   
    D. Junk bond 
    • A. Collateralized mortgage obligation
    •  
    • Loan securitization is selling ownership shares in pools of loans such as mortgages. Investors buy a right to receive earnings from a pool of loans. Collateralized mortgage obligations are investor shares in pools of mortgages offered as a result of loan securitization. Other investments developed through loan securitization are participation certificates and pass-through certificates.   These are all mortgage-backed securities that pass through mortgage payments of homeowners.
  4. Which of the following statements concerning the asset portfolios of S&L associations is (are) correct?
    (RM 468-469)

    I             Mortgages account for more than half of the assets of S&Ls.

    II            Consumer loans and commercial loans and securities are not included in the assets of S&Ls.  

    A. I only   
    B. II only   
    C. Both I and II   
    D. Neither I nor II
    A. I only 

    II is incorrect because savings and loan associations do make consumer loans. They also make commercial loans through, for example, the purchase of commercial paper and corporate debt securities.
    (this multiple choice question has been scrambled)
  5. Which of the following statements concerning sources of funds of S&L associations is (are) correct?
    (RM 468-470)

    I             Almost three-fourths of the funds of S&Ls come from savings deposits.

    II            S&Ls get advances from the Federal Home Loan Bank for liquidity and reserve purposes.  

    A. Both I and II   
    B. I only   
    C. II only   
    D. Neither I nor II 
    A. Both I and II 

    Savings and loans derive most of their funds from savings deposits. They are eligible for advances from the Federal Home Loan Bank for liquidity and reserve purposes.
     
    (this multiple choice question has been scrambled)
  6. Which of the following sources of funds for savings and loan associations is the smallest of the total?
    (RM 469-470)  

    A. Savings deposits   
    B. Loans from the Federal Home Loan Bank System   
    C. Securitized assets   
    D. Equity capital
    • D. Equity capitalEquity capital makes up only about 5% of the total S&L sources of funds. Nevertheless, it is an important source because it provides the margin for S&Ls to stay in business when losses occur.
    •  
  7. All the following reflect recent trends in the structure of the S&L industry, EXCEPT:
    (RM 470-472)   

    A. There have been increases in costs and competition.   
    B. The average size of S&L associations has decreased.   
    C. The number of associations has declined.   
    D. Larger associations have merged with or absorbed smaller ones. 
    B. The average size of S&L associations has decreased.   

    Because of a large number of mergers and consolidation in the industry, the average size of savings and loan associations has risen in recent years.
     
    (this multiple choice question has been scrambled)
  8. Which of the following is likely to cause a negative net interest margin for S&L associations?
    (RM 472)  

    A. Mortgage interest rates exceed consumer loan rates. 
    B. Long-term interest rates exceed short-term interest rates.   
    C. Interest rates on mortgages owned rise above interest rates on deposits.   
    D. Interest paid on liabilities exceeds interest earned on assets.   
    D. Interest paid on liabilities exceeds interest earned on assets.   

    The net interest margin is the difference between the rate an S&L association earns on its investments and the rate it pays to depositors. Since most of the investments of an S&L association are long-term, especially in the form of mortgages, A, C, and D would tend to improve the net interest margin for the S&L association.
    (this multiple choice question has been scrambled)
  9. All the following steps have been taken by some S&L associations to alleviate their financial difficulties in recent years, EXCEPT:
    (RM 472-474)  

    A. Becoming mortgage bankers, selling mortgages, and becoming real estate service firms   
    B. Becoming "family financial centers" that offer full financial services to consumers   
    C. Becoming specialists in issuing and holding fixed-rate mortgages for longer terms   
    D. Becoming holding companies to offer a diversified range of services through affiliates and subsidiaries 
    • C. Becoming specialists in issuing and holding fixed-rate mortgages for longer terms   
    • S&L associations have diversified their asset portfolios greatly in recent years in an attempt, though not always a successful one, to alleviate their financial difficulties.
  10. Which of the following statements concerning savings banks is (are) correct?
    (RM 474-475)

    I             They grew rapidly in number during the late 1980s and early 1990s with the availability of federal charters.

    II            Most are located in the south and the west.  

    A. I only   
    B. Both I and II   
    C. II only   
    D. Neither I nor II 
    D. Neither I nor II 

    I is incorrect because many savings banks failed in the 1980s and early 1990s. II is incorrect because most savings banks are located in the northeastern section of the United States.
     
    (this multiple choice question has been scrambled)
  11. All the following statements concerning savings banks are correct, EXCEPT:
    (RM 474-475)  

    A. They were among the first to develop interest-bearing transactions accounts, or NOW accounts. 
    B. They have taken greater interest in investing in the stock market because their dividend income is subject to little or no tax.   
    C. They may be chartered only by a state and may only make loans and investments and accept deposits in their home states.   
    D. They are technically owned by their depositors, and they may invest in home and commercial mortgages and in government and corporate securities.   
    C. They may be chartered only by a state and may only make loans and investments and accept deposits in their home states.

    Savings banks may be chartered by either a state or by the federal government. Moreover, even if state-chartered, they are allowed to make loans and investments elsewhere, as well as to obtain deposits from out-of-state sources. Most savings bank investments are in mortgage loans and a distant second is non-mortgage loans. Savings banks have shown greater interest in investing in preferred and common stock because their dividend income is exempt from tax or subject to a very low rate.
    (this multiple choice question has been scrambled)
  12. Which of the following is the main category of financial assets of savings banks?
    (RM 475)  

    A. U.S. Treasury and agency obligations   
    B. State and local government securities   
    C. Mortgage loans   
    D. Corporate securities 
    • C. Mortgage loans 
    •   
    • Savings banks invest primarily in mortgage loans. All other categories of assets are much smaller.
  13. Which of the following is the main source of funds, or category of liabilities, of savings banks?
    (RM 475)  

    A. Mortgage loans   
    B. Capital notes and debentures   
    C. Time and savings deposits   
    D. U.S. Treasury debt securities 
    C. Time and savings deposits 

    Mortgages and U.S. Treasury securities are uses of funds, not sources. Capital notes and debentures are very minor sources of funds for savings banks.
     
    (this multiple choice question has been scrambled)
  14. Which of the following statements concerning recent trends for savings banks is (are) correct?
    (RM 476)

    I             Increased competition from other types of institutions that seek similar sources of funds and offer similar services has led them to develop new products for greater flexibility.

    II            New time deposit and other new types of accounts have increased the cost of funds.  

    A. Neither I nor II 
    B. Both I and II   
    C. I only   
    D. II only   
    B. Both I and II   

    Increased competition has caused savings banks to develop new products and services and has increased the cost of raising funds from depositors.
     
    (this multiple choice question has been scrambled)
  15. All the following statements concerning credit unions are correct, EXCEPT:
    (RM 477-479)  

    A. Though they do not have checking account types of deposits or car loans, the number of credit unions has increased substantially since 1970. 
    B. They are chartered by the states and the federal government and may have insured deposits.   
    C. The most common bond among members is related to their work or occupation.   
    D. They have grown rapidly as suppliers of consumer installment credit, and they accept deposits and offer loans only to members.   
    A. Though they do not have checking account types of deposits or car loans, the number of credit unions has increased substantially since 1970. 

    Credit unions are allowed to have checking account types of deposits, called share draft accounts. Also, credit unions do make car loans. Finally, although membership and assets of credit unions have grown rapidly since 1970, the number of credit unions has declined substantially.
     
     
    (this multiple choice question has been scrambled)
  16. What product have large credit unions offered to compete with transaction accounts at banks?
    (RM 480-481)  

    A. Loans to small businesses 
    B. Share drafts   
    C. Automated teller machines   
    D. Credit card loans   
    B. Share drafts   

    Share drafts are interest-bearing checkbook deposits. This product is similar to transaction accounts such as NOW accounts that pay interest but also allow the customer to write checks to pay bills.
     
    (this multiple choice question has been scrambled)
  17. Which of the following statements concerning credit unions is (are) correct?
    (RM 480-482)

    I             Because of the extent of their membership and services, they compete with commercial banks as well as with other nonbank institutions.

    II            U.S. credit unions have seen decreased demand for auto loans.  

    A. Both I and II   
    B. Neither I nor II 
    C. I only   
    D. II only   
    A. Both I and II 

    Credit unions have become effective competitors with banks and other financial institutions. One of the reasons for this has been the increased latitude they have been given by legislation passed in the 1980s in the types of loans and other services they may offer to their members. Increased competition from banks has meant decreased demand for auto loans.
    (this multiple choice question has been scrambled)
  18. All the following statements concerning share drafts are correct, EXCEPT:
    (RM 481)  

    A. They can be used by all federally insured credit unions.   
    B. They were legalized with the passage of the McFadden Act of 1927. 
    C. They are deposits that earn interest.   
    D. They are transactions or checking deposits.   
    B. They were legalized with the passage of the McFadden Act of 1927. 

    Share draft accounts for credit unions are a fairly recent phenomenon. They were authorized for federally insured credit unions by the Depository Institutions Deregulation and Monetary Control Act of 1980. Several of the states first authorized share drafts as early as 1974.
     
    (this multiple choice question has been scrambled)
  19. All the following statements concerning regulated credit unions are correct, EXCEPT:
    (RM 481-482)  

    A. They are tax-exempt mutual organizations.   
    B. They may not make deposits in other financial institutions or make unsecured loans. 
    C. They do business only with their owners.   
    D. Though they have earnings, they are considered nonprofit associations.   
    B. They may not make deposits in other financial institutions or make unsecured loans. 

    Credit unions are allowed to have savings deposits in banks, savings and loans, savings banks, and federally insured credit unions. Also, they are allowed to make unsecured loans to members, including credit card loans, with maturities of 5 years or less.
    (this multiple choice question has been scrambled)
  20. All the following statements concerning money market mutual funds are correct, EXCEPT:
    (RM 483-484)  

    A. Earnings on share accounts reflect money market interest rates.   
    B. They act as financial intermediaries.   
    C. Their assets are lower-quality, long-term securities. 
    D. They pool smaller amounts of savings to buy larger securities.   
    C. Their assets are lower-quality, long-term securities. 

    Money market mutual funds invest mainly in short-term, highly liquid, highly safe instruments such as U.S. Treasury bills and commercial paper.
     
    (this multiple choice question has been scrambled)
  21. Which of the following statements concerning money market mutual funds is (are) correct?
    (RM 483-484)

    I             There are no interest rate restrictions, and investors may often withdraw money by check or by telephone.

    II            Balances in share accounts are federally insured up to $100,000.  

    A. Both I and II   
    B. II only   
    C. Neither I nor II 
    D. I only   
    D. I only   

    II is incorrect because money market mutual fund balances are not insured.
     
    (this multiple choice question has been scrambled)
  22. Which of the following statements concerning money market mutual funds is (are) correct?
    (RM 483-484)

    I             They are usually no-load funds, without fees for investors.

    II            Their main competition is from federally insured NOW, Super NOW, and money market deposit accounts.  

    A. I only   
    B. Neither I nor II
    C. Both I and II   
    D. II only   
    C. Both I and II

    Most money market mutual funds are no-load and compete for funds primarily with NOW, Super NOW, and bank money market deposit accounts.
    (this multiple choice question has been scrambled)
  23. Which of the following statements concerning the Garn-St Germain Depository Institutions Act of 1982 is correct?
    (RM 555)  

    A. Federal credit unions were permitted to grant first mortgages on real estate but not second mortgages or unsecured loans. 
    B. Powers of credit unions and savings and loans to offer transactions accounts were further restricted.   
    C. Institutions were prohibited from offering NOW accounts to government units.   
    D. Depository institutions were permitted to change from mutual to stockholder organizations.   
    D. Depository institutions were permitted to change from mutual to stockholder organizations.   

    The Garn-St Germain Act expanded the authority of financial institutions with respect to their deposits, loans, and investments. It also allowed depository institutions to freely switch from the mutual to the stock organizational form.
     
    (this multiple choice question has been scrambled)
  24. All the following are provisions in the FDIC Improvement Act of 1991, EXCEPT:
    (RM 555-556)  

    A. A depository institution may close branch offices without giving depositors advance notice.   
    B. Undercapitalized depository institutions may be prohibited from accepting deposits placed with them by brokers.   
    C. Riskier depository institutions will pay higher premiums for deposit insurance.   
    D. Depository institutions must retain an appraiser to evaluate real estate that serves as an investment or collateral for a loan.   
    A. A depository institution may close branch offices without giving depositors advance notice.

    The advance notice must be at least 90 days.
    (this multiple choice question has been scrambled)

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