Multiple Choice Quiz

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Chapter 12: Nonbank Finance

This activity contains 15 questions.

Mutual life insurance companies:

have experienced a high rate of business failure.are owned by stockholders.are highly regulated by the Federal Reserve System.are owned by policyholders.

Which of the following is not true about commercial banks and life insurance?

Selling insurance helps banks diversity their business.Banks are encouraged to sell insurance by the Comptroller of the Currency.Banks in all states must sell life insurance.The Gramm-Leach-Bliley Act allows banks to enter the insurance market.

Deductibles help reduce the moral hazard problem for insurance companies because

They force the insured to pay part of any claim.They prevent the worst risks from obtaining insurance.They reduce the amount the insured must pay.They prevent the insured from filing fraudulent claims.

If an insurance company does not charge risk-based premiums:

the insurance company will make large profits on high-risk customers.high-risk customers will go to other companies.the insurance company will make large profits on low-risk customers.low-risk customers will go to other companies.

Pension funds invest in long-term securities because:

long-term securities are low-risk.long-term securities are very liquid.their benefit payments are highly predictable.long-term securities have relatively low interest rates.

Mary deposits $100 per year in her pension fund. After 10 years, this will have a value of $1753. If the defined benefit is $2000, then:

the pension is under-funded.the pension is fully funded.the pension fund is vested.the pension plan is not vested.

Finance companies are different from banks in that:

Finance companies do not lend to consumers.Finance companies collect many small deposits as a source of funds.Finance companies acquire funds by borrowing in large amounts rather than accepting deposits.Finance companies are more heavily regulated than banks.

An IPO is:

the first loan for new equipment a firm negotiates.the first stock issue of a firm.the first loan a firm negotiates.the first bond issue of a firm.

An underwriter:

sells only government-backed mortgage securities.sell securities backed by student loans.guarantees the firm a price on securities and then sells the securities to the public.sells securities to only investment banks.

Brokerage firms:

are subject to Fed reserve requirements.are regulated by the SEC.do not offer money market mutual funds.do not underwrite securities.

Fannie Mae and Freddie Mac

Are U.S. government-owned corporations.Are so large that a failure would cause a severe financial crisis in the U.S.Are government agencies whose debt is backed by the federal government.Are responsible for almost half the outstanding consumer credit in the U.S.

A mutual fund sold with no sales commissions, from which shares can be redeemed at any time at a price based on the value of the fund's assets, is a , fund.

load, closed-endno-load, open-endload, open-endno-load, closed-end

An agent on the floor of a stock exchange who matches identically-priced buy and sell orders and also buys or sells stocks from his own holdings when buy and sell orders do not match is:

a broker.a dealer.a specialist.none of the above.

The Social Security system

Has developed financial difficulties in recent years as a result of investments in the stock market.Will experience severe financial difficulties when the number of retirees begins exceeding the number of contributing workers.Has benefits based entirely on the amount a person pays in to the system. Is a fully-funded retirement system.

Hedge funds

Typically charge large fees to investors.Are designed only for the very rich.Are essentially unregulated.Frequently take on a lot of risk.All of the above.

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Multiple Choice Quiz

Mutual life insurance companies:

Which of the following is not true about commercial banks and life insurance?

Deductibles help reduce the moral hazard problem for insurance companies because

If an insurance company does not charge risk-based premiums:

Pension funds invest in long-term securities because:

Mary deposits $100 per year in her pension fund. After 10 years, this will have a value of $1753. If the defined benefit is $2000, then:

Finance companies are different from banks in that:

An IPO is:

An underwriter:

Brokerage firms:

Fannie Mae and Freddie Mac

A mutual fund sold with no sales commissions, from which shares can be redeemed at any time at a price based on the value of the fund's assets, is a ________, ________ fund.

An agent on the floor of a stock exchange who matches identically-priced buy and sell orders and also buys or sells stocks from his own holdings when buy and sell orders do not match is:

The Social Security system

Hedge funds

A mutual fund sold with no sales commissions, from which shares can be redeemed at any time at a price based on the value of the fund's assets, is a , fund.