Financial Institutions
Chapter 01
Why Are Financial Institutions Special?
True / False Questions
1. Prior to the financial crisis of 2007-2008, J.P. Morgan Chase was the largest bank holding company in the world and operations in 60 countries.
True False
2. As of 2009, U.S. FIs held assets totaling over $35 trillion.
True False
3. Financial institutions act as intermediaries between suppliers and demanders of money.
True False
4. If a household invests in corporate securities and does not supervise how the funds are invested or used by the corporation, the risk of not earning the desired return or not having the funds returned increase.
True False
5. If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.
True False
6. Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in that firm exposes the investor to agency costs.
True False
7. The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk.
True False
8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise less monitoring power and control over the borrower.
True False
9. FIs typically provide secondary claims to household savers that have inferior liquidity than primary securities of corporations such as equity and bonds.
True False
10. Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk.
True False
11. When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet.
True False
12. An FI acting as an agent in matching savers and
Why Are Financial Institutions Special?
True / False Questions
1. Prior to the financial crisis of 2007-2008, J.P. Morgan Chase was the largest bank holding company in the world and operations in 60 countries.
True False
2. As of 2009, U.S. FIs held assets totaling over $35 trillion.
True False
3. Financial institutions act as intermediaries between suppliers and demanders of money.
True False
4. If a household invests in corporate securities and does not supervise how the funds are invested or used by the corporation, the risk of not earning the desired return or not having the funds returned increase.
True False
5. If not done by FIs, the process of monitoring the actions of borrowers would reduce the attractiveness and increase the risk of investing in corporate debt and equity by individuals.
True False
6. Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in that firm exposes the investor to agency costs.
True False
7. The risk that the sale price of an asset will be less than the purchase price of an asset is called liquidity risk.
True False
8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise less monitoring power and control over the borrower.
True False
9. FIs typically provide secondary claims to household savers that have inferior liquidity than primary securities of corporations such as equity and bonds.
True False
10. Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk.
True False
11. When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet.
True False
12. An FI acting as an agent in matching savers and