COMM 422 Winter 2013 Assignment 1 – Due Jan 31, 2013 Please hand in the answer sheet only.
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Which of the following measures the difference between the private costs of regulations and the private benefits for the producers of financial services? a. Capital adequacy b. Agency costs c. Net regulatory burden d. Charter value e. Liquidity risk FIs are special because a. their failure can impose negative externalities on the economy. b. they receive special regulatory oversight. c. their business is the management of money. d. they provide a source of backup liquidity to nonfinancial firms. e. we are studying them. What is globalization? a. The process whereby FI focus more intensely on their own domestic market. b. Acceptance of the Federal Reserve as the regulator of the world financial system. c. Usually refers to the initiation of GLOBEX, a new international financial communications and trading system. d. The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions. e. Joint ownership of international electronic payments systems. Negative externalities occur when a. the fear of FI insolvency leads to bank deposit runs. b. lending activity is curtailed. c. there are delays in disbursements from insolvent FIs. d. All of the above. e. A and B only. Identify the procedure by which a banker refuses to make loans to residents living inside given geographic boundaries. a. Credit allocation b. Redlining c. Intermediation d. Externalization e. Spinning Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer? a. The bank failure usually leads to a government bailout. b. There are fewer steel manufacturers than there are banks. c. The large bank failure reduces credit availability throughout the economy. d. Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets.
Everyone needs money, but not everyone needs steel.
Why do households prefer to use FIs as “middle persons” to invest their surplus funds? a. Since FIs are very efficient, the middle person's transaction costs are quite low. b. To achieve the benefits of diversification. c. The FI has can invest in information less costly than individual households. d. All of the above. e. Answers b and c. Financial intermediaries are a. funds surplus units, because they exist to make money. b. funds deficit units, because they must pay heavy regulatory fees and taxes. c. funds surplus units, because they hold large portfolios of financial securities. d. funds deficit units, because they must comply with minimum capital requirements. e. neither funds surplus nor deficit units.
Net regulatory burden for FIs is higher because regulators may require FIs a. to hold more capital than what would be held without regulation. b. to produce less information than would be produced without regulation. c. to hold more debt than what would be held without regulation. d. Answers a and b e. Answers a and c What distinguishes financial intermediaries from industrial firms? a. FI balance sheets are almost totally comprised of financial securities whereas commercial firms hold substantial amounts of real assets. b. Industrial firms are the customers of FIs. c. FIs deal exclusively in primary securities while Industrial firms specialize in secondary securities. d. Industrial firms produce real goods or services while FIs only manipulate money. e. Industrial firms are unregulated while FIs are heavily regulated.
11. The largest asset category in Canadian banks' portfolios as of October 31 2008 was A)...
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