Financial Institutions

Good Essays
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

You May Also Find These Documents Helpful

  • Good Essays

    Financial Institution

    • 680 Words
    • 3 Pages

    Financial Institution In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are regulated by the government. Broadly speaking, there are three major types of financial institutions: Depositary Institutions : Deposit-taking institutions that accept and manage deposits and make loans…

    • 680 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Financial Institutions

    • 753 Words
    • 4 Pages

    They conduct research, make investment recommendations, and conduct purchase and sale of securities. They reduce transaction and information costs: more efficient. Act as asset transformers: FI purchase financial claims issued by corporations and finance these purchases by selling financial claims to household investors. FIs are better at resolving the issues of information cost, price risk and liquidity risks FIs as delegated monitor and information provider Secondary claims are more liquid…

    • 753 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Financial Institutions

    • 4762 Words
    • 20 Pages

    International Technological University FINN 918 Financial Institutions Final Exam: Answers Textbook: Foundations of Financial Markets and Institutions, 4th Edition, Fabozzi, Modigliani, and Jones, Prentice Hall, 2010, | ISBN –13: 978-0-13613531-9 | ISBN –10: 0-13-613531-5 | 1. Indicate whether each of the following instruments trades in the money market or the capital market: a. General Motors Acceptance Corporation issues a financial instrument with four months to maturity. b…

    • 4762 Words
    • 20 Pages
    Powerful Essays
  • Good Essays

    Financial Institutions

    • 948 Words
    • 4 Pages

    Financial institutions are the organizations which perform the essential functions of channeling funds from those with surplus funds (suppliers of funds) to those with shortages of funds (user of funds).Financial institutions are active in today’s global markets include commercial banks, insurance companies credit unions, finance companies, savings and loan associations, saving banks, pension funds, mutual funds, and similar organization. Their fundamental role in the financial system is to serve…

    • 948 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Financial Institutions

    • 4585 Words
    • 19 Pages

    Financial Institutions Term Report "Investment Portfolio" 2012 Submission Date: 10-Dec-2012 Lecturer: Tazeen Arsalan Research and Investment By: ------------------------------------------------- Zohaib Naseer 11499 ------------------------------------------------- Faraz Shah Khan 9412 ------------------------------------------------- Asma Fahim…

    • 4585 Words
    • 19 Pages
    Satisfactory Essays
  • Powerful Essays

    which provides for proper budgetary and expenditure management of government financial resources. In addition, Parliament, over the years has enacted 49 Acts to which the Ministry of Finance is a custodian thereby adding more responsibilities to the Ministry. The functions of the Ministry of Finance are strategic in several ways. As a main function, the Ministry is charged with the responsibility of formulating financial and economic policies. It is also responsible for developing and maintaining…

    • 11784 Words
    • 48 Pages
    Powerful Essays
  • Satisfactory Essays

    What are Financial institutions? International financial institutions (IFIs) are financial institutions that have been established (or chartered) by more than one country, and hence are subjects of international law. Their owners or shareholders are generally national governments, although other international institutions and other organisations occasionally figure as shareholders. The most prominent IFIs are creations of multiple nations, although some bilateral financial institutions (created…

    • 516 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    IMPORTANCE OF FINANCIAL INSTITUTION TO NIGERIA ECONOMY Nature and Role of Financial Institutions in the Economy 1. Nature of financial institutions Financial institutions are the organizations which perform the essential functions of channeling funds from those with surplus funds (suppliers of funds) to those with shortages of funds (user of funds).Financial institutions are active in today’s global markets include commercial banks, insurance companies credit unions, finance companies, savings…

    • 639 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Financial Institution in Bangladesh The financial system in Bangladesh includes Bangladesh Bank (the Central Bank), scheduled banks, non-bank financial institutions, microfinance institutions (MFIs), insurance companies, co-operative banks, credit rating agencies and stock exchange. Among scheduled banks there are 4 nationalized commercial banks (NCBs), 5 state-owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9 foreign commercial banks (FCBs) and 29 nonblank financial…

    • 1756 Words
    • 8 Pages
    Good Essays
  • Powerful Essays

    8 2.3.3. Measures for Globalization 9 3. BANK 10 3.1. Introduction 10 3.2. Types 11 3.2.1. Central Bank 11 3.2.2. Development Bank 11 3.2.3. Commercial Bank 12 3.3. History of Banking Sector in Nepal 13 4. REQUISTIE OF A BANK AND FINANCIAL INSTITUTIONS 14 4.1. The capital adequacy to be maintained 14 4.2. Classification of Capital Fund 14 4.3. Total Risk-weight Assets 17 4.4. Description to be sent with regard to capital fund 17 4.5. Provision for Auditing 18 4.6. Actions may be taken…

    • 6060 Words
    • 25 Pages
    Powerful Essays