Question

6.

____ is the federal agency that regulates the S&L industry today.

Select one:

a. Federal Deposit Insurance Corporation

b. Office of Thrift Supervision

c. Federal Home Loan Bank Board

d. Resolution Trust Corporation

7.

Financial institutions reduce the risk and cost associated with borrowing, lending, and other financial transactions that individuals cannot by

Select one:

a. lending to only few individuals that are low risk.

b. by limiting the number of mortgage loans originated.

c. spreading the risk by borrowing and lending to many customers.

d. buying insurance from insurance companies.

8.

The passage of the ____ act has given new impetus toward the consolidation of financial services.

Select one:

a. Financial Institutions Reform, Recovery, and Enforcement Act

b. Federal Reserve Act

c. Gramm-Leach-Bliley Act

d. Glass-Steagall Act

9.

Interest rate risk refers to the

Select one:

a. the risk that a change in interest rate will result in the change in the value of foreign investments assets when converted to local currencies.

b. the risk that the interest rate will go up and return on fixed rate mortgages will remain the same.

c. the risk that a change in interest will cause more default in the loans.

d. the risk that costs of a financial institution s liabilities will exceed the earnings on assets due to a change in interest rate.

10.

Liquidity risk pertains to

Select one:

a. the possibility that the borrower will purposely not pay off the loan.

b. the possibility that the borrower will not be able to pay back the loan because of lack of funds.

c. the possibility that a financial institution will not attract depositors because of interest rate.

d. the possibility that a financial institution will not have funds available to meet cash payments because funds are in long-term assets without suffering capital loss.

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Please answer ALL correctly!

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Answer 1

Ans 06 :  the federal agency that regulates the S&L industry today.

• Option A : Federal Deposit Insurance Corporation : (FALSE) : This agency operates in case of failure of Bank or Banking Financal Deposit taking companies.  

• Option B . Office of Thrift Supervision : (FALSE) : At present it is adissolved entity. Not operating any more.

• Option C Federal Home Loan Bank Board :(FALSE) : Looking after secondary mortgage market. Means buying/selling of Banks portfolio market.

• Option D . Resolution Trust Corporation :(TRUE ) : It regulates the S&L industry today.

Ans 07. : Financial institutions reduce the risk and cost associated with borrowing, lending, and other financial transactions that individuals cannot by

Select one:

a. lending to only few individuals that are low risk. (FALSE) : lending to few individuals with low risk will create concentration risk

b. by limiting the number of mortgage loans originated. (FALSE) : limiting no of mortgage loans will reduce profitability of Financial institutions

c. spreading the risk by borrowing and lending to many customers. (TRUE) : Spreading loans to many customer will reduce the risk of lending

d. buying insurance from insurance companies. (FALSE) : Buying insurance is open for individuals too

Ans 8.

The passage of the ____ act has given new impetus toward the consolidation of financial services.

Select one:

a. Financial Institutions Reform, Recovery, and Enforcement Act :(FALSE) : It is an Act made to process insolvency of banks and paying out depositors. Through array of sub acts it controls and regulate Financial institution.

b. Federal Reserve Act : (FALSE) : This act developed to maintain economic stability.

c. Gramm-Leach-Bliley Act :(TRUE) : This Act helps Retail Banks to consolidation of financial services to other sectors like securities, broking, Investment bank etc.

d. Glass-Steagall Act :(FALSE) : Act seperating commercial banking and investment banking arms of a bank.

Ans 9.

Interest rate risk refers to the

Select one:

a. the risk that a change in interest rate will result in the change in the value of foreign investment assets when converted to local currencies.(FALSE) : This is related to foreign exchange exposure risk.

b. the risk that the interest rate will go up and return on fixed-rate mortgages will remain the same. (FALSE) : If any firm managing its Assets duration it will not be any risk.

c. the risk that a change in interest will cause more default in the loans.(FALSE) : This is related to default risk of a borrower.

d. the risk that costs of a financial institution s liabilities will exceed the earnings on assets due to a change in interest rate. (TRUE) : Interest rate risk is due to asset-liability mismatch. It is due to if rate goes up cost of fund will increase and future cash

flows remain same as loans granted on fixed rate.

10.

Liquidity risk pertains to

Select one:

a. the possibility that the borrower will purposely not pay off the loan..(FALSE) : It is related to willingness to pay the loan or not.

b. the possibility that the borrower will not be able to pay back the loan because of lack of funds..(TRUE) : Here borrower is interested to pay but n not be able to pay back the loan because of fund issue. This is the example of liquidity risk.

c. the possibility that a financial institution will not attract depositors because of interest rate..(FALSE) : This is not related to liquidity risk. Institution may attract depositors with slight increase of interest rate as compare to competitors.

d. the possibility that a financial institution will not have funds available to meet cash payments because funds are in long-term assets without suffering capital loss..(FALSE) : This ia related to Bad Debts or NPA of loan book issue.