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1. The money market security with the lowest yield to the investor is likely to be a. a Treasury bill.

 

2. All of the following represents a characteristic of money market instruments except: a. low default risk

 

3. The fed funds rate is very important to the economy because: d. all of the above

 

4. All of the following money market participants are major investors in money market securities except: d. corporate business.

 

5. A competitive bid in the Treasury securities auction market has all of the following characteristics except a. the bidder specifying the quantity of bills desired b. the price the investor wishes to pay c. large, institutional investors d. bids for a maximum of $5,000,000

 

1. Capital market securities can be either debt or equity; all money market instruments are debt securities. T

 

2. The bond contract is called a debenture. F

 

3. Households are generally surplus sectors; business and governments are usually deficit sectors. T

 

4. The money market is a dealer only market whereas the capital market trading is dominated by exchanges. T

 

5. The money market provides liquidity; the capital market finances economic growth. T

 

1. A British importer of U.S. computer equipment would take which action in the foreign exchange markets? d. both a and c above

 

2. Capital accounts transactions are all of the following except they: b. are reversible.

 

3. Under freely floating exchange rates a government would d. intervene in the markets for the benefit of its exporters.

 

4. The Eurocurrency market serves as a place to store excess liquidity for multinational corporations, countries and individuals because of all of the following except: a. Lack of regulation allows investors to hold debt securities in bearer form. b. The presence of a withholding of tax. c. Investments earn higher returns. d. Eurocurrency deposits are highly liquid because of very short maturities with nearly 90 percent of deposits being less than 180 days.

 

5. A __________ draft would be paid on demand; whereas a bank would pay a __________ draft at maturity as stated in the __________ d. sight; time; letter of credit

 

1. U.S. regulators have attempted to separate domestic banking risks and international banking risks. T

 

2. The FDIC is the principal U.S. regulator of international banking activity. T

 

3. International banking facilities (IBFs) operate as subsidiaries of bank holding companies. T

 

4. Expropriation and nationalization are two methods of guaranteeing payment of U.S. bank loans to developing countries. T

 

5. Pooling risk entails lending by several banks to a foreign borrower. T

 

1.Which of the following affects the level of insurance premiums? d. all of the above

 

2. Which of the following is likely to be a material component of an insurer's revenue? b. interest on mortgages

 

3. "Objective risk" is b. determined according to principles of probability and statistics

 

4. The "Law of Large Numbers" is a. a statistical principle relied on by insurers in managing objective risk

 

5. "Qualified" pension plans would have an incentive to invest in all the following except a. municipal bonds

 

1. The Banking Act of 1933, known as the Glass-Steagall Act, has effectively kept commercial banks out of the commercial lending area. T

 

2. Investment banking firms provide both financing and investment services for borrowers and lenders, respectively. F

 

3. The 40% margin rule requires the buyer/seller of a security to provide at least 60% of the funds necessary to cover the transaction, borrowing 40%. F

 

4. Venture capital firms compete with commercial banks for new business loans. F

 

5. Discount brokers offer investment advice at prices below full service security brokerage houses. T

 

All commercial banks must be members of the Federal Reserve System. T

 

2-27 The Federal Reserve System has regulatory supervision over all holding company banks whether they include national- or state- chartered banks. T

 

2-28 The primary objective of the 1927 McFadden Act was to restrict interstate bank branching. F

 

2-29 The primary objective of the 1933 Glass-Steagall Act was to prevent commercial banks from competing directly with commercial insurance companies. F

 

2-30 The DIDMCA of 1980 and the DIA of 1982 were the initial acts to begin the deregulation of the commercial banking industry. T

 

In recent years, the total assets of insurance companies in the U.S. have been decreasing. T

 

3-2 The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual. T

 

3-3 Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance. F

 

3-4 Term life insurance includes a savings element as well as the pure insurance element. T

 

3-5 In group life insurance, lower rates can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs. T

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