Chapter 01 A modern financial system: An overview
1: The exchange of goods and services is made more efficient
by:
A: barterB*: money C: governmentsD: some combination of
government transfer and barter
2: A nation state that has only a barter system has high
transaction costs because:
A: the difficulties of trade result in high legal costs because
of the contracts requiredB*: traders must spend quite a bit of time
looking for trading partnersC: taxes under this system consume a
large amount of outputD: the difficulties of trade require high
insurance premiums
3: The term medium of exchange for money refers to its use
as:
A: coinageB: currencyC*: anything that is widely accepted as
payment for goods and servicesD: any standard of value that prices
can be expressed in
4: The role of money as a store of value refers to:
A: the value of money falling only when the money supply fallsB:
the value of money falling only when the money supply increasesC*:
the fact that money allows worth to be stored readilyD: the fact
that money never loses its value compared with other assets
5: Money increases economic growth by assisting transfers
from:
A: consumers to investorsB*: savers to borrowersC: businesses to
consumersD: borrowers to investors
6: Financial markets have developed to facilitate the exchange
of money between savers and borrowers. Which of the following is
NOT a function of money?
A: a store of valueB: a medium of exchange for settling economic
transactionsC*: a claim to future cash flowsD: short-term
protection against inflation
7: Buyers of financial claims lend their excess funds as
they:
A: expect to borrow extra funds in the futureB*: want surplus
funds in the futureC: want to invest in the futureD: want to
increase their costs relative to their incomes
8: Sellers of financial claims promise to pay back borrowed
funds:
A: by borrowing extra funds in the futureB*: based on their
expectation of having surplus funds in the futureC: by selling
other assetsD: by reducing their costs relative to their
incomes
9: A savings-surplus unit is one:
A: that needs to borrow funds from a surplus unitB*: whose
income exceeds its spendingC: whose spending exceeds its incomeD:
that generally is a company
10: The process of facilitating the flow of funds between
borrowers and lenders performed by the financial system:
A: is hindered by the problem of double coincidence of wantsB:
greatly reduces the probability of inflationC*: increases the rate
of economic growth of a countryD: occurs only through financial
intermediaries
11: Both real and financial assets have four principal
attributes that are significant factors in the investment decision
process. These are:
I. liquidityII. capital gainIII. riskIV. return or yieldV. time
pattern of future cash flowsVI. price and cash flow volatility
A: I, II, III, IVB*: I, III, IV, VC: I, III, IV, VID: II, III,
IV, V
12: All of the following are associated with characteristics of
shares EXCEPT:
A: part ownership of a companyB: capital gainsC*: a fixed
interest paymentD: dividends
13: A financial institution that obtains most of its funds from
deposits is:
A: an investment bankB: a unit trustC*: a commercial bankD: a
general insurer
Level: 2
Question 14: Institutions that specialise in off-balance sheet
advisory services are called:
A: depository financial institutionsB: contractual
institutionsC: finance companiesD*: investment banks
Level: 2
Question 15: A _______ is a financial intermediary that receives
premium payments that are used to purchase assets to cover future
possible payments.
A: building societyB: credit unionC: savings bankD*: life
insurance office
Level: 2
Question 16: Financial institutions, whose liabilities specify
that, in return for the payment of periodic funds to the
institution, the institution will make payments in the future, if
and when a specified event occurs, are:
A: money market corporationsB: unit trustsC*: contractual
savings institutionsD: depository financial institutions
Level: 3
Question 17: Financial institutions that raise the majority of
their funds by selling securities in the money markets are:
A: commercial banksB: building societiesC*: finance companiesD:
life insurance offices
Level: 2
Question 18: All of the following are terms associated with
shares EXCEPT:
A: residualB: ownershipC: voting rightsD*: contractual claim
Level: 2
Question 19: All of the following are characteristics commonly
associated with preference shares EXCEPT:
A: a specified, fixed returnB: no voting rightsC*: higher
ranking than bondholders on claims on assetsD: no entitlement to
take possession of assets if the borrower defaults on payment
Level: 2
Question 20: Long-term debt financing instruments used by
companies are called:
A: billsB*: debenturesC: sharesD: equities
Level: 2
Question 21: All of the following are associated with features
of debt instruments EXCEPT:
A: contractual claim against the borrowerB: periodic interest
paymentsC: higher claim on assets of borrower than equity
holdersD*: do not fluctuate in price like shares
Level: 3
Question 22: The following are features of futures contracts
EXCEPT:
A: they involve an obligation to buy or sell a specified
amountB*: the contract price is settled at the end of the
contractC: trading of contracts occurs on an exchangeD: trading an
opposite contract usually closes out the contract
Level: 3
Question 23: All of the following are features of forward
contracts EXCEPT:
A: they are not standardisedB: they do not trade on organised
exchangesC: the contract price may be settled at the end of the
contractD*: they are closed out by trading an opposite contract
Level: 3
Question 24: All of the following are features of option
contracts EXCEPT when:
A: the buyer does not have the obligation to proceed with the
contractB: the writer of the contract receives a feeC: the price of
the designated asset is determined at the beginning of the
contractD*: the right to buy is called a put option
Level: 3
Question 25: All of the following are features of swaps EXCEPT
when:
A: there is a contractual arrangement to exchange cash flowsB*:
interest rate swaps exchange principal at the beginning and the
endC: a fixed rate obligation may be exchanged for a variable rate
obligationD: a swap involves currencies as well
Level: 3
Question 26: The key reason for the existence of markets of
financial assets is:
A*: that holders of shares occasionally want to exchange them
for bonds and other financial instrumentsB: the high expenditure
for many individuals and businessesC: that the lack of money in an
economy makes trade in financial assets necessaryD: the refusal of
most modern governments to print money on demand
Level: 2
Question 27: Financial markets:
A: facilitate the exchanges of financial assetsB: provide
information about prices of financial assetsC: provide a channel
for funds to flow between the providers and users of fundsD*: All
of the above.
Level: 2
Question 28: The most important function of a financial market
is:
A: to provide information about sharesB: to provide a market for
sharesC*: to facilitate the flow of funds between lenders and
borrowersD: to provide employment for brokers and agents
Level: 2
Question 29: Financial markets:
A: act as intermediaries by holding a collection of assets and
issuing claims based on them to saversB*: issue claims on future
cash flows of individual borrowers directly to lendersC: transmit
funds indirectly between lenders and borrowersD: usually provide
lenders with lower returns than other financial intermediaries
Level: 4
Question 30: A primary financial market is:
A: one that offers financial assets with the highest expected
returnB: one that offers the greatest number of financial assetsC*:
one that involves the sale of financial assets for the first timeD:
one that offers financial assets with the highest historical
return
Level: 2
Question 31: Purchasing unsecured notes on the Australian Stock
Exchange is an example of:
A: a primary market transactionB*: a secondary market
transactionC: companies raising new financeD: companies raising
finance from another financial intermediary
Level: 3
Question 32: When a security is sold in the financial markets
for the first time, then:
A: funds flow from the borrower to the saverB*: funds flow to
the issuer from the saverC: it represents a secondary transaction
to the underwriterD: it is an asset for the borrower
Level: 3
Question 33: All of the following are examples of primary market
transactions EXCEPT:
A: a company issue of shares to raise funds for an investment
projectB: a government issue of bondsC*: a mortgage bondD: a
mortgage loan to buy a house
Level: 3
Question 34: A primary market is a market:
A: for equity by major or primary companiesB*: where borrowers
sell new financial instruments to buyersC: where savers sell new
financial claims to borrowersD: where government securities are
bought and sold
Level: 3
Question 35: Buying bonds in the long-term debt market is an
example of:
A: a primary market transactionB*: a secondary market
transactionC: companies raising new fundsD: companies raising funds
from a secondary source
Level: 2
Question 36: The market where existing securities are sold
is:
A: the primary marketB*: the secondary marketC: the economic
marketD: the financial market
Level: 2
Question 37: When a large company issues a financial instrument
in the financial markets:
A: it buys a financial claimB*: it sells a financial claimC:
funds flow indirectly from saver to borrowerD: the cost of funds is
generally higher due to the risk involved
Level: 2
Question 38: Secondary markets:
A: allow borrowers to raise long-term fundsB: facilitate capital
raising in the primary marketC: do not raise new funds but offer
liquidityD: allow portfolio restructuringE*: All of the above.
Level: 4
Question 39: The flow of funds through financial markets
increases the volume of savings and investment by:
A: maintaining low interest ratesB*: providing savers with a
variety of ways to lend to borrowersC: storing large quantities of
cashD: offering lower interest rates than could be obtained
directly from borrowers
Level: 4
Question 40: All of the following are features of financial
markets EXCEPT:
A: they generally provide borrowers with lower-cost funds than
through a financial intermediaryB: funds are channelled directly
from savers to borrowersC: contractual agreements are issued
between savers and borrowersD*: they generally deal only with the
purchase and sale of government securities
Level: 2
Question 41: A well-functioning financial market includes all of
the following EXCEPT:
A: a persistent increasing liquidity for most assetsB: an
increased ease of restructuring portfolios of assetsC: quick
assimilation of information into asset pricesD*: a selection of
financial assets with similar timings of cash flow to reduce
risk
Level: 4
Question 42: Financial markets:
A: involve the buying and selling of existing financial
securities onlyB*: involve both primary and secondary
transactionsC: act as intermediaries between borrowers and saversD:
directly issue claims on savers to borrowers
Level: 2
Question 43: Direct financing allows a borrower to:
A: easily assess the level of default risk of a lenderB: match
amounts and maturity of investments with borrowersC: lower search
and transaction costsD*: diversify their funding sources
Level: 2
Question 44: All of the following may be disadvantages of direct
financing EXCEPT:
A: matching amounts of funds to be borrowed with those to be
lentB: assessment of the risk of the borrowerC: cost of preparing
legal contracts, taxation and accounting adviceD*: cost of the
financial intermediary involved
Level: 2
Question 45: An issue of debentures is an example of:
A: a secondary market transactionB: raising funding through
financial intermediariesC*: a direct form of fundingD: an indirect
form of funding
Level: 3
Question 46: An example of an indirect form of funding is:
A: an issue of debenturesB: an issue of unsecured notesC*: a
term loanD: an issue of shares
Level: 2
Question 47: Financial intermediaries:
A*: act as a third party by holding a portfolio of assets and
issuing claims based on them to saversB: issue claims on future
cash flows of individual borrowers directly to lendersC: transmit
funds directly between lenders and borrowersD: usually provide
lenders with lower returns than other financial institutions
Level: 4
Question 48: The flow of funds between lenders and borrowers
is:
A: channelled indirectly through financial marketsB: channelled
directly through financial intermediariesC*: channelled indirectly
through financial intermediariesD: channelled mainly through
government agencies
Level: 2
Question 49: Intermediaries, by managing the deposits they
receive, are able to make long-term loans while satisfying savers
preferences for liquid claims. This statement is referring to which
important attribute of financial intermediation?
A: asset transformationB*: maturity transformationC: credit risk
transformationD: denomination transformation
Level: 3
Question 50: The main role of financial intermediaries is
to:
A: provide advice to consumers on their financesB*: borrow funds
from surplus units and lend them to borrowersC: provide funds for
the government to cover budget deficitsD: help ensure enough funds
in circulation in a country
Level: 2
Question 51: Financial intermediaries pool the funds of:
A: many small savers and make loans to a few large borrowersB: a
few savers and make loans to many borrowersC*: many small savers
and make loans to many borrowersD: a few large savers and make
loans to a few large borrowers
Level: 3
Question 52: Small savers prefer to use financial intermediaries
rather than lending directly to borrowers because:
A: financial intermediaries offer much higher interest rates
than can be obtained directly from borrowersB*: financial
intermediaries offer a wide portfolio of financial instruments to
the saversC: borrowers dislike dealing with saversD: savers have a
claim with the borrower by way of the financial intermediary
Level: 2
Question 53: Financial intermediaries can engage in credit risk
transformation as:
A: they obtain cost advantages due to their size and business
volumes transactedB: they can quickly convert financial assets into
cash, close to the current market priceC*: they develop expertise
in lending and diversify loansD: they can pool the savers
short-term deposits and make long-term loans
Level: 4
Question 54: When a financial intermediary collects together
deposits and lends them out as loans to companies, it is engaging
in:
A: liability managementB: liquidity managementC: credit
transformationD*: asset transformation
Level: 2
Question 55: Liquidity is:
A: a feature of money onlyB*: the ease with which an asset can
be sold at the published market priceC: the best measure of risk of
a financial assetD: to lower the rate of return for an asset
Level: 2
Question 56: When an individual has immediately access to their
funds from an account with a financial intermediary, the
intermediary is engaging in:
A: liability managementB*: liquidity managementC: credit
transformationD: asset transformation
Level: 2
Question 57: When a financial intermediary can repeatedly use
standardised documents, it is engaging in:
A: liability managementB: liquidity managementC: credit
transformationD*: economies of scale
Level: 2
Question 58: According to the textbook, all of the following are
financial intermediaries EXCEPT:
A: a bankB: an insurance companyC: a superannuation fundD*: a
share broking firm
Level: 2
Question 59: An example of a financial intermediary is:
A: a stockbrokerB: the Australian Stock ExchangeC: the
Australian Securities CommissionD*: an insurance company
Level: 2
Question 60: The main participants in the financial system are
individuals, corporations and governments. Individuals are
generally ______ of funds and corporations are net ________ of
funds.
A: borrowers; suppliersB: users; providersC*: suppliers; usersD:
demanders; providers
Level: 2
Question 61: Which of the following borrowers would pay the
lowest interest rate on debt of equal maturity?
A: the National Bank of AustraliaB: TelstraC: the City of
SydneyD*: the Commonwealth Government
Level: 2
Question 62: Generally, over the long term, a government:
A*: is a net borrower of fundsB: is a net supplier of fundsC:
borrows funds directly from the householdsD: borrows funds directly
from the financial market
Level: 2
Question 63: The _______ is created by a financial connection
between providers and users of short-term funds.
A: share marketB: capital marketC*: money marketD: financial
market
Level: 2
Question 64: Which of the following are not usually short-term
discount securities?
A: negotiable certificates of depositB: commercial paperC: bank
billsD*: unsecured notes
Level: 3
Question 65: All of the following are features of the money
market EXCEPT:
A: it is a mainly wholesale marketB: it deals with short-term
financial claimsC: it is important in financing the working-capital
needs of businesses and governmentsD*: it only operates as a market
in which new issues are created and marketed
Level: 2
Question 66: The market that involves the buying and selling of
short-term securities is the:
A: securities marketB*: money marketC: share marketD: capital
market
Level: 2
Question 67: A company with a temporary surplus of funds is most
likely to buy:
A*: bank billsB: convertible notesC: debenturesD: shares
Level: 2
Question 68: A company that issues promissory notes into the
short-term money market is said to be conducting a transaction in
the:
A*: commercial paper marketB: inter-bank marketC: bills marketD:
official short-term money market
Level: 3
Question 69: The market that generally involves the buying and
selling of discount securities is:
A: securities marketB*: money marketC: share marketD: capital
market
Level: 2
Question 70: A source of short-term liquidity funding for banks
is the issue of:
A: bank billsB*: certificates of depositC: commercial paperD:
debentures
Level: 3
Question 71: The market that includes individuals, companies and
governments in the buying and selling of long-term debt and equity
securities is the:
A: currency marketB: debt marketC*: capital marketD: financial
market
Level: 2
Question 72: For additional funding, a company decides to issue
$15 million in debentures. The securities will be issued into
the:
A: retail marketsB: secondary marketsC: short-term money
marketsD*: capital markets
Level: 3
Question 73: The major financial assets traded in the capital
market are:
A: bank bills and commercial paperB: Treasury notes and
certificates of depositsC: bonds and convertible securitiesD*:
shares and bonds
74: Compared with Treasury bonds, Treasury notes generally:
A: have a longer maturityB: pay interest annuallyC*: are
discount securitiesD: are issued in the capital markets
75: If you purchase a government bond, that bond is:
A*: an asset to you but a liability for the Australian
governmentB: an asset to you as well as an asset for the Australian
governmentC: a liability to you but an asset for the Australian
governmentD: a liability to you as well as a liability for the
Australian government
76: When government borrowing reduces the amount of funds
available for lending to businesses, this is called:
A: credit rationingB*: crowding outC: capital rationingD:
government quotas
77: All of the following are key financial services provided by
the financial system EXCEPT:
A: liquidityB: risk transferC*: profitabilityD: information
78: Which of the following would be most likely to use financial
markets?
A: a household with a small amount savedB: a small business
wanting to borrow to buy some machineryC*: a government authority
wanting to borrow to finance highway constructionD: a company with
a poor credit rating
79: Generally, financial instruments are divided into three
broad categories of equity, debt and derivatives. Which of the
following are usually issued by a company to raise new funds?
I. Unsecured notesII. Ordinary sharesIII. DebenturesIV. Bills of
exchangeV. Futures contractsVI. Preference shares
A: II, III, IV, VB: II, IV, V, VIC*: I, II, III, IV D: I, II,
IV, V
80: The flow of funds between the four sectors of a domestic
economy and the rest of the world is called:
A: sector analysisB*: flow of fundsC: sectorial flowsD:
cross-sector flows
skip to main | skip to sidebar Topic 2 Commercial banks
1.Deregulation of the banking sector throughout the late 1970s
and the 1980s sought to:A.reduce the reliance of major Australian
companies on international capital marketsB.reduce the excess
profits of banksC.reduce the discrimination against banks owing to
direct controls on them onlyD.provide reduced control on the money
supply
Difficulty: MediumViney - Chapter 02 #1learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY2.The changes to the barriers to entry
to the banking industry under deregulation in the early 1980s
_______ the number of foreign banks.A.decreasedB.increasedC.did not
alterD.dramatically decreased
Difficulty: EasyViney - Chapter 02 #2learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY3.Which of the following statements
concerning banks is INCORRECT?A.Currently in Australia, banks
account for the largest share of assets of all financial
institutions.B.Bank loans and commitments must be supported by a
minimum specified amount of capital.C.At least 50% of the capital
requirement must be in the form of Tier 1 capital.D.The Australian
Reserve Bank monitors capital adequacy requirements for banks.
Difficulty: EasyViney - Chapter 02 #3learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY4.Unlike most other businesses, a
bank's balance sheet is made up mainly of:A.real assets and
financial liabilitiesB.real liabilities and financial
liabilitiesC.real assets and real liabilitiesD.financial assets and
liabilities
Difficulty: EasyViney - Chapter 02 #4learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY5.The level of banks' share of assets
of all Australian financial institutions from the 1950s onwards
first _______, then in the 1980s _______, and recently has _______
owing to banks forming consolidated corporate entities.A.increased;
decreased; increasedB.increased; decreased; remained
stableC.decreased; increased; decreasedD.decreased; increased;
remained stable
Difficulty: HardViney - Chapter 02 #5learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY6.The market structure of the banking
sector has changed since deregulation of the financial system
during the 1980s. Which statement most closely reflects the current
structure of the banking sector in Australia?A.Foreign banks
dominate in number and share of total assets.B.Major Australian
banks no longer hold the largest share of total assets.C.Total
assets are fairly evenly distributed between the major, regional
and foreign banks.D.Major banks maintain the highest percentage of
branches and share of total assets.
Difficulty: EasyViney - Chapter 02 #6learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY7.Which of the following is a role of
a bank?A.Attracting funds from the capital markets to facilitate
borrowing by the household sectorB.Facilitating the flow of funds
from borrowers to lendersC.Facilitating the flow of funds from
savers to borrowersD.Managing the level of interest rates
Difficulty: EasyViney - Chapter 02 #7learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY8.Banks have gradually moved to
liability management in the management of their balance sheets.
Which statement best describes liability management?A.The loan
portfolio is tailored to match the available deposit base.B.The
deposit base and other funding sources are managed in order to fund
loan and other commitments.C.The ratio of debt to equity is managed
to meet capital adequacy requirements.D.The liability to assets
ratio is maintained within Reserve Bank standards.
Difficulty: MediumViney - Chapter 02 #8learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY9.Asset management for banks refers
to:A.managing the assets of the banks; that is, their
depositsB.managing the real assets, the bank buildingsC.managing
the loans portfolioD.protecting the deposits by using
derivatives
Difficulty: EasyViney - Chapter 02 #9learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY10.For banks, liability management
refers to:A.managing the liabilities of the banks; that is, the
loansB.banks ensuring they have sufficient funds by managing their
deposit baseC.managing the real assets, the bank
buildingsD.protecting the loans and other commitments by using
derivatives
Difficulty: EasyViney - Chapter 02 #10learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY11.When a bank raises funds in the
international markets to fund new lending growth, it is involved
in:A.asset managementB.off-balance-sheet businessC.liability
managementD.derivative management
Difficulty: MediumViney - Chapter 02 #11learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY12.The assets on the balance sheet of
a bank are:A.the sources of fundsB.the uses of fundsC.the different
types of deposits the bank offersD.equal to the liabilities of the
banks
Difficulty: MediumViney - Chapter 02 #12learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY13.The liabilities on the balance
sheet of a bank are:A.the sources of fundsB.the uses of fundsC.the
different types of deposits the bank offersD.equal to the assets of
the banks
Difficulty: MediumViney - Chapter 02 #13learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY14.All of the following balance sheet
portfolio items are liabilities of a bank EXCEPT:A.term
depositsB.bill acceptance facilitiesC.certificates of
depositD.overdrafts
Difficulty: MediumViney - Chapter 02 #14learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY15.All of the following balance sheet
portfolio items are sources of funds for a bank EXCEPT:A.term
depositsB.bill acceptance facilitiesC.certificates of
depositD.overdrafts
Difficulty: MediumViney - Chapter 02 #15learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY16.Which of the following is a bank
liability?A.Consumer loansB.Lease financeC.Bills
receivableD.Certificates of deposit
Difficulty: MediumViney - Chapter 02 #16learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY17.Which of the following statements
about deposits is correct?A.Call accounts represent a fluctuating
source of funds for banks.B.Term deposits are funds lodged with a
bank for longer than two weeks.C.As current accounts are highly
liquid, they form an unstable source of funds for a bank.D.A cheque
account may pay interest.
Difficulty: EasyViney - Chapter 02 #17learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY18.Which of the following statements
about banks' current accounts is INCORRECT?A.Current accounts today
generally pay interest.B.They are a relatively stable source of
bank funds.C.Deregulation had a major impact on current
accounts.D.They form an increasingly important type of asset for
banks.
Difficulty: EasyViney - Chapter 02 #18learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY19.Which of the following statements
is NOT true of term deposits?A.They are less liquid than a current
deposit.B.They usually offer a higher return than a current
deposit.C.They are attractive to investors who expect interest
rates to fall.D.They are generally negotiable instruments.
Difficulty: MediumViney - Chapter 02 #19learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY20.20: As a depositor shifts funds
from current deposits to term deposits in a bank, generally the
depositor's:A.liquidity increases and credit risk
increasesB.liquidity decreases and interest income
increasesC.liquidity decreases and interest income
decreasesD.implicit interest increases and explicit interest
decreases
Difficulty: MediumViney - Chapter 02 #20learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY21.If a bank required more short-term
funding, it would issue:A.a certificate of depositB.a debentureC.an
unsecured noteD.preference shares
Difficulty: MediumViney - Chapter 02 #21learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY22.Which of the following is generally
a highly liquid instrument?A.A bank billB.A certificate of
depositC.Neither a bank bill nor a certificate of depositD.Both
bank bills and certificates of deposit are liquid instruments
Difficulty: MediumViney - Chapter 02 #22learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY23.The term 'negotiable' for a
security means:A.its price can be bargained for when soldB.it can
be sold easilyC.its buyer can negotiate its price when buyingD.it
is reasonably illiquid and will drop in price when sold
Difficulty: MediumViney - Chapter 02 #23learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY24.Which of the following regarding
certificates of deposit (CDs) is correct?A.CDs pay daily interest
instead of monthly as for ordinary deposits.B.CDs generally pay
higher interest, as they are not liquid.C.The rate of interest on a
CD can be adjusted quickly.D.CDs with a face value of more than
$100 000 are non-negotiable.
Difficulty: MediumViney - Chapter 02 #24learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY25.The advantage of a CD to a bank
is:A.its rate of interest may be adjusted quicklyB.it can be sold
quickly in the money market for cashC.it is a negotiable
instrumentD.All of the given answers.
Difficulty: MediumViney - Chapter 02 #25learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY26.A major difference between a bank's
term deposit and a certificate of deposit is a:A.term deposit
represents an asset for a bank, while a certificate of deposit is a
liabilityB.certificate of deposit does not pay interest until
maturityC.certificate of deposit is illiquid when compared with a
term depositD.certificate of deposit is a high-credit-risk
instrument when compared with a term deposit
Difficulty: EasyViney - Chapter 02 #26learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY27.With regard to bank bills, the bill
is sold at a discount:A.because the bank needs to find a buyerB.to
encourage buyersC.because the difference between the initial price
and the final sale price is the return to the holderD.because the
bank pays the face value of the funds to the borrower at
maturity
Difficulty: HardViney - Chapter 02 #27learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY28.28: With regard to bank bills, the
expression 'the issuer sells the bill at the best discount' means
the issuer:A.is providing the fundingB.is acting as mediator
between the borrower and the bankC.is selling the bill into the
market at the lowest yieldD.pays the lowest face value of the funds
to the holder at maturity
Difficulty: HardViney - Chapter 02 #28learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY29.With regard to bank bills, the
actual role of the acceptor is to:A.provide the initial
fundingB.act as mediator between the borrower and bankC.issue the
bank billD.pay the face value of the funds to the holder at
maturity
Difficulty: HardViney - Chapter 02 #29learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY30.Which of the following in relation
to bill financing is INCORRECT?A.The drawer is the party seeking
the funds.B.If a bank accepts the bill this enhances its credit
quality.C.An issuer will seek to sell the bill in the market at the
highest yield.D.Bills are sold at a discount to face value.
Difficulty: HardViney - Chapter 02 #30learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY31.For a bank, the advantage of bill
financing is:A.it earns income from accepting billsB.it doesn't
necessarily have to use its own fundsC.interest rates on bill
funding can be adjusted rapidlyD.All of the given answers.
Difficulty: MediumViney - Chapter 02 #31learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY32.Commercial banks take part in the
money markets as:A.lenders of funds onlyB.borrowers of funds
onlyC.both lenders and borrowers of fundsD.underwriters only
Difficulty: MediumViney - Chapter 02 #32learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY33.Foreign currency liabilities have
increased in importance as a source of funds for Australian banks.
Major reasons for this include: I. Deregulation of the foreign
exchange marketII. Diversification of funding sourcesIII. Demand
from multinational corporate clientsIV. Internationalisation of
global financial marketsV. Avoidance of the non-callable deposit
prudential requirementVI. Expansion of banks' asset-base
denominated in foreign currenciesA.I, II, III, IV, VIB.II, III, IV,
V, VIC.I, III, IV, V, VID.All of the given answers.
Difficulty: HardViney - Chapter 02 #33learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY34.Alternatives to the usual source of
long-term bank funds that have the characteristics of both debt and
equity are called:A.secured debenturesB.transferable certificates
of depositC.promissory notesD.subordinated notes
Difficulty: MediumViney - Chapter 02 #34learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY35.All of the following balance sheet
portfolio items are assets of a bank EXCEPT:A.overdraftsB.lease
financeC.certificates of depositD.credit card draw-downs
Difficulty: MediumViney - Chapter 02 #35learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY36.Short-term discount securities
issued by a drawer at a discount, with the promise to repay the
face value at maturity, are called:A.commercial paperB.commercial
billsC.certificates of depositD.All of the given answers.
Difficulty: MediumViney - Chapter 02 #36learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY37.All of the following financial
securities are 'uses of funds' by the banks EXCEPT:A.commercial
billsB.credit cardsC.certificates of depositD.overdrafts
Difficulty: MediumViney - Chapter 02 #37learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY38.If you take out a mortgage from a
bank, the mortgage is a/an:A.liability to the bank and an asset to
youB.liability to you and an asset to the bankC.liability to both
you and the bankD.asset to both you and the bank
Difficulty: MediumViney - Chapter 02 #38learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY39.BBSW refers to:A.the reference rate
for medium-term fundingB.a rate calculated each day from the offer
rate of the last daily sale in the bank bill marketC.the average
mid-point of the bid and offer rates in the bank bill marketD.the
bank bill security rate
Difficulty: MediumViney - Chapter 02 #39learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY40.Banks invest in government
securities because:A.they offer high yield owing to their
riskB.they offer a low yield owing to their illiquidityC.all
government bonds offer protection against inflation riskD.they can
be used as security against banks' borrowing
Difficulty: MediumViney - Chapter 02 #40learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY41.Off-balance-sheet business for a
bank refers to:A.deposits and loans longer than one
yearB.transactions that are currently only a contingent
liabilityC.call deposits that may be withdrawn on demandD.consumer
loans that are in default
Difficulty: MediumViney - Chapter 02 #41learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY42.All of the following are
off-balance-sheet transactions of a bank EXCEPT:A.documentary
letters of creditB.performance guaranteesC.underwriting
facilitiesD.bills receivable
Difficulty: MediumViney - Chapter 02 #42learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY43.By the end of 2000, there had been
a substantial expansion in fee-related income for banks. What is
the principal reason for this expansion?A.Increased confidence in
banks by individual investorsB.Increased off-sheet business (OBS)
for banksC.Reduced guidelines by APRAD.Increased deposits in
banks
Difficulty: EasyViney - Chapter 02 #43learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY44.Which of the following is true for
off-balance-sheet business for banks?A.It is a small part of a
bank's income.B.It is recorded on a bank's statement of income and
expense.C.It represents fee-based income.D.It records deposits that
do not fit on the balance sheet.
Difficulty: MediumViney - Chapter 02 #44learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY45.Which of the following statements
about market-related items for a bank is FALSE?A.They are generally
called off-balance-sheet items.B.They are liabilities that may
require an outflow of funds for a bank.C.They are included in the
BIS capital-adequacy guidelines.D.They form a small part of banks'
OBS business.
Difficulty: HardViney - Chapter 02 #45learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY46.The off-balance-sheet business of
banks is listed below. Which category represents the most
significant proportion of total off-balance-sheet business of the
banks?A.Direct credit substitutesB.Trade and performance-related
itemsC.CommitmentsD.Market-rate-related transactions
Difficulty: HardViney - Chapter 02 #46learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY47.Most of the market-rate-related
off-balance-sheet business of banks is listed below. Which category
represents the most significant proportion of total
market-rate-related off-balance-sheet business of the
banks?A.Currency swap agreementsB.Foreign exchange
contractsC.Interest rate swapsD.Interest rate futures
Difficulty: MediumViney - Chapter 02 #47learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY48.An example of an 'off-sheet
business' transaction that banks are generally involved in
is:A.providing a 'standby letter of credit'B.providing a note
issuance facilityC.providing a short-term, self-liquidating trade
contingencyD.All of the given answers.
Difficulty: MediumViney - Chapter 02 #48learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY49.Off-balance-sheet business is
usually divided into four major categories:A.Direct credit
substitutes; trade and performance-related items; commitments; and
trade guaranteesB.Direct credit substitutes; trade and
performance-related items; commitments; and market-related
transactionsC.Direct credit substitutes; trade and
performance-related items; commitments; and underwriting
facilitiesD.Direct credit substitutes; 'standby letters of credit';
commitments; and market-related transactions
Difficulty: MediumViney - Chapter 02 #49learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY50.50: A 'commitment' by a bank is:A.a
form of swapB.a promise by a large depositor to provide extra funds
to the bankC.the unused balance on a bank credit cardD.an
undertaking to advance funds or to acquire an asset in the
future
Difficulty: MediumViney - Chapter 02 #50learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY51.51: Consider the following five
statements:Banks issue liquid financial liabilities that make up a
large proportion of their activitiesBanks' share of assets of all
financial institutions has increased after deregulationBanks'
involvement in market-rate-related contracts forms a small part of
their off-balance-sheet businessIf a bank discounts a bank bill
drawn by a client into the marketplace, then it sells the loan to
another partyTo improve the quality of their assets, the major
banks may purchase more Commonwealth securitiesHow many of these
statements are true and how many are false?A.2 statements are true
and 3 are falseB.3 statements are true and 2 are falseC.4
statements are true and 1 is falseD.1 statement is true and 4 are
false
Difficulty: HardViney - Chapter 02 #51learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY52.Which of the following is NOT an
argument for some form of government regulation of the banking
system?A.The money-creation role of banks.B.A major source of funds
to the banks comes from households who need their savings
protected.C.The excess return on assets that banks have been making
in recent years.D.Maintaining confidence in the financial
system.
Difficulty: MediumViney - Chapter 02 #52learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY53.Which of the following is NOT
associated with the purpose of regulating financial
institutions?A.Providing stability of the money supply.B.Directing
flow of funds to priority areas.C.Maintaining the soundness and
stability of the financial system.D.Lowering the cost of funds.
Difficulty: MediumViney - Chapter 02 #53learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY54.APRA is responsible for the
regulatory supervision of financial institutions, such as banks and
credit unions. APRA stands for:A.Australian Practice and Regulatory
AssociationB.Australian Prudential Regulation AuthorityC.Australian
Prudential Rule AuthorityD.Australian Practice and Regulatory
Authority
Difficulty: EasyViney - Chapter 02 #54learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY55.Which of the following institutions
are supervised by APRA?A.Building societiesB.Commercial
banksC.Credit unionsD.All of the given answers.
Difficulty: EasyViney - Chapter 02 #55learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY56.The requirement and observation of
standards designed to ensure the stability and soundness of a
financial system is called:A.fiscal policyB.monetary
policyC.prudential supervisionD.the Basel accord
Difficulty: EasyViney - Chapter 02 #56learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY57.57: The Basel capital adequacy
requirements apply to:A.all financial institutionsB.banks,
investment banks and merchant banks onlyC.all financial
institutions supervised by ASICD.all banks registered with APRA and
some other financial institutions
Difficulty: EasyViney - Chapter 02 #57learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY58.Some of the elements in assessing
capital adequacy requirements for banks under the Basel II capital
accord are:A.credit risk, liquidity risk and interest rate
riskB.credit risk, market risk and type of capital heldC.default
risk, interest rate risk and market riskD.default risk, liquidity
risk and type of capital held
Difficulty: MediumViney - Chapter 02 #58learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY59.According to the textbook, the
Basel II approach to capital adequacy involves ____ main
elements.A.threeB.fourC.fiveD.six
Difficulty: MediumViney - Chapter 02 #59learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY60.Which of the following does NOT
apply to Tier 1 capital?A.It is described as 'core capital'.B.It
must constitute at least 50% of a bank's capital base.C.Paid-up
ordinary shares can be included in it.D.Cumulative irredeemable
APRA-approved preference shares can be included in it.
Difficulty: HardViney - Chapter 02 #60learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY61.Which of the following statements
about regulatory capital is FALSE?A.Tier 1 capital includes paid-up
ordinary shares, retained earnings, non-cumulative irredeemable
preference shares and general reserves.B.Tier 2 capital includes
general provision for doubtful debts, revaluation reserves of
premises, mandatory convertible notes and approved perpetual
subordinated debt.C.Tier 1 capital is core capital, including
paid-up ordinary shares, non-cumulative irredeemable preference
shares and general reserves.D.Tier 2 capital includes general
reserves for doubtful debts, asset revaluation reserves of
premises, other preference shares, mandatory convertible notes,
cumulative redeemable preference shares and perpetual subordinated
debt.
Difficulty: HardViney - Chapter 02 #61learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY62.The Pillar 1 approach of Basel II
capital adequacy incorporates three risk components:A.Credit risk,
interest-rate risk and market riskB.Default risk, interest-rate
risk and operational riskC.Credit risk, market risk and operational
riskD.Default risk, foreign exchange risk and operational risk
Difficulty: MediumViney - Chapter 02 #62learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY63.Which of the following statements
regarding capital adequacy requirements is INCORRECT?A.Existing
credit-risk guidelines are extended to include market risk arising
from a bank's trading activities.B.Regulators focus on credit risk,
market risks, operational risk and type of capital held.C.Eligible
Tier 1 capital must constitute at least 70% of a bank's capital
base.D.Tier 2 capital is divided into upper and lower Tier 2
parts.
Difficulty: MediumViney - Chapter 02 #63learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY64.Under the capital adequacy
requirement for banks, in order to fund a $100 000 loan for a
multinational corporate client with a Standard & Poor's rating
of AA, a bank will:A.assign a risk-weighting of 20% for the
balanceB.allocate Tier 1 and Tier 2 capital to the loan according
to the riskiness of the companyC.seek funding in the euromarkets to
minimise the capital adequacy requirementsD.apply a risk weighting
of 50% to the loan to determine the total capital requirement
Difficulty: HardViney - Chapter 02 #64learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY65.In the Basel II standardised
approach to external rating grades, the asset counterparty weights
for capital adequacy guidelines are:A.10%, 20%, 50% and 100%B.10%,
50%, 100% and 150%C.20%, 50%, 100% and 150%D.20%, 50%, 100% and
200%
Difficulty: HardViney - Chapter 02 #65learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY66.The Basel II risk weighting factor
for a bank loan to an Australian company with a Moody's Investors
Service rating of C is:A.20%B.50%C.100%D.150%
Difficulty: HardViney - Chapter 02 #66learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY67.Under Pillar 1 of the Basel II
framework, the risk weight for a residential housing loan is
determined by the:A.amount borrowedB.level of mortgage
insuranceC.house valuationD.All of the given answers.
Difficulty: MediumViney - Chapter 02 #67learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY68.A bank provides a loan of $1
million to a company that has an A rating. Calculate the dollar
value of capital required under the capital adequacy requirements
to support the facility.A.$16 000B.$40 000C.$80 000D.$120 000
Difficulty: HardViney - Chapter 02 #68learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY69.A bank provides documentary letters
of credit for a company that has a credit rating of A+. The face
value of contracts outstanding is $2 million. Calculate the dollar
value of capital required under the capital adequacy requirements
to support these facilities, given that the bank supervisor's
credit conversion factor is 20%.A.$6 400B.$16 000C.$160 000D.$240
000
Difficulty: HardViney - Chapter 02 #69learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY70.A large commercial bank operating
in the international markets will generally apply to the banks'
supervisor to use the _____ to credit risk.A.advanced internal
ratings-based approachB.foundation external ratings-based
approachC.standardised approachD.standardised approach with
external ratings
Difficulty: MediumViney - Chapter 02 #70learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY71.The risk that arises from chance of
loss as a result of inadequate internal bank processes is
called:A.default riskB.interest rate riskC.market riskD.operational
risk
Difficulty: MediumViney - Chapter 02 #71learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY72.Which of the following statements
about recently adopted guidelines covering capital requirements for
market risk that banks are required to perform is FALSE?A.They use
a risk measurement model based on a VaR approach.B.They estimate
the sensitivity of portfolio components to small changes in
prices.C.They must hold capital against risk of loss from changes
in interest rates.D.They hold a fixed allocation of funds between
various balance sheet assets and off-balance-sheet business.
Difficulty: MediumViney - Chapter 02 #72learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY73.For a commercial bank that operates
in foreign exchange, interest rate and equity markets, the capital
adequacy guidelines for the market risk it is exposed to fall
under:A.Pillar 1B.Pillar 2C.Pillar 3D.Pillar 4
Difficulty: MediumViney - Chapter 02 #73learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY74.Under _____ of Basel II, bank
supervisors should review and evaluate banks' internal capital
adequacy assessments.A.Pillar 4B.Pillar 3C.Pillar 1D.Pillar 2
Difficulty: MediumViney - Chapter 02 #74learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY75.Part of a bank's liquidity
management is for it to hold a portfolio of:A.term
loansB.mortgagesC.Commonwealth securitiesD.credit card loans
Difficulty: MediumViney - Chapter 02 #75learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY76.Generally, commercial banks are the
main type of financial institution in a financial system because
they hold the largest amounts of financial assets.TRUEBanks have
long been the dominant type of financial institution, although in
recent years managed funds have close to having the same amount of
financial assets under management.
Difficulty: EasyViney - Chapter 02 #76learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY77.The greater the dominance of
commercial banks in an economy, the less regulation
required.FALSEBecause of the dominance of banks and the correlation
between their business and a country's economy, there are strong
arguments for regulation to constrain a bank's business.
Difficulty: EasyViney - Chapter 02 #77learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY78.Banks obtain funds from many areas.
These sources of funds appear as liabilities on a bank's balance
sheet.TRUEDeposits are a major part of a bank's sources of funds
and a bank needs to pay interest expense.
Difficulty: EasyViney - Chapter 02 #78learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY79.Liability management is where banks
actively manage their liabilities in order to meet future loan
demand.TRUE
Difficulty: EasyViney - Chapter 02 #79learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY80.Call deposits are funds lodged in a
bank account for a specified short-term period.FALSE
Difficulty: EasyViney - Chapter 02 #80learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY81.A bank may either issue a
negotiable certificate of deposit directly into the money markets
or place it directly with another bank with surplus funds.FALSE
Difficulty: MediumViney - Chapter 02 #81learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY82.One of the important attributes of
certificates of deposit for a bank is the ability to adjust the
yields on new issues.TRUE
Difficulty: EasyViney - Chapter 02 #82learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY83.As the majority of banks' assets
are short-term loans, they are active in the money markets in order
to fund part of their lending.FALSE
Difficulty: EasyViney - Chapter 02 #83learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY84.A bank may seek to obtain funds by
issuing unsecured notes with a collaterised floating charge over
its deposits.FALSE
Difficulty: EasyViney - Chapter 02 #84learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY85.Foreign currency liabilities are
debt instruments issued into another country but not denominated in
the currency of that country.FALSE
Difficulty: EasyViney - Chapter 02 #85learning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY86.Briefly discuss the sources of
funds for a commercial bank.Sources of funds appear on a bank's
balance sheet either as liabilities or shareholders' equity funds.
The main sources of funds are first the more liquid funds from
current account deposits, call deposits. Then there are term
deposits, negotiable certificates of deposit where a bank may issue
directly into the money market, bill acceptance liabilities, debt
liabilities, foreign currency liabilities, and loan capital and
shareholders' equity.
Viney - Chapter 02 #86difficulty: EMPTYlearning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY87.Describe how a bill acceptance
facility works.If a company with a good credit record is looking to
raise funds through the issue of a bill of exchange into the money
markets, a bank may have the role of acceptor for the bill where
the bank agrees to pay the face value of the bill to the holder at
maturity and will have a separate arrangement to recover the funds
from the issuer. The bank will earn fees for providing this
service. Or the bank may provide the funds directly for the bill by
agreeing to discount the bill and buy it from the issuer, and
usually rediscount the bill subsequently. So the bank could provide
a bill acceptance facility and a bill discount facility.
Viney - Chapter 02 #87difficulty: EMPTYlearning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY88.Discuss the main features of
housing finance.This involves the lending of long-term funds to
individuals so that they can buy residential property. As security
for the loan the bank lender registers a mortgage over the
property. In recent years commercial banks and specialist mortgage
lenders have used securitisation to refinance their lending.
Viney - Chapter 02 #88difficulty: EMPTYlearning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY89.Discuss the main features of a
bank's commercial lending.Commercial lending is when banks lend to
the business sector and other financial institutions. This is
considered essential if economic growth is to be achieved within a
country. Commercial banks offer borrowers both short-term and
long-term loans of various types such as overdraft facilities.
Viney - Chapter 02 #89difficulty: EMPTYlearning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY90.Within the context of
off-balance-sheet business, explain direct credit substitutes and
trade- and performance-related items and any differences between
these items.Direct credit substitutes are where a bank supports a
client's financial obligation such as providing a 'standby letter
of credit' so that a company may raise funds directly in the market
place. Trade- and performance-related items are when a bank offers
guarantees to support a client's non-financial obligations. Both of
these items are not recorded on a bank's balance sheet.
Viney - Chapter 02 #90difficulty: EMPTYlearning goal:
EMPTYlearning objective: EMPTYlevel: EMPTYlo: EMPTYquestion type:
EMPTYsource: EMPTYtype: EMPTY
MenuItem 3: {Topic 3} Non-bank financial institutions
Question 1: The financial institution that is a specialist
provider of financial and advisory services to companies is:
A: a credit unionB: a finance companyC: a building societyD*: an
investment bank
Level: 2
Question 2: Money market corporations:
A: obtain all their funding by issuing bank billsB*: are
generally referred to as investment banksC: offer money market
deposits to retail clientsD: sell money market securities
Level: 2
Question 3: The task of the investment bank in a public issue of
new shares is to:
A: offer interim financing to the firmB: invest the funds raised
in the capital marketsC*: provide advice in designing and pricing a
share issueD: act as a trustee of the funds raised
Level: 3
Question 4: Investment banks:
A: are supervised by APRA, since they operate in the banking
sectorB: focus their activities in the bank bill sector and money
marketC: obtain their deposits from only large corporationsD*: are
not required to comply with minimum capital adequacy requirements,
but commercial banks are
Level: 3
Question 5: A company may hire ________ to advise on and
underwrite its new share issue.
A: a loans officerB*: an investment bankerC: a share analystD: a
treasury officer
Level: 2
Question 6: The principal source of income for investment banks
is:
A: issuing bank billsB*: off-balance sheet businessC: issuing
secondary securitiesD: issuing certificates of deposit
Level: 3
Question 7: Money market corporations (merchant and investment
banks) have significantly increased their off-balance sheet
business due to competition. All of the following are off-balance
sheet activities of investment banks EXCEPT:
A: mergers and acquisitionsB: managing project finance
undertakingsC*: trading in the short-term money marketD: strategic
risk management advice
Level: 3
Question 8: Most corporations will seek advice from ______ for
possible mergers and acquisitions.
A: an investment brokerB: a commercial bankerC: an accounting
firmD*: an investment banker
Level: 2
Question 9: The process of due diligence involves:
A: underwriting of new equity issues by a companyB: providing
advice to companies on the raising of new equityC*: detailed
analysis of a firms financial statementsD: placement of securities
to institutional investors
Level: 3
Question 10: Underwriting is:
A: when a broker places new share issues with selected financial
institutionsB: when an investment bank gives advice to a company
about a mergerC*: when a broker guarantees prices on a security
issue for a companyD: when an investment bank finds funding for a
company
Level: 3
Question 11: When an investment bank guarantees a certain price
for a company issuing new shares, it is acting as:
A: an auctioneerB: a brokerC: a dealerD*: an underwriter
Level: 2
Question 12: When an investment bank helps a company sell large
parcels of shares directly to institutional investors, this is
called:
A: due diligenceB*: private placementC: securitisationD:
underwriting
Level: 3
Question 13: The ________ is the company in a merger transaction
that tries to merge with or acquire another company.
A: target companyB*: takeover companyC: conglomerate companyD:
hostile company
Level: 2
Question 14: The ________ is the company in a merger transaction
that is being pursued as a takeover possibility.
A*: target companyB: takeover companyC: conglomerate companyD:
hostile company
Level: 2
Question 15: If a car manufacturer were to purchase one of the
companies listed below, which purchase would be called a horizontal
takeover?
A: a steel millB*: a rival car manufacturerC: a tyre
manufacturerD: a finance company
Level: 2
Question 16: A conglomerate takeover occurs when:
A*: companies from different business areas mergeB: both parties
are similar in sizeC: the merged entity is expected to have large
additional valueD: the management team of the target company are
combined with those of the takeover company.
Level: 3
Question 17: All of the following are reasons for mergers
EXCEPT:
A: financesB: economies of scaleC: business diversificationD*:
to have a dominating share of the market
Level: 2
Question 18: The amount of financial assets held by insurance
companies has _______ over the last 20 years.
A: decreasedB: remained stableC: increased slowlyD*: increased
dramatically
Level: 3
Question 19: As of 2005, the largest proportion of assets held
by life insurance companies is:
A: Commonwealth securitiesB: loans and placementsC*: equities
and units in trustsD: land and buildings
Level: 4
Question 20: In Australia, the prudential supervisor of life
insurance offices is:
A: ASICB*: APRAC: the Reserve Bank of AustraliaD: SIS
Level: 2
Question 21: Which of the following statements with regards to
life insurance companies is true?
A: Life insurance companies are more likely to acquire
short-term assets than long-term securities, for liquidity
reasons.B*: Life insurance companies are more likely to acquire
long-term assets because their liabilities are long-term in
nature.C: life insurance companies tend to acquire short-term
assets because they have relatively predictable inflows and
outflows.D: The Reserve Bank of Australia regulates life insurance
companies.
Level: 3
Question 22: All of the following statements about life
insurance companies are true EXCEPT:
A: as inflows of funds are relatively predictable, they have a
very stable level of liabilitiesB: they have greatly increased
their assets over the last decadeC: they sell contracts that offer
financial cover against premature deathD*: they have large amounts
of short-term liquid securities.
Level: 2
Question 23: Life insurance companies:
A*: are significant investors in equitiesB: invest mainly in
debt, which is generally in the form of debenturesC: are not
important suppliers of equity fundingD: None of the above.
Level: 3
Question 24: The change in the portfolio of financial assets for
the life insurance companies since the 1980s has been mainly due
to:
A*: change in government regulationsB: strong financial
marketsC: change in policies of life insurance companiesD: strong
growth in the number of life insurance policies.
Level: 3
Question 25: By the end of 2005, there had been a substantial
expansion of assets in the life insurance industry. What is one of
the primary reasons for this?
A: increased confidence in life policies by individual
investorsB*: growth in superannuation fundsC: decreased cost of
regulation by the Australian Financial Institutions CommissionD:
rationalisation through mergers of small life insurance
companies
Level: 3
Question 26: Life insurance companies attract a large proportion
of their funds through regular premiums from policy holders. In
regard to the matching principle, what types of assets would an
insurance company hold the smallest proportions of?
A: equity investments B: debentures and notesC: housing loan
mortgagesD*: money market securities
Level: 3
Question 27: A life insurance company that sells a large number
of ________ will need a large portion of liquid assets to match the
liabilities.
A: whole-of-life policiesB: 20-year term policiesC: annuitiesD*:
one-year renewable term policies
Level: 3
Question 28: General insurance companies hold:
A: a smaller amount of short-term assets than life insurance
companies doB*: a greater amount of short-term assets than life
insurance companies doC: approximately the same amount of
short-term assets as life insurance companiesD: only long-term
assets
Level: 2
Question 29: General insurance companies hold more liquid assets
than life insurance companies do because:
A: they have a legal requirement to do soB*: events such as
fires and earthquakes are difficult to predictC: more people try to
get payouts from them by fraudD: as there are more items covered
under a general insurance policy, there are more payouts to the
insured
Level: 2
Question 30: A major difference between a whole-of-life
insurance policy and a term-life policy is:
A: the whole-of-life policy is long-term, whereas a term policy
is only for the term of one yearB: a term policy has an investment
component, specified only for the term C*: only a whole-of-life
policy has an investment componentD: term policies only pay bonuses
at the end of the term, unlike the wholeof-life policy, which pays
them out immediately as they are accumulated
Level: 3
Question 31: All of the following apply to a whole-of-life
insurance policy EXCEPT:
A: includes an investment componentB: is a long-term insurance
policyC: may pay a bonus if surplus investment returns are
generatedD*: premiums reduce over time due to accumulated
bonuses
Level: 3
Question 32: In a(n) _____ insurance policy, there is no savings
component.
A*: termB: variableC: wholeD: endowment
Level: 2
Question 33: For term-life policies with a stepped premium over
time, the policy holder pays:
A: premiums based on current market ratesB*: premiums that
increase gradually over timeC: premiums based on increases in
inflationD: premiums based on indexing the sum insured
Level: 3
Question 34: A portfolio manager for a general insurance company
who expects a downturn in the markets is likely to shift more of
the companys portfolio into:
A: common stockB: long-term corporate bondsC: preference
sharesD*: short-term securities
Level: 2
Question 35: The function of a ________ is to provide income for
employees of corporations or governments after they retire.
A: building societyB: credit unionC: general insurerD*:
superannuation fund
Level: 2
Question 36: Essentially, superannuation assets provide:
A: indefinite income when employees stop workingB: indefinite
income as long as employees continue to workC: limited income if an
employee is injured and unable to workD*: retirement income for
employees
Level: 2
Question 37: Since the early 1990s, the largest growth in assets
held by superannuation funds outside life offices has been in:
A: Commonwealth securitiesB: loans and placementsC*: equities
and units in trustsD: land and buildings
Level: 3
Question 38: Which of the following statements is true?
A: In the 1990s, assets of superannuation funds outside life
insurance offices have grown much faster than life insurance office
funds.B: Assets in defined benefit schemes have experienced greater
growth than assets in accumulation schemes.C: The introduction of
the Superannuation Guarantee Charge (SGC) policy in 1992 resulted
in rapid growth in Australias superannuation industry throughout
the 1990s.D*: Both A and C.
Level: 3
Question 39: Superannuation funds, because of the ______-term
nature of their liabilities, prefer to hold _____-term assets.
A*: long, longB: long, shortC: short, longD: short, short
Level: 2
Question 40: A private superannuation fund to which an
individual makes recurring, predetermined payments for a given
number of years into the plan is called a(an):
A: approved deposit schemeB*: superannuation savings planC:
standard superannuation schemeD: single premium scheme
Level: 3
Question 41: If an individual retires early but wants to retain
their superannuation entitlements in a favourable taxation
environment, they can hold their eligible superannuation funds in
a:
A: single-premium schemeB: growing annuity schemeC*: rollover
schemeD: termination scheme
Level: 2
Question 42: Superannuation funds that aim at delivering a
longer-term income stream and capital appreciation by acquiring a
diversified asset portfolio across a wider risk spectrum are
classified as:
A: managed growth fundsB: capital guaranteed fundsC*: balanced
growth fundsD: capital stable funds
Level: 3
Question 43: A defined benefit plan:
A: is always fully funded, with no shortfall requirementB: may
have a shortfall, but the Commonwealth government will make good
the shortfall C*: may have a shortfall, but the employer will make
good the shortfallD: is where the employee bears the risk if the
performance of the investment is bad
Level: 3
Question 44: An investor who wishes to save for their retirement
in 20 years time and who has a high propensity for risk is likely
to invest in:
A: a fund that invests in government securities and cash
depositsB: a fund that invests in government securities and some
propertyC: a fund that invests in government securities and
debenturesD*: a fund that invests in government securities and
foreign equities
Level: 3
Question 45: In an accumulation superannuation fund:
A: the employee is promised an allocated benefit based on
earnings and years of serviceB*: superannuation income varies
depending on how well the plans investments have performedC: if the
funds in the plan exceed the promised amount, the excess remains
with the issuing firm or institution D: all of the earnings taxes
are paid by the employer
Level: 4
Question 46: The superannuation fund where the employer must
make good a shortfall in the fund when the benefit is to be paid up
is:
A: an accumulation fundB*: a defined benefit fundC: a fully
funded fundD: a private fund.
Level: 3
Question 47: When an employee makes regular contributions equal
to 7% of their salary and their employer also contributes the
equivalent of 14% of salary to a superannuation fund that is an
accumulation scheme, then:
A: the final payout benefit is stated when the member joins the
fundB*: the final payout depends upon the investment performance of
the fundC: payment is specified under the superannuation guarantee
legislationD: the benefit is paid in the form of a life
annuity.
Level: 3
Question 48: All of the following Acts are relevant to the
operation of the Australian superannuation industry EXCEPT:
A: Superannuation Industry (Supervision) Act 1993B: Income Tax
Assessment Act 1936C*: Superannuation (Agents and Brokers) Act
1984D: None of the above.
Level: 4
Question 49: All of the following are important results of the
compulsory guarantee charge implemented in July 1992 EXCEPT:
A: the amount of superannuation funds in Australia has increased
significantlyB: the employer contribution SGC increased to 9% from
July 2002 C*: the vast majority of retirement savings are invested
in superannuation fundsD: the SGC represents a penalty taxation
charge on employers.
Level: 3
Question 50: Finance companies generally:
A: issue shares and use the proceeds to buy bondsB*: raise funds
in financial markets to lend to households and companiesC: raise
funds from banks to lend to households and companiesD: issue bonds
and use the proceeds to buy shares
Level: 2
Question 51: All of the following are features of finance
companies EXCEPT:
A: they came into existence in response to regulations on
interest ratesB: they sell unsecured notes and use the funds to
make loans to borrowersC*: the majority of their funds are sourced
from banksD: today the banks own the major finance companies
Level: 2
Question 52: Since deregulation of the financial markets in the
1980s, finance companies have seen the largest growth in their
assets in:
A: bills of exchangeB: local government securitiesC: placements
and depositsD*: loans to businesses
Level: 3
Question 53: Which of the following liability types represents a
main source of funding for finance companies?
A: fixed-term depositsB*: debentures and unsecured notesC: bills
of exchangeD: borrowings from non-residents (overseas)
Level: 3
Question 54: By the end of the 1990s, there had been a
substantial contraction in the building society sector. What is the
principal reason for this contraction in building societies?
A: loss of confidence in building societies by individual
investorsB*: conversion of building societies to banksC: increased
cost of regulation by the Australian Prudential Regulation
Authority (APRA)D: rationalisation through the merger of small
building societies
Level: 3
Question 55: In the 1980s, building societies expanded their
lending operations to:
A: foreign-currency loans for membersB: commercial paperC*:
increased lending to high-risk business borrowersD: underwriting
facilities
Level: 3
Question 56: Under deregulation, building societies lost market
share to other financial institutions. Their response included:
A: mergers with other building societiesB: expenditure on
technologyC: expanding their range of productsD*: All of the
above.
Level: 2
Question 57: Permanent building societies are supervised by:A:
ASICB*: APRAC: the Reserve Bank of AustraliaD: ASX
Level: 2
Question 58: A ________ is a financial intermediary that deals
mainly in the flow of funds between members. Membership is
generally derived from some common bond.
A: savings bankB: superannuation fund C*: credit unionD:
merchant bank
Level: 2
Question 59: A credit union differs from most other financial
institutions because:
A: it accepts deposits mainly from membersB: its assets are
mainly loans to membersC: there are stringent requirements to hold
prime liquid assetsD*: All of the above.
Level: 3
Question 60: An important source of funds for credit unions
is:
A: cheque accountsB*: loan interestC: interest from government
securitiesD: financial support from the organisations that employ
its members
Level: 2
Question 61: The uses of funds for credit unions are mainly:
A: company sharesB: commercial paperC: debentures and unsecured
notesD*: mortgages
Level: 2
Question 62: Credit unions, while representing a very small
proportion of total financial assets, have strong numerical
representation throughout Australia. They derive this numerical
strength:
A*: from a common bond of association of society membersB:
through the wide dispersion of societies throughout the countryC:
because of the full range of financial services providedD: due to a
guarantee of deposits provided by the government
Level: 2
Question 63: Currently, out of finance companies, credit unions,
managed funds and permanent building societies, which one holds the
smallest percentage of total assets of financial institutions?
A*: building societiesB: credit unionsC: finance companiesD:
managed funds
Level: 3
Question 64: The financial institution that pools funds for
individuals and then invests them in both the money and capital
markets is a:
A: savings bankB: credit unionC: investment bankD*: managed
fund
Level: 2
Question 65: Funds under management by managed funds in 2005
represented almost _____ of the total assets of financial
institutions.
A: 20 per centB*: 40 per centC: 50 per centD: 60 per cent
Level: 3
Question 66: All of the following are features of unit trusts
EXCEPT:
A: they are companies that accept funds from investors and make
investments that yield returns in the form of income and/or capital
gainsB: the market determines the value of a listed unit trustC*:
unlisted unit trusts are generally highly liquid as they can accept
money from investors at any timeD: the number of listed property
trusts is far larger than the number of listed equity trusts.
Level: 3
Question 67: A mutual investment fund that specialises in
short-term debt instruments and is usually managed by a financial
intermediary is called:
A: a money market fundB*: a cash management trustC: a
certificate of deposit fundD: a bank bill fund
Level: 2
Question 68: The main features of cash management trusts
are:
A: they allow individuals to access the money marketsB: they
provide liquidity and access to fundsC: many are associated with
stockbrokers, and the electronic purchasing and selling of
securities by investorsD*: All of the above.
Level: 2
Question 69: The average maturity of deposits and money market
securities held in a cash management account is approximately:
A: 10 daysB: 20 daysC*: 40 daysD: 90 days
Level: 2
Question 70: Since the early 1990s, public unit trusts have seen
the largest growth in assets in:
A: cash and depositsB: long-term government securitiesC*:
equities and units in trustsD: land and buildings
Level: 3
Question 71: The majority of securities owned by unlisted public
unit trusts are:
A: real physical assetsB: money market securitiesC*: capital
market securitiesD: fixed interest trusts
Level: 3
Question 72: All of the following are features of public unit
trusts EXCEPT:
A: the four main classes of trusts are property, equity,
mortgage and fixed interest trustsB: there was enormous growth in
public unit trusts during the 1990sC: the majority of mortgages
held by a mortgage trust are first mortgagesD*: property trusts are
generally unlisted as they need notice to sell their physical
assets
Level: 2
Question 73: An investor is considering different methods of
investment, including a public unit trust. All of the following are
functions of a public unit trust EXCEPT:
A: acts as a vehicle for the pooling of investor fundsB:
provides a level of investor protection though the appointment of a
trusteeC: allows small investors access to larger investment
opportunitiesD*: locks in a trust unit price by listing on the
Australian Stock Exchange
Level: 3
Question 74: A developer is promoting a large new suburban
shopping centre and decides to establish a publicly listed unit
trust to attract investors. Which type of unit trust would be
established?
A: a mortgage trustB*: a property trustC: an equity trustD: a
cash management trust
Level: 2
Question 75: The main advantage of a listed trust over an
unlisted unit trust is:
A: a listed trust has a trustee but an unlisted trust does not
have a trusteeB*: a listed trust can be sold at any time by the
unit holder in the marketplaceC: a listed trust invests in
equities, while an unlisted trust invests only in fixed interestD:
a listed trust invests in equities, while an unlisted trust invests
in property
Level: 2
Question 76: Export Finance and Insurance Corporations:
A: only function is to lend directly to small- or medium-sized
businesses involved in export tradeB: only function is to guarantee
trade finance to small- or-medium sized businesses involved in
export tradeC*: function is to encourage export trade by providing
trade insurance and financial servicesD: only function is to
provide insurance for Australian suppliers of goods and services
against non-payment
Level: 3
Question 77: All of the following are services provided by
financial institutions EXCEPT:
A: to pay interest on depositors fundsB: to provide loans to
customersC: to invest customers savings in the capital marketsD*:
to buy the businesses of customers
Level: 2
Question 78: _________ is the form of financing for large
tourist resorts, property developments, heavy industry and
processing plant developments.
A: Euro financeB: Conglomerate financeC*: Project financeD:
Lease finance
Level: 2
Question 79: The main difference between project finance and
other forms of lending is:
A*: lenders base their participation on expected future cash
flows and assets of the projectB: lenders take a major equity stake
in the projectC: the project company, which is set up as a separate
legal entity, relies heavily on venture capitalists for equity
fundingD: the lenders have a claim on the assets of the project as
well as the sponsors
Level: 3
Question 80: All of the following features for project finance
in Australia are generally correct EXCEPT:
A: guarantees provided by sponsors to lenders usually do not
cover all the risks involved in the projectB: a project company is
usually established as a separate legal entityC: lenders rely
mainly on the expected future cash flows and the assets of the
projectD*: finance is usually established on a non-recourse
basis
MenuItem 4: {Topic 4} The share market and the corporation
Question 1: A business organisation that is a separate legal
entity, can buy property in its own name, and can enter into
contracts with other entities is:
A: a sole proprietorshipB: a partnershipC: a special
partnershipD*: a corporation
Level: 2
Question 2: The actual owners of a company are the _______.
A: board of directorsB: executive management groupC*:
shareholdersD: creditors
Level: 2
Question 3: The _______ is(are) responsible for conducting the
day-to-day financial and operational affairs of the company.
A: board of directorsB*: executive management groupC:
shareholdersD: creditors
Level: 2
Question 4: The _______ is(are) responsible for the objectives
and policies of the company, but not the day-to-day affairs.
A*: board of directorsB: executive management groupC:
shareholdersD: creditors
Level: 2
Question 5: Which of the following forms of business
organisation is characterised by limited liability?
A: sole partnershipB: partnershipC: general partnershipD*:
corporation
Level: 3
Question 6: If a growing organisation wanted to set itself up so
it had greater access to a wider range of capital, then it would
become a:
A: sole proprietorshipB: partnershipC: general partnershipD*:
listed corporation
Level: 2
Question 7: The owners of _______ face unlimited liability.
A: sole proprietorships onlyB*: sole proprietorships and
partnerships onlyC: corporations onlyD: partnerships and
corporations only
Level: 2
Question 8: The liability of shareholders in limited liability
companies signifies that:
A: creditors of a company can call upon the shareholders in the
case of company default to contribute an amount based only on the
current market price of the sharesB*: shareholders are only liable
for any amount that is unpaid on the shares of a companyC: in the
event of company default, the creditors have no claim on the
shareholders for any contributionD: shareholders do not have a
right to participate directly in the day-to-day management of a
company
Level: 3
Question 9: Because of their _____ liability, corporate
stockholders are more interested in chances of _____.
A: limited, failure than successB*: limited, success than
failureC: unlimited, success than failureD: unlimited, failure than
success
Level: 3
Question 10: When a no-liability company defaults on its loans
with its creditors, this means:
A: the creditors have a legal claim against the directors onlyB:
the creditors have a legal claim against the CEO onlyC: the
creditors have a legal claim against the chairman of the companyD*:
the shareholders do not have to meet any remaining payment on
shares
Level: 2
Question 11: When the owners of a company hire full-time
executives responsible for the day-to-day decisions, this _____ the
_____ problem(s)
A: lessens, shareholder-lenderB: lessens,
managers-shareholdersC*: brings on, managers-shareholdersD: brings
on, shareholder-lender
Level: 3
Question 12: All of the following are advantages of a
corporation EXCEPT:
A: freely transferable ownershipB: limited liabilityC: access to
capital marketsD*: low management costs
Level: 2
Question 13: All of the following are correct statements
regarding companies EXCEPT:
A: a company is a discrete legal entityB*: since shares
represent ownership in a company, ownership cannot be readily
transferred to new ownersC: a company has potentially unlimited
lifeD: the shareholders liability is limited
Level: 2
Question 14: All of the following are advantages of the
corporate form of organisation EXCEPT:
A: the corporate form is particularly suited to large-scale
business operationsB*: there is a separation of ownership
(shareholders) and management controlC: the corporate form allows
for conti