Financial Institutions Quiz

Which of the following is not a major reason why households may find direct investment in corporate securities unattractive?

• Monitoring costs

• Liquidity costs

• Price risk

• Guaranteed return

What are the two primary functions fulfilled by financial institutions?

• Asset securitization and interest rate setting

• Brokerage and asset-transformation

• Price setting and liquidity creation

• Wealth transfer and taxation

Financial institutions reduce agency costs by:

• Eliminating interest rates

• Acting as delegated monitors

• Issuing bonds to corporations

• Providing payment services

Which of the following best describes the liquidity benefit provided by financial institutions?

• They issue long-term loans

• They eliminate all risk

• They offer highly liquid, low-risk claims to savers

• They trade only in physical assets

Financial institutions play a key role in the transmission of monetary policy primarily because:

• They only deal with the central bank

• Their deposits are considered part of money supply measures

• They regulate inflation directly

• They control government spending

Denomination intermediation allows:

• Corporations to merge

• Central banks to reduce inflation

• Savers to invest in large-denomination assets collectively

• Banks to set interest rates freely

What is the first layer of safety and soundness regulation?

• Capital requirements

• Deposit guarantees

• Diversification and exposure disclosure

• Monitoring and surveillance

The main institution responsible for consumer and investor protection regulation in Australia is:

• APRA

• ASIC

• RBA

• ACCC

Which of the following trends may reduce the specialness of financial institutions?

• Higher savings rates

• Falling costs of direct investment

• Increased government oversight

• Rising use of cash

What change in banking contributed to the Global Financial Crisis (GFC)?

• A return to the originate-and-hold model

• A shift to originate-and-distribute model

• Increased regulation of risk

• Reduction in mergers and acquisitions