1. Collateral
a. reduces the need for credit analysis of the borrower
b. arrangements include floating liens, warehouse receipts, and floor planning
c. is required on unsecured loan
d. all the above
2. Credit extended through credit cards is a form of
a. fixed credit.
b. revolving credit
c. installment credit
d. term credit
3. Mezzanine lending
a. provides an additional source of funds to growing firms that may not be large enough to issue public debt.
b. often involves venture capital.
c. is a form of long-term unsecured commercial lending in which a firm’s cash flow is the major source of repayment.
d. all of the above
4. Financial institutions are required to maintain liquid assets for the purpose of
a. meeting repayment obligations to customers holding maturing liabilities
b. meeting regulatory requirements for reserves
c. meeting the dividend payment requirements of outstanding common stock.
d. a. and b.
5. Exposure to reinvestment risk is inherent in
a. investing in securities that are primary reserves
b. the matching strategy
c. the ladder-of-maturities strategy.
d. the barbell strategy.
6. When reporting for regulatory purposes, an institution can state the value of an investment security owned at _______ on a balance sheet if the security's price has declined since it was originally purchased.
a. market value
b. historical cost
c. lower of cost or market value
d. none of the above
7. _______ is a financial product that guarantees principal and interest payments or a portion of the default risk of the mortgage pool backing a mortgage-security issue.
a. Financial Guaranty Insurance
b. A catastrophe bond (CB)
c. A surety bond
d. none of the above
8. Reinsurers are used by property/casualty insurers
a. to earn additional income by accepting some risk in return for a share of the reinsurer's premiums.
b. to reduce the total risk level of their policy obligations
c. to increase fee income by acting as intermediaries between the reinsurer and policyholders.
d. none of the above
9. Property/casualty insurers' asset portfolios are likely to differ from life insurers because of P/C firms'
a. greater investment in municipal securities
b. greater investment in common stock
c. greater investment in mortgage loans
d. none of the above
10. The underwriting cycle reflects the
a. relationship between interest rates and rate wars in the property/casualty insurance industry
b. relationship between insurance rates and the business cycle
c. relationship between premium income and inflation
d. none of the above.
11. Initial public offerings (IPOs)
a. are not allowed on the Internet except as Dutch auctions
b. on the Internet reduce the underwriting cost for firms going public
c. traditionally cost the firm 3 percent to 5 percent gross spread and fees collected by investment bankers
d. all of the above
12. Net interest spread is
a. interest revenue from loans to customers less operating expenses.
b. interest revenue and commissions less compensation and interest cost to borrow
c. interest revenue from loans to customers less interest cost to borrow
d. interest revenue and commissions less operating expenses
13. An underwriting effort in which one intermediary accepts the risk of the entire issue is a
a. bought deal.
b. negotiated offering
c. shelf registration
d. private placement
14. As the markets for brokerage services and underwriting activities have grown more competitive, securities firms have become active in
a. insurance underwriting
b. bridge financing.
c. correspondent banking.
d. none of the above
15. Mutual funds that continuously sell shares to the public and are obligated to buy or sell their shares at a fund's net asset value (NAV) or share price (which is linked to prices of the firm's underlying assets) are called
a. closed-end funds
b. open-end mutual funds
c. unit investment companies
d. unit investment companies