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34 Cards in this Set

  • Front
  • Back
Consider the following statements:
i. Underwriting losses in the general insurance industry can arise from decreased returns on investments due to the behaviour of interest and default rates.
ii. Increased underwriting loss ratios depend on predictability, severity, frequency of claim.
iii. Other losses arising from investments can be attributed mainly to loss adjustments, commissions and other expenses.

a. Statements i and ii. are true
b. Statements i, ii, and iii are true
c. Only Statement i is true
d. Only Statement ii is true
e. Only Statement iii is true
d. Only Statement ii is true
If FIs (and some corporations) have large unhedged foreign debts:

1. a large depreciation in domestic currency would increase their liability
2. they could become insolvent
3.Their holdings of foreign reserves would increase drastically
4. All of the above
5. Only a. and b. above
5. Only a. and b. above
A reduction in RBA assets leads to a:

a. nil effect on base money
b. increase in base money
c. decrease in base money
d. change in base money, with the direction depending on the exact assets concerned
c. decrease in base money
Which of the following is incorrect?

a. If the RBA did not counteract swings in liquidity, interest rates would become highly volatile.
b. Interest rates are self smoothing because of the market mechanism.
c. Interest rates can be affected by considerable swings in the money base.
d. The impact of government expenditures on liquidity tends to be evenly spread throughout the year.
b. Interest rates are self smoothing because of the market mechanism.
In the money market, on days when the system is short of liquidity:

a. the RBA will purchase government securities from the market.
b. the RBA will sell foreign exchange to stabilise $A
c. the RBA will issue Treasury bonds to fund the budget deficit.
d. none of the above.
a. the RBA will purchase government securities from the market.
Suppose the central bank increases the money supply. Whether inflation increases as a result will depend on:

a. the level of the exchange rate
b. the yield curve
c. the degree of capacity utilization in the economy
d. the media reaction
e. None of the above
c. the degree of capacity utilization in the economy
Which of the following is not a means by which the RBA can adjust the amount of cash in the financial system each day?

a. selling government bonds
b. altering the velocity of money
c. buying foreign exchange
d. issuing "repos"
e. All of the above
b. altering the velocity of money
In the transmission of monetary policy to the economy, a rise in interest rates will result in:

a. rising asset prices
b. lower household saving
c. higher inflation
d. lower business investment
e. higher bond prices
d. lower business investment
The "announcement effect" of monetary policy refers to:

a. the impact on expectations resulting from public announcement of changes of the RBA's interest rate target.
b. the destabilizing effect of the RBA governor announcing his retirement.
c. the media outcry whenever banks announce an increase in interest rates.
d. the fallout in 1997 when the Wallis Inquiry findings were released.
a. the impact on expectations resulting from public announcement of changes of the RBA's interest rate target.
Of the following events in the implementation of monetary policy, which is likely to occur first?

a. changes in interest rates affecting inflation
b. the banks responding by altering their retail rates
c. the RBA changing the money base through open market operations
d. the change in short term rates feeding through to long term rates
c. the RBA changing the money base through open market operations
The study of money supply:

a. is necessary to understand fiscal policy
b. helps economists set reserve ratio requirements for banks
c. is especially important to policymakers
d. does not require institutional knowledge
c. is especially important to policymakers
The pure expectations theory of the term structure says:

a.compensation is included in longer term returns to reward investors for tying up their funds for long periods
b. longer term rates are a reflection of anticipated future rates
c. longer term rates include a premium to compensate investors for bearing greater price uncertainty
d. compensation is included in longer term rates for credit risk
b. longer term rates are a reflection of anticipated future rates
An implication of the pure expectations theory of the term structure is that:

a. for a given investment horizon, investing in short term securities will provide the same expected return as investing in long term securities
b. implied forward rates are greater than expected future spot rates
c. we cannot measure the predicted future spot rate from the yield curve because it incorporates hidden risk premia
d. the yield curve will be upward-sloping even when the market does not expect future rates to be higher
a. for a given investment horizon, investing in short term securities will provide the same expected return as investing in long term securities
The liquidity premium theory of the term structure:

a. is highly applicable to the Commonwealth bond market
b. says that the shape of the yiled curve is determined solely by market by market interest rate expectation
c. cannot be applied to coupon securities
d. argues that investors demand a premium on longer term securities to compensate them for surrendering access to their funds for an extended period.
d. argues that investors demand a premium on longer term securities to compensate them for surrendering access to their funds for an extended period.
When FIs practice credit risk diversification they are usaully:

a. Adding assets to the portfolio to decrease the variability of the loan portfolio.
b. Combining loans with the similar payment patterns to provide regular cash flows.
c. Combining loans with similar credit risk to protect asset.
d. Adding loans to the portfolio to increase the variability of the loan portfolio.
e. Adding similar borrowers together into a particular portfolio.
a. Adding assets to the portfolio to decrease the variability of the loan portfolio.
There is significant variation in interest rates or yields across financial instruments due to:

a. Default risk
b. Marketability
c. Term of maturity
d. All of the above
e. None of the above
d. All of the above
Which of the following statements is "not true" about disintermediation:

a. It is another form of intermediation services provided by FIs
b. It means that SSUs and DSUs are 'disinterested' in using financial intermediaries
c. It has been growing with the increased activity in wholesale markets
d. It represents the trend away from indirect financing towards direct financing
e. b and c above
a. It is another form of intermediation services provided by FIs
The main factors that govern the loan pricing decision of the bank are the:

a. Bank cost of funds, administration costs, and risk premium.
b. Risk-based pricing, portfolio theory, and customer relationship pricing.
c. Collateral backing
d. Reserve requirements
e. Lines of credt and commitments
a. Bank cost of funds, administration costs, and risk premium.
Money market instruments offer all of the following except:

a. A high degree of liquidity
b. A low degree of risk
c. A highly-recocgnised or standardised form.
d. A long-term investment
e. A highly-marketable security
d. A long-term investment
The contractually promised return on a loan can vary according to specific factors such as:

a. interest rate
b. laon fees
c. risk premium
d. collateral backing
e. All of the above
e. All of the above
Managed funds in Australia:

a. Have a role in supplying mainly resale and wholesale finance
b. Are similar to deposit-taking institutions because they have the similar liquidity issues.
c. As owners of funds gain a higher return for investors
d. All of the above
e. None of the above
e. None of the above
A bank expecting interest rates to rise in the future would prefer:

a. Short-term, variable-rate loans
b. Long-term, fixed rate loans
c. Floating rate loans adjusted every six months
d. Floating rate loans adjusted monthly to monthly CD rates
e. None of the above
d. Floating rate loans adjusted monthly to monthly CD rates
Superannuation Funds:

a. In Australia handle approximately one-forth of assets under management by all managed funds
b. Provide long-term investment plans for retirement income
c. Operate defined contribution and defined benefit schemes
d. All of the above
e. Only b. and c. above
e. Only b. and c. above
To resolve potential problems related to moral hazard and adverse selection, banks may rely on:

a. Collateral and credit rationing
b. Long term contracts and loan monitoring
c. Lines of credit rationing and commitments
d. All of the above
e. a and b above
e. a and b above
All of the following are true concerning HIH except that is was:

a. A general insurer involved in sickness and accident and life insurance
b. Involved in worker's compensation insurance and professional indemnity
c. It was the second largest FI in its industry
d. It was likely to have been insolvent for several years
e. It was part of an industry largely foreign-owned
a. A general insurer involved in sickness and accident and life insurance
Managing a bank maturity GAP is concerned with:

a. Managing a banks assets
b. Managing a bank liabilities
c. Managing the interest rate spread
d. Managing the relative rate-sensitive assets and uses of funds
e. None of the above
c. Managing the interest rate spread
Loan Officers, in determining the price of a laon, usually perform the following functions except:

a. attempt to strike a balance between risk and probability of default
b. they might use guarantees to reduce the risk of default
c. take account of implicit reserve requirements
d. may ask the borrower for security
e. assess the risk exposure
a. attempt to strike a balance between risk and probability of default
A banks' cost of funds:

a. must be covered by the interest offered
b. includes administration costs
c. includes all non-interest costs
d. must include the risk premium
e. All of the above
e. All of the above
Financial intermediaries have several comparitive advantages, which include all of the following except:

a. They may reduce transaction and search costs for DSUs and SSUs
b. They are able to obtain important information about DSUs
c. They are usually able to generate exceptionally high profits because of the high level of competition
d. They may achieve economies of scale through specialisation and high volume
c. They are usually able to generate exceptionally high profits because of the high level of competition
A bank can fail in two main ways: inadequate liquidity and:

a. Inadequate reserves
b. Inadequate liabilities to fund loans
c. Inadequate loans
d. Inadequate capital to absorb losses
e. None of the above
d. Inadequate capital to absorb losses
Which of the following policies was important for Asian economies to secure low-cost foreign funds for domestic FIs and corporations before the Asian crisis?

a. Maintaining a fixed exchange rate against the US dollar
b. Liberalization of financial deposits
c. Using domestic banks as financial intermediries in international borrowing
d. All of the above
e. Only a and b
e. Only a and b
Banks have greater liquidity needs than other types of businesses because banks have:

a. A high proportion of short-term assets
b. A low proportion of capital
c. A high proportion of short-term liabilities and outstanding lines of credit
d. Large amounts of financial assets
e. Fewer sources of funds
c. A high proportion of short-term liabilities and outstanding lines of credit
It appears the HIH collapse was mainly due to:

a. Its directors resigning
b. Its losses of selling subsidiaries
c. Its lack of reinsurance
d. Its compliance with regulations
e. None of the above
e. None of the above
Which of the following is most associated with the individaul bank customer loan rate?

a. The bank prime rate
b. The level of default risk
c. The length of loan customer's deposit balances
d. The term of the loan
e. The possibility of repayment
a. The bank prime rate

Prime rate-interest rate charged by banks to most credit worthy customers