S06SampleTest - San Francisco State University FIN 353 2006...

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San Francisco State University FIN 353 2006 Spring Sample Exam for Midterm I 1. Asset transformation consists of: a. Altering the liquidity and maturity features of funds sources used to finance the FI's assets portfolio. b. Granting loans to transform funds deficits into funds surplus units. c. Receipt of securities across electronic payment systems. d. None of the above e. All of the above 2. Maturity intermediation occurs when a. intermediaries accept small amounts if saving s from individual customers and these funds to make large loans. b. financial intermediaries are willing to make risky loans and at the same time issue relatively safe security to savers. c. financial intermediaries borrow short term funds and lend long term. d.All of the above. 3. Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because: A) FIs can diversify away some of their risk B) FIs closely monitor the riskiness of their assets C) The federal government requires them to do so D) Both a) and b) E) Both a) and c) 4. Safety and soundness regulations include all of the following layers of protection except A) the provision of guaranty funds. B) requirements encouraging diversification of assets. C) the creation of money for those FIs in financial trouble. D) minimum levels of capital. E) monitoring and surveillance. 5. The federal government extends a safety net to FIs consisting of A) deposit insurance, discount window borrowing, and reserve requirements. B) deposit insurance and discount window borrowing. C) deposit insurance, unemployment insurance, and discount window borrowing. D) deposit insurance, open market operations, and discount window borrowing. E) deposit insurance protection. 6. Classify each of the following in terms of their effect on interest rates (increase or decrease):
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I. Covenants on borrowing become more restrictive II. The Federal Reserve increases the money supply III. Total household wealth increases A) I increases, II increases, III increases B) I increases, II decreases, III decreases C) I decreases, II increases, III increases D) I decreases, II decreases, III decreases E) None of the above 7. According to the liquidity premium theory of interest rates a. Long term spot rates are higher than the average of current and expected future short term rates. b.
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S06SampleTest - San Francisco State University FIN 353 2006...

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