Chap010 - Chapter 10 The Investment Function in Banking and

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Chapter 10 The Investment Function in Banking and Financial-Services Management Fill in the Blank Questions 1. A(n) _________________________ is a security issued by the federal government which has less than one year to maturity when it is issued. Answer: Treasury bill 2. Debt instruments issued by cities, states and other political entities and which are exempt from federal taxes are collectively known as _________________________ . Answer: municipal securities 3. The investment maturity strategy which calls for the bank to have one half of its investment portfolio in very short term assets and one half of its investment portfolio in long term assets is known as the _________________________ . Answer: barbell strategy 4. A(n) _________________________ is a security where the interest portion of the security is sold separately from the principal portion of the security. Answer: stripped security 5. _________________________ are the way the federal, state and local governments guarantee the safety of their deposits with banks. Answer: Pledging requirements 6. The most aggressive investment maturity strategy calls for the bank to continually shift the maturities of its securities in responses to changes in interest rates and is called the __________________. Answer: rate expectation strategy 7. _________________________ is the risk that the bank will have to sell part of its investment portfolio before their maturity for a capital loss. Answer: Liquidity risk 8. _________________________ is the risk that the economy of the market area they service may take a down turn in the future. Answer: Business risk Test Bank, Chapter 10 162
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9. __________________ is the risk that the company whose bonds the financial institution owns may retire the entire issue of corporate bonds in advance of their maturity leaving the bank with the risk of earnings losses resulting from reinvesting the cash at lower interest rates. Answer: Call risk 10. A security issued by the federal government with 1 to 10 years to maturity when it is issued is called a(n) _________________________ . Answer: Treasury note 11. A short term debt security issued by major corporations is known as __________________. Answer: commercial paper 12. The investment maturity strategy which calls for the bank to have all of their investment assets in very short term maturities is called the _________________________. Answer: front-end-loaded policy 13. A money market security which represents a bank's commitment to pay a stipulated amount of money on a specific future date under specific conditions and which is often used in international trade is known as a(n) _________________________. Answer: bankers' acceptance 14. A(n) _________________________ is an interest-bearing receipt for the deposit of funds in a bank for a stipulated time period. Ones that are oriented towards business customers or institutions are known as jumbos. Answer: certificate of deposit
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Chap010 - Chapter 10 The Investment Function in Banking and

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