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Unformatted text preview: deposits, both of which are on-balance sheet.
D) depository financial way. Investment banks and merchant banks focus instead on offFinance companies operate in a similarinstitutions
balance-sheet business, such as underwriting and providing advice on valuations and acquisitions, which
generates income through fees. In summary, A, C and D are all and B is the answer. See pages 9–11.
Financial systems evolve in response to various ‘drivers of change’. These drivers of change have been
groupedA) the ageing of the populationis regulatory change. Examples of regulatory change include:
into categories, one of which in many countries
B) expansion of ATM and EFTPOS networks
the floating of exchange rates and authorising foreign banks to operate within a country
Feedback: The Wallis report grouped the factors that drive change in a financial system into four categories:
blurring of traditional roles as financial institutions offer a wider range of products changing
changing customer needs (answer A), changes in technology (B), changes in regulation and the and services
financial landscape (D). The items mentioned in C involve decisions by governments and are therefore examples
of regulatory change. See page 38.
The matching principle:
A) applies to corporations that hold real assets but not to financial institutions
B) contends that assets should be funded with an equal amount of liabilities
C) contends that short-term assets should be financed with short-term liabilities and longer-term
assets should be financed with longer-term sources of funds
D) contends that, in
Feedback: The matching principle is general, assets should be financed by short-term sources befunds that by using
based on the idea that risk and transaction costs can of reduced can be
rolled over to provide that match the economic lives of the assets being acquired. For
s ources of finance with terms to maturitylonger term finance
example, long-term assets should be financed with equity and perhaps long-term debt rather than short-ter...
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