Final Exam – Financial Institution

financial Insitutions unlikable book, closed(a) mark offs 1. terminal question Fall 2011 Roger Staiger tercet What is the release between the spot grocery store and the futures market In the spot market, trades be executed immediately, i. e. real time. In the futures markets, which is a derivatives market, trades atomic number 18 agreed upon today but settled lat after dates in the future. 2. What is the main difference between the money markets and metropolis markets? property markets are for short-term security exchanges, i. e. less than 270 days. The seat of government markets are for semipermanent security exchanges, i. e. greater than one year. 3.What are four requirements to transfer capital within an efficient market? a. b. c. d. e. f. Stable Goernment Low ostentatiousness Savings (personal, corporate, fiscal) Competition Disclosure (transparency) Fair market rules (legal schema) 4. Draw the difference between direct and indirect capital formation process. bus iness enterprise Securities Dollars Savers Business 5. Financial Intermed. Savers Describe the purpose of an investment banking house. a. Design Sellable Securities b. obtain securities from corpo symmetryns c. Resell to savers (broker transactions) 6. Name both sources of funds for Financial Intermediaries. . makes (lenders, credit piths, reward funds) b. Premiums (life insurance) c. Share issuance (mutual funds) Name four main roles for depositary institutions. a. mountain pass deposit accounts 7. wholly problems equally heavy Page 1 of 7 Financial Insitutions Closed book, Closed Notes b. c. d. e. 8. last Examination Fall 2011 Roger Staiger III Repackage (warehouse) deposit accounts Underwrite risk on loans Expertise in quantifying creditworthiness support diversification for placed loans What are the unique characteristics for a credit union separating it from other depository institutions? . b. c. d. Not for profit either business restricted to members All members share a common bond (geography, employer) Small (relatively) depository institution 9. Name two of the securities found in the Money Markets. a. Treasuries b. mercantileised Paper 10. Name two of the securities found in the Capital Markets. a. b. c. d. repair income securities Mortgages Securitized products Equity 11. Define Derivative. An plus for which the value is derived from an underlying asset. 12. A wife purchases insurance on her husband (the marriage is loving). What type of trader is the wife?A escaper as the wife is not get the instrument to profit from the loss of her husband but to provide pecuniary security should the husband expire. The strategy is loss-minimization and therefore a hedge. 13. Name two large risks when investing abroad. a. Country jeopardy b. Foreign Exchange Risk c. Interest Rate Risk Note B&C could be considered parallel due to vex rate parity. All problems equally weight down Page 2 of 7 Financial Insitutions Closed book, Closed Notes 14. Final Examination Fall 2011 Roger Staiger III What is considered the leading national District deposit?New York Federal booking 15. Name three operations performed by Federal District Banks. a. b. c. d. e. Clear Checks Replace old currency offer loans through discount window) Collect economic data Research 16. How umteen district banks are there in the Federal Reserve corpse? 12 17. Name five sources of data used by the FOMC. a. b. c. d. e. f. g. h. i. j. k. l. m. compensation Consumer tolls Unemployment gross domestic product Business inventories Foreign Exchange place Interest Rates Financial Market Conditions Production Levels Business Investment Residential pull International Trade International Economic increment 18.Why does the Federal Reserve perform Open Market Operations? a. Increase/decrease direct of funds in market b. Offset impact of other conditions that fall level of funds, e. g. holiday traffic 19. Why is the reserve requirement ratio outstanding? Repr esents the proportion of deposits that must be held as reserves for a financial institution. It is one of the determinants of the money supply. 20. What are the two rates that the Federal Reserve sets? a. Federal Funds Rate b. Discount Rate All problems equally weighted Page 3 of 7 Financial Insitutions Closed book, Closed Notes 21. Final Examination Fall 2011 Roger Staiger IIIWhat are the four components of GDP? GDP = Consumption + Investment + Government Spending + Net Exports 22. What are the goals of the Federal Reserve? a. Control inflation (price stability) at 2. 00% b. Promote Growth 23. What are the goals of the ECB? a. Control inflation (price stability) at 2. 00% 24. What are the relative sizes of individually asset class in the U. S.? Fixed Income ($32,000bn) Real Estate ($20,000bn) Equities ($18,000bn) Note In 2006, Real Estate was the largest asset class but has suffered from over $10,000bn in losses over the online financial crisis and still losing 25. What is LIBOR? capital of the United Kingdom Interbank Offering Rate Rate that 16 large global commercial banks lend 10 different currencies at 15 different maturities to all(prenominal) other in the overnight market. 26. The world is safe and growth permeates or so economies. Explain what this means for the borrowing rate for the US government use a Supply/Demand curve and cash flow diagram for Treasuries. Price S P0 P1 D Quantity P As price decreasing, yield increases, i. e. it costs more for the U. S. government to borrow. All problems equally weighted Page 4 of 7 Financial Insitutions Closed book, Closed Notes 27. Final Examination Fall 2011 Roger Staiger IIIDraw the cash flow diagram for a nix coupon bond. 28. What are three methods that a financial institution uses to repugn fill rate risk? a. b. c. d. e. Maturity matching apply floating-rate loans Using interest rate futures contracts Using interest rate swaps Using interest rate caps 29. Why do financial institutions sell their ow n underwritten loans? a. b. c. d. husband services (fee based income) Sell asset (earn positive spread) Sell asset (negative spread but significantly reduced risk exposure) Turnover of capital 30. What are the three main banking regulators in the U. S.? a. Comptroller of Currency b.Federal Deposit Insurance Corporation (FDIC) c. Federal Reserve 31. What is the current insurance margin by account offered to private investors by the FDIC? $250,000 32. What was important about Glass-Steagall? a. disjointed banking and securities activities b. Prevented any firm that accepted deposits from underwriting stocks and bonds of corporation c. Intended to prevent conflicts of interest 33. What important about Gramm-Leach-Bliley Act a. Repealed Glass-Steagall b. Allowed affiliation between banks, securities firms, and insurance companies 34. What was close to important about Sarbanes-Oxley (SOX)? All problems equally weightedPage 5 of 7 Financial Insitutions Closed book, Closed Notes a. b. c. d. 35. Final Examination Fall 2011 Roger Staiger III increase transparency of account Internal reporting processes required Central database of selective information required Executives personally verifying (signing) financial statements What was Basel? Basel I Accord 1988 12 major countries agreed on uniform capital standards Tier 1 and Tier 2 Capital adequacy Basel II Revision of the measuring of credit risk explicitly account for operational risk requires more disclosure about exposure risk Basel III Global restrictive standards for capital adequacy and risk.Fully phased in by 2019. 36. What are CAMELs Ratings? Rating system for banks Capital Adequacy Asset Quality Management Earnings liquidness Sensitivity 37. What is Value-at-Risk? Risk measure that quantifies size of risk to a abandoned confidence level over a finite period of time. 38. What is important about Dodd-Frank? Unlike SOX, it includes large private entities under the veil of regulation, e. g. hedge funds, t hat pose systemic risk. Also intended to add transparency and draw out OTC products to trade across exchanges for greater transparency. Potentially disconnected motivations of employees and corporations for reporting fraud, i. . employees (possibly former) share in a portion of an SEC fine recovered. (note Dodd-Frank is 2319 pages so many answers will be given full credit. The above are important highlights, but again, there is a breadth of correct answers for this question) 39. Who is the current Federal Reserve Chairperson? Ben Bernanke 40. Who is the current Treasurer AND Johns Hopkins University Graduate? All problems equally weighted Page 6 of 7 Financial Insitutions Closed book, Closed Notes Tim Geithner Final Examination Fall 2011 Roger Staiger III All problems equally weighted Page 7 of 7