815 Lehman Brothers was established by Henry Lehman in 1844 as a n investment bank Incorrect commercial bank Incorrect dry goods store True Answer Correct saloon Incorrect 816 Investment banks differ from commercial banks because commercial banks are allowed to advertise but investment banks are prohibited from advertising Incorrect commercial banks can have offices only in one state but investment banks can have offices in many countries Incorrect commercial banks do not sell foreign currencies but investment banks do Incorrect commercial banks accept deposits from customers but investment banks do not True Answer Correct The primary reason for Lehman Brothers bankruptcy in September 2008 was its investment in subprime mortgages True Answer Correct bonds of foreign governments Incorrect U S government bonds Incorrect risky stocks Incorrect A financial intermediary that provides liquid assets in the form of deposits to savers and uses its funds to finance illiquid investment spending needs of borrowers is a n insurance company Incorrect bank True Answer Correct pension fund Incorrect hedge fund Incorrect A shadow bank is a branch of the main office of a bank Incorrect bank that is operated by a shadow government Incorrect financial firm that is not closely watched or effectively regulated True Answer Correct 817 818 819 820 822 823 a credit union or a savings and loan institution Incorrect The trade off between rate of return and liquidity is that assets that offer a higher rate of return also offer higher liquidity Incorrect lower rate of return also offer lower liquidity Incorrect higher rate of return also offer lower liquidity True Answer Correct There is no trade off between rate of return and liquidity Incorrect 821 The existence of banks increases the severity of the trade off between rate of return and liquidity Incorrect decreases the severity of the trade off between rate of return and liquidity Incorrect has no effect on the trade off between rate of return and liquidity True Answer Correct decreases both the rate of return and the liquidity of its customers assets Incorrect Without banks people would hold more of their wealth as cash True Answer Correct hold less of their wealth as cash Incorrect invest most of their wealth in real estate Incorrect earn higher rates of return and enjoy more liquidity Incorrect The first bankers were farmers Incorrect merchants who engaged in foreign trade Incorrect insurance companies Incorrect goldsmiths True Answer Correct 824 One of the first forms of paper money developed when the Federal Reserve was formed in the early 1900s Incorrect the government of Rome printed money to pay Roman soldiers Incorrect customers who had deposited gold and silver with medieval goldsmiths began to use their receipts to pay for purchases True Answer Correct Europe adopted the euro Incorrect 825 Most funds received by depository banks are borrowed from the U S Treasury Incorrect deposits of individuals savings True Answer Correct initially in the form of foreign currency Incorrect loans to the bank from businesses Incorrect 826 Depository banks borrow on a short term basis from depositors and lend on a long term basis to others True Answer Correct borrow on a long term basis from depositors and lend on a long term basis to others Incorrect borrow on a short term basis from depositors and lend on a short term basis to others Incorrect borrow on a long term basis from depositors and lend on a short term basis to others Incorrect Most of a bank s short term liabilities are loans from the Federal Reserve Incorrect loans from the U S Treasury Incorrect loans to its customers Incorrect deposits of customers savings True Answer Correct Most of a bank s assets are loans from the Federal Reserve Incorrect loans to the Federal Reserve Incorrect loans to its customers True Answer Correct deposits of savings from its customers Incorrect 827 828 829 830 831 832 833 Maturity transformation is converting short term liabilities into long term assets True Answer Correct short term liabilities into short term assets Incorrect long term liabilities into long term assets Incorrect long term liabilities into short term assets Incorrect Which of the following is an example of maturity transformation Anne sells her house for 200 000 and uses the money to open a bakery Incorrect Matthew sells his car and uses the money to pay college tuition Incorrect Justin takes 10 000 from his savings account and uses it to buy some Apple stock True Answer Correct Michael closes his checking account at Bank of America and opens a checking account at a local credit union Incorrect Which of the following is an example of maturity transformation Jordan borrows 15 000 to buy a car Incorrect Aaron buys new running shoes and pays for them with his American Express credit card Incorrect Angela gives Russell 100 in cash for a graduation gift Incorrect Tyler lends 1 000 to his roommate Nick for a year True Answer Correct Shadow banks differ from commercial banks because shadow banks accept deposits only from businesses and state and local governments not from individuals Incorrect are not subject to as many regulations as commercial banks True Answer Correct are not allowed to pay interest on deposits Incorrect can operate branches in more than one state Incorrect Since the early 1980s shadow banks have increased because they 834 835 are not subject to capital requirements and reserve requirements True Answer Correct offer online bill payment to their depositors Incorrect pay lower interest rates on their deposits than commercial banks Incorrect offer lower interest rates on their commercial loans than commercial banks Incorrect When shadow banks engage in maturity transformation they raise funds by and invest in issuing stock stock of other companies Incorrect selling bonds Treasury bills Incorrect borrowing in short term credit markets longer term speculative investments True Answer Correct borrowing in long term credit markets short term speculative investments Incorrect Shadow banks offer their customers a higher rate of return than commercial banks because shadow banks can pay interest on deposits but commercial banks cannot pay interest on deposits Incorrect shadow banks are allowed to invest in stocks of foreign corporations while commercial banks can invest only in stocks of American corporations Incorrect shadow banks must hold more reserves and capital than commercial banks Incorrect
View Full Document
Unlocking...