450 Chapter 21 Thrift Operations Chapter 21 Thrift Operations 1 The insuring agency for S Ls is the A Securities and Exchange Commission SEC B Federal Deposit Insurance Corporation FDIC C U S Treasury D Savings Association Insurance Fund SAIF ANSWER D 2 The savings institutions hold the most assets in aggregate A stock owned B mutual C closely held D privatized ANSWER A 3 Which of the following statements is incorrect A A mutual to stock conversion allows savings institutions to obtain additional capital by issuing stock B Because of the difference in owner control mutual savings institutions are more susceptible to unfriendly takeovers C When a mutual savings institution is involved in an acquisition it first converts to a stock owned savings institution D Consolidation and acquisitions have caused the number of mutual and stock savings institutions to decline consistently over the years ANSWER B 4 Savings institutions use most of their funds for Commercial banks use most of their funds for A mortgages mortgages B mortgages business loans and commercial real estate loans C business loans commercial real estate loans and mortgages D commercial real estate loans and mortgages business loans ANSWER B 451 Chapter 21 Thrift Operations 5 Federally chartered savings institutions are regulated by the A Securities and Exchange Commission SEC B Federal Reserve C Office of Thrift Supervision OTS D Comptroller of the Currency ANSWER C 6 Savings institutions obtain most of their funds from A savings and time deposits B loans C mortgages D repurchase agreements ANSWER A 7 When savings institutions are unable to attract sufficient deposits they can borrow A in the federal funds market B from the Federal Reserve C through a repurchase agreement D through all of these methods ANSWER D 8 If deposits move money from their checking account to short term CDs this would the rate sensitivity of the savings institution s liabilities to interest rate movements A increase B have no effect on C decrease D increase or decrease depending on the size of the savings institution ANSWER A 9 are the primary asset of savings institutions A Mortgages B Cash balances C Investment securities D Business loans ANSWER A 10 Savings institutions that reduce their amount of will best reduce their exposure to interest rate risk A fixed rate mortgages B consumer loans C commercial loans D short term securities ANSWER A Chapter 21 Thrift Operations 452 11 For savings institutions in aggregate are the main asset A investment securities B mortgages C commercial loans D credit card loans ANSWER B 12 Which of the following is not an asset of savings institutions A loans B mortgages C NOW accounts D mortgage backed securities ANSWER C 13 Most mortgages originated by SIs are for A commercial buildings B land for commercial purposes C single family homes or multifamily dwellings D none of these ANSWER C 14 If a savings institutions assets have considerably longer duration than its liabilities it can reduce its exposure to interest rate risk by A reducing its proportion of assets in the short duration categories B increasing its proportion of liabilities in the short duration categories C increasing its proportion of liabilities in the long duration category D doing all of these ANSWER C 15 Adjustable rate mortgages the adverse impact of rising interest rates on a typical savings institution s spread They the favorable impact of declining interest rates on the spread A reduce reduce B reduce increase C increase increase D increase reduce ANSWER A 16 To measure risk some SIs measure the duration of their respective assets and liabilities A credit B interest rate C liquidity D none of these ANSWER B 453 Chapter 21 Thrift Operations 17 A contract that allows for the purchase of a specified debt security for a specified price at a future point in time is known as a n contract A interest rate futures B interest rate swap C interest cap D security swap ANSWER A 18 When a savings institution uses interest rate swaps to hedge interest rate risk it would likely exchange outflows for inflows A variable rate fixed rate B variable rate variable rate C fixed rate variable rate D fixed rate fixed rate ANSWER C 19 A savings institution owned by its depositors is a savings institution A mutual B stock C credit D closed end ANSWER A 20 Which of the following was not a major reason for the savings institution crisis A a large proportion of loan losses on real estate loans B a large proportion of loan losses on loans by SIs to less developed countries C fraud D illiquidity E increased interest expenses ANSWER B 21 The Financial Institutions Reform Recovery and Enforcement Act FIRREA prohibited A S Ls from merging B commercial banks from acquiring S Ls C S Ls from investing in junk bonds D S Ls from making loans to foreign governments ANSWER C Chapter 21 Thrift Operations 454 22 Since the Financial Institutions Reform Recovery and Enforcement Act FIRREA the capital ratio of savings institutions has A been negative B declined C remained the same D increased ANSWER D 23 Money market deposit accounts MMDAs represent A trust accounts managed by savings institutions B checking accounts that do not pay interest C accounts offered primarily by money market funds D deposit accounts offering limited checking and close to market interest rates ANSWER D 24 Savings institutions allowed to borrow funds in the federal funds market savings institutions allowed to borrow funds from the Federal Reserve A are are B are are not C are not are not D are not are ANSWER A 25 Savings institutions commonly to reduce their risk A purchase futures contracts on stock indexes B purchase futures contracts on treasury bonds C sell futures contracts on stock indexes D sell futures contracts on treasury bonds ANSWER D 26 Stock owned savings institutions susceptible to unfriendly takeovers Mutual savings institutions susceptible to unfriendly takeovers A are are not B are are C are not are D are not are not ANSWER A 27 Most of the assets of savings institutions SIs are owned by SIs in the asset size category A less than 100 million B more than 1 billion C between 100 million and 300 million D between 300 million and 1 billion ANSWER A 455 Chapter 21 Thrift Operations 28 To obtain funds savings institutions commonly issue securities that are backed by A equity B debt C mortgages D cash E none of these ANSWER C 29 risk is probably the least concern for savings institutions A Liquidity