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StuDocu is not sponsored or endorsed by any college or university Chapter 01 Testbank Bank Management (Western Sydney University) Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
Chapter 01 Testbank Student: ___________________________________________________________________________ 1. A loan covenant is: A. a legal clause in a borrowing contract that requires the lender to avoid certain actions B. a legal clause in a borrowing contract that requires the lender to take certain actions C. a legal clause in a borrowing contract that requires the borrower to take certain actions D. a legal clause in a borrowing contract that requires the borrower to either take certain actions or avoid certain actions 2. When a DI makes a shift from an 'originate-to-hold' banking model to an 'originate-to-distribute' banking model, the change is likely to result in: A. increased operating costs B. increased interest rate and liquidity risk C. decreased monitoring costs D. decreased fee income 3. In the traditional 'originate-to-hold' banking model, where a DI takes short-term deposits and uses them to make loans, the bank usually holds these loans until maturity. This exposes the bank to increased: A. operating costs B. interest rate and liquidity risk C. monitoring costs D. All of the listed options are correct. 4. FIs perform their intermediary function in two ways: A. They specialise as brokers between savers and users and they directly control the quantity of outside money in the economy. B. They serve as asset transformers by purchasing primary securities and issuing secondary securities and by purchasing secondary securities and issuing primary securities. C. They serve as asset transformers by purchasing secondary securities and issuing primary securities and they directly control the quantity of outside money in the economy. D. They specialise as brokers between savers and users and they serve as asset transformers by purchasing primary securities and issuing secondary securities. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
5. Price risk refers to: A. the risk that the sale price of an asset will be lower than the purchase price of that asset. B. the risk that the purchase price of an asset will be lower than the sale price of that asset. C. the risk that the sale price of an asset will be higher than the purchase price of that asset. D. None of the listed options are correct. 6. Economies of scale is the concept that: A. a cost reduction in trading and other transaction services results from increased efficiency when FIs perform these services. B. a profitability decrease in trading and other transaction services results from increased efficiency when FIs perform these services. C. a cost reduction in trading and other transaction services results from stable efficiency when FIs perform these services. D. None of the listed options are correct. 7. Which of the following statements is true? A. Primary securities are securities issued by corporations and backed by the real assets of those corporations. B. Secondary securities are securities issued by corporations and backed by the real assets of those corporations. C. Dominant securities are securities issued by corporations and backed by the real assets of those corporations. D. Preliminary securities are securities issued by corporations and backed by the real assets of those corporations. 8. Secondary securities are securities issued by FIs and backed by: A. the real assets of the FI B. primary securities C. guarantees D. any type of collateral 9. Which of the following is an adequate definition of an asset transformer? A. A corporation that issues financial claims that are more attractive to household savers than the claims issued by other corporations. B. An FI that issues financial claims that are more attractive to household savers than the claims issued by other FIs. C. A corporation that issues financial claims that are more attractive to household savers than the claims directly issued by FIs. D. An FI that issues financial claims that are more attractive to household savers than the claims directly issued by corporations. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
10. Which of the following is an adequate definition of a delegated monitor? A. An economic agent appointed to act on behalf of large groups of agents and principals in collecting information and/or investing funds. B. An economic agent appointed to act on behalf of large groups of principals in collecting information and/or investing funds. C. An economic agent appointed to act on behalf of smaller agents in collecting information and/or investing funds. D. An economic agent appointed to act on behalf of smaller principals in collecting information and/or investing funds. 11. The ability of an economic agent to reduce risk by holding a number of securities in a portfolio is called: A. asset management B. efficiency C. arbitrage D. diversification 12. An action by an economic agent that imposes costs on other economic agents is referred to as a: A. negative endogenous reaction B. positive endogenous reaction C. positive externality D. negative externality 13. Net regulatory burden is defined as the difference between the: A. private costs of regulations and the private benefits for the producers of financial services B. public costs of regulations and the public benefits for the producers of financial services C. private costs of regulations and the public benefits for the producers of financial services D. public costs of regulations and the private benefits for the producers of financial services 14. The part of the money supply directly produced by the government or central bank is called: A. inside money B. outside money C. direct money D. indirect money Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879