Question 1

Financial technology or FinTech refers to the use of technology to deliver financial solutions in a manner that competes with traditional financial methods.

Accepted Answer

FinTech aims to provide financial services and solutions using innovative technology in a way that challenges traditional methods, making financial services more accessible, efficient, and affordable.

Question 2

In recent years, the proportion of savings and demand deposits have decreased and the proportion of pension funds have increased in the financial assets held by U.S.households.

Accepted Answer

This is true according to data from the Federal Reserve Board's Survey of Consumer Finances.

Question 3

Economic collapse during the 1930s, the banking system in the U.S.performed directly or indirectly all financial services.Those functions included all of the following EXCEPT

Accepted Answer

Money market funds were not yet established, and did not become popular until the 1970s.

Question 4

FinTech services such as cryptocurrencies and blockchain provide a system that supports the exchange of value between two parties unknown to each other in a swift and effective way, without the need for financial intermediaries.

Accepted Answer

This statement is true. FinTech services such as cryptocurrencies and blockchain allow for peer-to-peer transactions without the need for traditional financial intermediaries.

Question 5

The standardization of many FI products is evidence of the inefficient institutionalization by financial markets and the mechanisms through which these products trade.

Accepted Answer

Standardization of financial products often reflects efforts to increase efficiency, reduce transaction costs, and enhance liquidity in the markets, rather than indicating inefficient institutionalization.

Question 6

Depository financial institutions include all of the following EXCEPT

Accepted Answer

Investment banks are not depository institutions as they do not accept deposits from individuals and businesses. They primarily provide services such as underwriting and issuing securities, advising on mergers and acquisitions, and trading securities.

Question 7

The Internet has allowed individual investors to purchase securities while benefiting from decreased transactions costs.

Accepted Answer

The internet has made it easier and cheaper for individual investors to purchase securities, reducing transactions costs.

Question 8

Services provided by depository institutions have become relatively less significant as a portion of all services provided by FIs.

Accepted Answer

This is due to the growth of non-depository institutions and the development of new technology, which has expanded the range of financial services available to consumers. Depository institutions still provide important services such as deposit accounts and lending, but their relative significance has decreased.

Question 9

The passage of legislation to prevent discrimination in lending is an example of regulation to protect investors.

Accepted Answer

The passage of legislation to prevent discrimination in lending is primarily aimed at protecting consumers or borrowers, not investors. This type of regulation ensures fair access to credit without bias based on race, gender, or other discriminatory factors.

Question 10

The passage of legislation to ensure that FIs are meeting the needs of their local communities is an example of entry regulation.

Accepted Answer

The passage of legislation to ensure that Financial Institutions (FIs) are meeting the needs of their local communities is an example of conduct regulation, which governs how businesses operate, rather than entry regulation, which governs the conditions under which businesses can enter into a market.

Question 11

The concept of enterprise risk management encourages FIs to manage all of the risks to which they are exposed as a portfolio, rather than managing each risk individually.

Accepted Answer

Enterprise risk management (ERM) is a comprehensive approach to managing all the risks that an organization faces. It encourages FIs to identify, assess, prioritize, and manage all types of risks as a portfolio, rather than treating each risk in isolation. ERM provides FIs with a holistic view of their risk exposure, allowing them to make more informed decisions and take a proactive approach to risk management.

Question 12

Pension and mutual funds have a lower correlation between the maturities of their assets and liabilities than do commercial banks and thrifts.

Accepted Answer

The answer of Pension and mutual funds have a lower...

Question 13

Savers increasingly favor investments that closely imitate diversified investments in the direct securities markets over the transformed financial claims offered by traditional FIs.

Accepted Answer

Savers are preferring investments that closely replicate diversified investments in the direct securities markets, such as exchange-traded funds (ETFs) and index funds, over traditional financial institution (FI) offerings. This trend is due to the lower fees and higher transparency associated with these types of investments.

Question 14

The purpose of guaranty funds in safety and soundness regulation is to protect claim-holders when an FI collapses or fails.

Accepted Answer

Guaranty funds are established to provide a safety net for claim-holders in the event of a financial institution's failure or collapse. They are designed to protect consumers and maintain confidence in the financial system.

Question 15

The adoption of new technologies in financial services does not require a large expenditures to adapt to the new and evolving industry standards including consumer preferences.

Accepted Answer

The adoption of new technologies in financial services often requires a significant investment of resources in order to effectively compete and meet the demands of consumers.

Question 16

Firms in industries that have low costs of entry tend to enjoy larger profits than firms in industries with high costs of entry.

Accepted Answer

Firms in industries with high costs of entry, such as aerospace or pharmaceuticals, often have more pricing power and can earn higher profits due to barriers to entry. On the other hand, industries with low costs of entry, such as fast food or retail, often have more competition and lower profit margins.

Question 17

One reason for the increasing proportion of total financial assets controlled by pension funds and investment companies is that these intermediaries exploit the comparative advantages of size and diversification.

Accepted Answer

Pension funds and investment companies are able to pool their resources from a large number of investors, allowing them to achieve greater economies of scale and diversification across a broader range of assets than individual investors. This enables them to reduce their risks and potentially earn higher returns, leading to an increasing proportion of total financial assets under their control.

Question 18

As a result of adopting an enterprise risk management approach, an FI will invest heavily in advanced risk measurement and management systems and practices.

Accepted Answer

The answer of As a result of adopting an enterprise...

Question 19

The proportion of financial assets controlled by depository institutions has been increasing in recent years.

Accepted Answer

The proportion of financial assets controlled by depository institutions has actually been decreasing over the years due to the rise of non-bank financial intermediaries and the diversification of financial markets.

Question 20

In most countries, cash is required to be held in reserve against deposits.

Accepted Answer

In most countries, cash reserve requirement is imposed on banks and financial institutions to ensure the stability of the financial system and prevent bank runs. This requirement mandates that a percentage of deposits should be held in reserve in the form of cash or deposits with central banks. The exact percentage varies by country and is set by the central bank or regulatory authority.

Quiz 1: Why Are Financial Institutions Special