Deck 12: Nonbank Finance

Question 1

An example of permanent insurance is ________ insurance,and an example of temporary insurance is ________ insurance.

A) term; variable life
B) term; whole life
C) whole life; variable life
D) whole life; term

Answer 1

D

Question 2

Group life insurance ________.

A) is sold to a single person under a group policy
B) is sold to a single person under a single policy
C) is sold to a group of people under a group policy
D) is sold to a group of people under a single policy

Answer 2

D

Question 3

Individual life insurance ________.

A) is regulated by the Bank of Canada
B) is sold one policy at a time
C) has been extremely volatile over time
D) is sold to a group of people at a time

Answer 3

B

Question 4

Life insurance company regulation is the responsibility of ________.

A) the OSFI and Assuris
B) the Bank of Canada and Assuris
C) the OSFI and the CDIC
D) the OSFI and the Bank of Canada

Question 5

Property insurance companies ________.

A) cover losses of real property
B) pay a sum of money if noncatastrophic events occur
C) provide income if a person dies, is incapacitated by illness, or retires
D) protect against legal liability exposures

Question 6

Which of the following is a nonbank financial institution?

A) A life insurance company
B) A credit union
C) A savings and loan association
D) A mutual fund

Question 7

Permanent life insurance is also known as ________.

A) endowment insurance
B) term life insurance
C) dowry insurance
D) annuity insurance

Question 8

________ policies have a cash value which the policyholder can claim by cancelling the policy.

A) Endowment insurance
B) Term life insurance
C) Permanent insurance
D) Annuity insurance

Question 9

________ are arrangements whereby the customer pays an annual premium in exchange for a future stream of annual payments beginning at a set age and continuing until death.

A) Endowments
B) Term life
C) Dowrys
D) Annuities

Question 10

Which of the following is an example of permanent life insurance?

A) The policy has no the cash value.
B) It provides an annuity until death.
C) The premium is constant through the life of the policy.
D) The premium is matched every year to the amount needed to match against death.

Question 11

Permanent insurance is also known as ________.

A) endowment insurance
B) term insurance
C) group insurance
D) individual insurance

Question 12

Reinsurance ________.

A) allows the insured to reduce the premium by accepting a portion of the risk that would otherwise be allocated to the insurance company
B) allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to another company in exchange for a portion of the premium
C) allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to the insured in exchange for a rebate on the premium
D) None of the above

Question 13

________ policies have no cash value and provide insurance only.

A) Endowment insurance
B) Term life insurance
C) Permanent insurance
D) Annuity insurance

Question 14

Which of the following is likely to occur if lawsuits involving Property and Casualty insurance and amounts awarded rise dramatically?

A) Insurance companies leave premiums unchanged
B) Insurance companies would raise premiums
C) Insurance companies hold less liquid assets to earn more income
D) Insurance companies keep insurance rates low

Question 15

Casualty insurance companies ________.

A) cover losses of real property
B) pay a sum of money if noncatastrophic events occur
C) provide income if a person dies, is incapacitated by illness, or retires
D) protect against malpractice exposures

Question 16

Nonbank financial institution include ________.

A) mutual savings banks
B) money market mutual funds
C) commercial banks
D) life insurance companies

Question 17

The conversion of insurance companies from being owned by policy holders to stock holders is known as ________.

A) conversion
B) securitization
C) demutualization
D) regulation

Question 18

Which of the following is an example of temporary life insurance?

A) The policy holder can borrow against the cash value.
B) It provides an annuity until death.
C) The premium is constant through the life of the policy.
D) The premium is matched every year to the amount needed to match against death.

Question 19

Demutualization refers to ________.

A) the conversion of mutual insurance companies from being owned by policy holders to stock holders
B) the conversion of mutual fund companies from being owned by policy holders to stock holders
C) the conversion of insurance companies from being owned by stock holders to policy holders
D) the conversion of mutual fund companies from being owned by stock holders to policy holders

Question 20

Reinsurance ________.

A) is additional insurance to the insurance owned by a person
B) is insurance for the insurance company
C) is a rebate on the premium
D) None of the above

Question 21

The Greek debt crisis increased ________.

A) credit default swap spreads
B) the value of eurodollar accounts
C) the credit rating of Greek corporations
D) the TSE index

Question 22

The only insurance companies that are allowed to provide insurance that guarantees the timely repayment of bond principal and interest when a debt issuer defaults are ________.

A) monoline insurance companies
B) bond insurance companies
C) debt insurance companies
D) credit insurance companies

Question 23

The Federal Reserve Board set up a ________ credit facility to provide liquidity to AIG.

A) $85 billion
B) $8.5 billion
C) $85 million
D) $8.5 million

Question 24

Which of the following is an example of a fully funded plan?

A) Contributions are sufficient to payout the benefits but earnings are not.
B) Contributions and earnings are not sufficient to payout the benefits.
C) Contributions and earnings are sufficient to payout the benefits.
D) Earnings are sufficient to payout the benefits but contributions are not.

Question 25

Private pension plans ________.

A) are different from RRSPs
B) cannot be converted to annuity or a RRIF on retirement
C) are voluntary, employer-sponsored plans
D) are the same as RRSPs

Question 26

An insurance management tool to discourage policyholders from engaging in risky activities that make an insurance claim more likely is known as a/an ________.

A) screening
B) restrictive provision
C) deductible
D) coinsurance

Question 27

________ are financial intermediaries that provide the public with a kind of protection: income payments on retirement.

A) Pension funds
B) Investment banks
C) Finance companies
D) Credit unions

Question 28

What is coinsurance? Provide an example.

Question 29

An insurance management tool to reduce moral hazard is to ________.

A) charge risk-based premiums
B) not allow restrictive provisions
C) reduce the deductible to zero
D) prohibit coinsurance

Question 30

How does the economic concept of adverse selection apply to the lending activities of insurers? Provide an example.

Question 31

A defined-contribution plan ________.

A) borrows from the public
B) purchases foreign currency
C) sets future income payments in advance
D) makes periodic payments for a specific period of time

Question 32

List insurance management practices for lowering adverse selection and moral hazard.

Question 33

A defined-benefit plan ________.

A) has borrowed from the public
B) has purchased foreign currency
C) sets future income payments in advance
D) has agreed to make periodic payments for a specific period of time

Question 34

Issuing a ________ is the same as providing insurance on the debt instrument because,just like insurance,it makes a payment to the holder when there is a negative credit event.

A) debit note
B) debit-default swap
C) credit-default swap
D) credit note

Question 35

The primary assets of a pension fund are ________.

A) money market instruments
B) bonds, stock and long term mortgages
C) consumer and business loans
D) bonds, stock and short term mortgages

Question 36

How does the economic concept of moral hazard apply to the lending activities of insurers? Provide an example.

Question 37

In a defined-contribution plan future benefits ________.

A) are set in advance
B) are registered with the federal regulatory authority
C) are determined by the contributions into the plan and their earnings
D) are government administered

Question 38

An insurance management tool to reduce moral hazard is to ________.

A) charge the same premium for different risks
B) limit the amount of insurance provided
C) reduce the deductible to zero
D) prohibit coinsurance

Question 39

Which of the following is an example of an underfunded plan?

A) Contributions are sufficient to payout the benefits but earnings are not.
B) Contributions and earnings are not sufficient to payout the benefits.
C) Contributions and earnings are sufficient to payout the benefits.
D) Earnings are sufficient to payout the benefits but contributions are not.

Question 40

To reduce adverse selection,insurance providers collect information on policyholders.This is known as ________.

A) screening
B) provision
C) deduction
D) coinsurance

Question 41

Provincial regulation for finance companies does not cover any of the following except for ________.

A) the maximum amount they can loan to individual consumers
B) restrictions on branching
C) assets they hold
D) how they raise their funds

Question 42

Who assists in the initial sale of securities in the primary market?

A) The Bank of Canada
B) Business finance companies
C) Securities brokers
D) Investment banks

Question 43

Business finance companies also specialize in ________.

A) leasing equipment
B) derivatives
C) securitization
D) mortgages

Question 44

Sales finance companies compete directly with banks for ________.

A) business loans
B) credit lines
C) consumer loans
D) deposit accounts

Question 45

Who assists in the initial sale of securities in the secondary market?

A) The Bank of Canada
B) Securities brokers
C) Business finance companies
D) Investment banks

Question 46

The three types of finance companies are ________.

A) sales, investment, and business
B) credit, consumer, and business
C) sales, consumer, and business
D) credit, consumer, and bank

Question 47

When a firm issuing new securities has previously issued securities,these previously issued securities are called ________.

A) investment-grade issues
B) seasoned issues
C) an initial public offering
D) secondary issues

Question 48

The financial intermediation process of ________ can be described by saying that they borrow in large amounts but often lend in small amounts.

A) pension funds
B) investment banks
C) finance companies
D) credit unions

Question 49

Personal pension plans ________.

A) are different from RRSPs
B) cannot be converted to annuity or a RRIF on retirement
C) provide tax-sheltered, self-financed retirement funds
D) are government-administered

Question 50

Consumer finance companies typically make loans to consumers for all of the following except to ________.

A) buy particular items such as furniture or home appliances
B) to make home improvements
C) purchase accounts receivables at a discount
D) refinance small debts

Question 51

What are three suggestions given for privatizing public pension plans?

Question 52

Why are consumers better off obtaining credit from sources other than consumer finance companies?

Question 53

Which of the following financial intermediaries is not a depository institution?

A) A savings and loan association
B) A commercial bank
C) A credit union
D) A finance company

Question 54

Discuss what RRSPs are and how they help to provide income at retirement.

Question 55

The Canada Pension Plan ________.

A) is a government-administered pension plan
B) is a "pay-as-you-go" system
C) is underfunded
D) All of the above

Question 56

An investment intermediary that lends funds to consumers is ________.

A) a finance company
B) an investment bank
C) a finance fund
D) a consumer company

Question 57

Non-deposit taking financial institutions that acquire funds by issuing commercial paper or stock and bonds or borrowing from banks,and that use the proceeds to make loans are known as ________.

A) commodity companies
B) redistribution companies
C) barter companies
D) finance companies

Question 58

Purchasing accounts receivable (bills owed to the firm)at a discount is known as ________.

A) loaning funds
B) leasing
C) factoring
D) purchasing

Question 59

Finance companies are ________.

A) as heavily regulated as banks
B) unregulated compared to banks
C) federally regulated
D) nationally regulated

Question 60

Securities brokers and dealers,investment banks,and organized exchanges ________.

A) do not perform the intermediation function
B) can be thought of as "financial facilitators"
C) are important in the process of channelling funds from savers to spenders
D) All of the above

Question 61

Which of the following transactions would involve an investment bank?

A) New shares of stock are issued by a corporation.
B) One corporation selling shares of another corporation.
C) A pension fund manager buys a bond in the secondary market.
D) An investor buying shares on the TSX.

Question 62

Brokerage firms engage in all of the following securities market activities except for acting as ________.

A) brokers
B) dealers
C) central bankers
D) investment bankers

Question 63

Investment bankers that guarantee the corporation a price on the securities and then sell them to the public are known as ________.

A) undertakers
B) securities brokers
C) underwriters
D) central bankers

Question 64

The institutions that assist in the trading of securities in the secondary market are called ________.

A) investors
B) stockholders
C) auditors
D) dealers

Question 65

The market in which previously issued securities can be resold is called ________.

A) a secondary market
B) a resale market
C) a debt market
D) an exchange market

Question 66

A(n)________ is an example of a security which is currently selling on the market.

A) seasoned issue
B) new issue
C) IPO issue
D) current issue

Question 67

Mutual funds were created ________.

A) in order to provide insurance to all households
B) in order to limit interest rates that are paid on deposits
C) to pool the savings of small investors and use the proceeds to invest on their behalf
D) Only A and B of the above

Question 68

The action of guaranteeing a price for a corporation's new issue of stocks is called ________.

A) securitization
B) hedging
C) intermediation
D) underwriting

Question 69

Securities are traded on the floor of the exchange with the help of a special kind of dealer-broker called a(n)________.

A) underwriter
B) specialist
C) banker
D) manager

Question 70

The Toronto Stock Exchange (TSX)is ________.

A) an commodities exchange
B) an investment bank
C) a secondary market
D) a dealer

Question 71

The financial market where a corporation or government issues securities is called ________.

A) a money market
B) a mercantile exchange
C) a debt market
D) a primary market

Question 72

A corporation acquires new funds only when its securities are sold ________.

A) in the primary market by an investment bank
B) in the primary market by a stock exchange broker
C) in the secondary market by a securities dealer
D) in the secondary market by a commercial bank

Question 73

An investment bank helps ________ issue securities.

A) a corporation
B) the Canadian government
C) the OSC
D) foreign governments

Question 74

Describe the underwriting process.

Question 75

A financial institution that assists in the sale of securities in the primary market is the ________.

A) investment bank
B) commercial bank
C) stock exchange
D) brokerage house

Question 76

A corporation in order to issue new shares will have to use ________.

A) financial leverage
B) an investment bank
C) accumulated profits
D) debt

Question 77

Which of the following is true?

A) Insider information is public information.
B) Brokerage firms act as brokers, dealers, and investment bankers.
C) Dealers are pure intermediaries who act as agents.
D) Brokers make their living by selling securities at a higher price than what they paid for them.

Question 78

When a firm is issuing new securities,this is called a(n)________.

A) investment-grade issue
B) seasoned issue
C) initial public offering
D) secondary issue

Question 79

An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market.This process is called ________.

A) underwriting
B) underhanded
C) understanding
D) undertaking

Question 80

The Toronto Stock Exchange was established in ________.

A) 1852
B) 1832
C) 1822
D) 1902