Question 1

____ is (are)not a main use of funds for savings institutions.

Accepted Answer

Capital is not a main use of funds for savings institutions; rather, it is a source of funds. Savings institutions primarily use their funds to provide mortgages, consumer and commercial loans, and to invest in mortgage-backed securities.

Question 2

During the credit crisis of 2008-2009, some credit unions suffered losses on second mortgages and home-equity loans that they had provided, and some credit unions experienced losses on mortgage-backed securities in which they had invested.

Accepted Answer

During the credit crisis of 2008-2009, the financial turmoil affected a wide range of financial institutions, including credit unions. Many of them suffered losses due to defaults on second mortgages and home-equity loans, as well as on mortgage-backed securities, reflecting the widespread impact of the housing market collapse and the subsequent financial crisis.

Question 3

____ is (are)not a main source of funds for savings institutions.

Accepted Answer

Mortgages are not a main source of funds for savings institutions; instead, they are a primary use of funds. Savings institutions typically provide mortgages to borrowers, using deposits, borrowed funds, and capital as their main sources of funding.

Question 4

To manage interest rate risk, a savings institution could use

Accepted Answer

Interest rate futures contracts are financial derivatives that allow the holder to lock in a future interest rate, providing a direct method to hedge against the risk of fluctuating interest rates. Fixed-rate mortgages, currency options, and letters of credit do not directly manage interest rate risk in the same way.

Question 5

The Financial Reform Act of 2010 did all of the following EXCEPT

Accepted Answer

The Financial Reform Act of 2010, also known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, did not require savings institutions to sell off any holdings of junk bonds nor prohibited them from investing in junk bonds in the future. This act primarily focused on increasing regulation and oversight of the financial industry to prevent future financial crises, including strengthening mortgage requirements, improving transparency in the securities market, and establishing the Consumer Financial Protection Bureau.

Question 6

Under the Financial Reform Act (Dodd-Frank Act)of 2010, all federally chartered savings institutions are to be regulated by the Federal Reserve.

Accepted Answer

Under the Dodd-Frank Act of 2010, the Office of Thrift Supervision (OTS) was merged into the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the FDIC, with the OCC overseeing federally chartered savings institutions, not exclusively the Federal Reserve.

Question 7

During the credit crisis of 2008-2009, savings institutions experienced all of the following EXCEPT

Accepted Answer

During the credit crisis of 2008-2009, savings institutions primarily faced issues related to mortgage originations, subprime mortgages, and mortgage-backed securities. High default rates on loans to finance leveraged buyouts were not a characteristic challenge for savings institutions during this period; such defaults were more relevant to investment banks and private equity firms.

Question 8

Which of the following are NOT a deposit source of funds for savings institutions?

Accepted Answer

Money market funds are investment products and not considered a deposit source of funds for savings institutions. They are offered by investment companies, not savings institutions, and thus do not represent a direct deposit into such institutions.

Quiz 21: Thrift Operations

____ is (are) not a main use of funds for savings institutions.