Question 1

When savings institutions are unable to attract sufficient deposits, they can

Accepted Answer

When savings institutions are unable to attract sufficient deposits, they can borrow in the federal funds market, borrow from the Federal Reserve, or borrow through a repurchase agreement. Therefore, all of the above options are suitable choices in this scenario.

Question 2

If depositors move money from their checking accounts to short-term CDs, this would ____ the rate sensitivity of the savings institution's liabilities to interest rate movements.

Accepted Answer

Moving money from checking accounts to short-term CDs increases the rate sensitivity of liabilities because CDs typically have fixed interest rates that can change with market conditions, unlike checking accounts which usually have lower or no interest rates.

Question 3

Which of the following was not a major reason for the savings institution crisis in the late 1980s?

Accepted Answer

The savings institution crisis was primarily caused by large losses on real estate loans, fraud, illiquidity, and increased interest expenses. Loans to less-developed countries were not a major factor in the crisis.

Question 4

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.

Accepted Answer

Adjustable-rate mortgages reduce the adverse impact of rising interest rates on a typical savings institution's spread because as interest rates rise, the interest rates on these mortgages adjust upwards, maintaining the institution's interest margin. They also reduce the favorable impact of declining interest rates on the spread because as rates fall, the interest rates on these mortgages adjust downwards, preventing the institution from capitalizing fully on lower funding costs.

Question 5

The risk that a credit union will experience an unanticipated wave of withdrawals without an offsetting amount of new deposits is ____ risk.

Accepted Answer

Liquidity risk is the risk that a credit union will not be able to meet its financial obligations due to a sudden surge in withdrawals without enough new deposits to offset them. This risk can be mitigated by maintaining adequate reserves and managing the credit union's asset and liability mix.

Question 6

An interest rate swap reduces the favorable impact of declining interest rates.

Accepted Answer

An interest rate swap involves exchanging fixed-rate payments for floating-rate payments or vice versa. If interest rates decrease, the party receiving the fixed-rate payments in the swap will miss out on the opportunity to benefit from lower rates. Therefore, an interest rate swap reduces the favorable impact of declining interest rates.

Question 7

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) prohibited savings institutions from

Accepted Answer

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) prohibited savings institutions from investing in junk bonds.

Question 8

Federally chartered savings institutions are regulated by the

Accepted Answer

Federally chartered savings institutions are regulated by the Comptroller of the Currency and the Federal Reserve. The SEC regulates securities markets, the National Credit Union Administration regulates credit unions, and the Treasury deals with government finances and monetary policy.

Question 9

The capital of savings institutions is primarily composed of retained earnings and funds obtained from issuing stock.

Accepted Answer

The capital of savings institutions can also come from surplus funds, reserves, and contributions from members or other sources, but retained earnings and stock issuance are the primary sources.

Question 10

To measure ____ risk, some savings institutions measure the duration of their respective assets and liabilities.

Accepted Answer

Measuring the duration of assets and liabilities helps to determine the interest rate risk. Duration is a measure of the sensitivity of the value of a financial asset or liability to changes in interest rates. Therefore, option B, which is interest rate risk, is the best choice. Options A (credit risk) and C (liquidity risk) are not measured through duration.

Question 11

____ are the primary asset of savings institutions.

Accepted Answer

Savings institutions, such as savings banks and savings and loan associations, primarily receive deposits from individuals and use those funds to make residential mortgages. Mortgages are therefore the primary asset of savings institutions. Choice B is incorrect because cash balances are a liability of savings institutions, as they owe the deposited funds to account holders. Choice C is partially correct, as investment securities can also be a significant asset for some savings institutions, but mortgages are typically the largest and most important asset. Choice D is incorrect because savings institutions do not typically make many business loans; commercial banks and credit unions are more likely to specialize in business lending.

Question 12

If a savings institution's assets have a considerably longer duration than its liabilities, it can reduce its exposure to interest rate risk by

Accepted Answer

The answer of If a savings institution's assets have a...

Question 13

Most mortgages originated by savings institutions are for

Accepted Answer

According to the given information, most mortgages originated by savings institutions are for single-family homes or multifamily dwellings. Therefore, option C is the best choice. Options A and B are not supported by the given information, and option D is incorrect as it contradicts the given statement.

Question 14

Which of the following statements is incorrect?

Accepted Answer

Mutual savings institutions are actually less susceptible to unfriendly takeovers because they are owned by their depositors or members, who typically have no interest in selling the institution to outsiders.

Question 15

Savings institutions obtain most of their funds from

Accepted Answer

Savings institutions, such as savings and loans associations, primarily obtain their funds from savings and time deposits made by their customers. These funds are then used to provide loans and mortgages to other customers. While they may also engage in repurchase agreements and other financial activities, the majority of their funding still comes from deposits.

Question 16

____ savings institutions hold the most assets in aggregate.

Accepted Answer

Stock-owned savings institutions typically have the largest aggregate assets because they can raise capital through the sale of stock to the public, allowing for more significant growth and expansion compared to other types of savings institutions.

Question 17

Which of the following is not an asset of savings institutions?

Accepted Answer

NOW accounts are liabilities for savings institutions as they represent deposits made by customers that the institution must eventually pay back.

Question 18

A savings institution owned by its depositors is a ____ savings institution.

Accepted Answer

A mutual savings institution is owned by its depositors, while a stock savings institution would be owned by shareholders who have purchased shares in the company. A credit savings institution may refer to a credit union, which is also owned by its members, but the term "mutual" is more commonly used to describe this type of ownership structure. A closed-end savings institution typically refers to a type of investment fund, rather than a savings institution owned by depositors.

Question 19

____ do not represent an asset of credit unions.

Accepted Answer

Stocks do not represent an asset of credit unions as credit unions are not able to issue stocks as a means of raising capital. Instead, credit unions rely on member deposits and loans to generate funds. Mortgage-backed securities, home equity loans, and automobile loans are all common assets of credit unions.

Question 20

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)

Accepted Answer

Interest rate futures contracts are agreements to buy or sell a debt security at a predetermined price at a specified future date.

Quiz 21: Thrift Operations