Question 1

Why are financial institutions special? Give three concrete examples.

Accepted Answer

The answer of Why are financial institutions special? Give three...

Question 2

Because the average maturity of assets and the average maturity of liabilities are often different on an FI's balance sheet, the FI is exposed to liquidity risk

Accepted Answer

The difference in average maturity of assets and liabilities exposes an FI to interest rate risk, not directly to liquidity risk. Liquidity risk arises from the inability to meet obligations when they come due without incurring unacceptable losses, not merely from maturity mismatches.

Question 3

None of the commercial banks in Australia defaulted during the global financial crisis.

Accepted Answer

None of the commercial banks in Australia went bankrupt or defaulted during the global financial crisis of 2007-08, thanks to strong regulations and risk management practices implemented by the Reserve Bank of Australia and the Australian Prudential Regulation Authority.

Question 4

None of the commercial banks in the US defaulted during the global financial crisis.

Accepted Answer

Several commercial banks in the US defaulted during the global financial crisis, with notable examples including Washington Mutual, the largest bank failure in U.S. history, and IndyMac Bank.

Question 5

What are the entry costs for the financial intermediation sector in Australia? Would you consider entry to be easy or difficult? Explain.

Accepted Answer

The answer of What are the entry costs for the...

Question 6

Lehman Brothers defaulted during the global financial crisis.

Accepted Answer

Lehman Brothers declared bankruptcy on September 15, 2008, as a result of the subprime mortgage crisis and the global financial crisis.

Question 7

In an attempt to enhance the net social welfare benefits of the services provided by financial intermediaries, safety and soundness regulation requires a DI to hold a minimum level of cash reserves against deposits.

Accepted Answer

The answer of In an attempt to enhance the net...

Question 8

Explain the causes of the global financial crisis (GFC) and outline how and why the Australian government implemented the financial claims scheme.

Accepted Answer

The answer of Explain the causes of the global financial...

Quiz 1: Why Are Financial Institutions Special