FIN 3244 Quizes With Answers.
What are the key differences between investment banks and commercial banks? - correct answersInvestment banking involves, among other activities, underwriting new security issues and providing advice on mergers and acquisitions, whereas commercial banking primarily ...
FIN 3244 Quizs With Answers.
What are the key differences between investment banks and commercial banks? - correct
answersInvestment banking involves, among other activities, underwriting new security issues and
providing advice on mergers and acquisitions, whereas commercial banking primarily involves taking
deposits and making loans.
During the 2000s, why did investment banks become more reliant on repo financing and also, more
highly leveraged? - correct answersInvestment banks became more reliant on repo financing and more
highly leveraged because by the 1990s most of these banks had converted from partnerships to publicly
traded companies. As proprietary trading became a more important source of profits, investment banks
increasingly borrowed to finance investments in securities and direct loans to firms.
What is repo financing? - correct answersRepo financing is a way of borrowing funds through the use of
repurchase agreements
What is leverage? - correct answersLeverage is the financing of investments by borrowing rather than
using capital.
What is a repurchase agreement? - correct answersA repurchase agreement is the selling of securities
under the condition that the seller is to buy back the securities at a slightly higher price within a short
period of time (typically, the next day or within a few days.)
What became of the large, standalone investment banks during the financial crisis of 2007-2009? -
correct answersThe large stand-alone investment banks either went bankrupt, were taken over, or
converted to bank holding companies to obtain access to Federal Reserve lending to survive the financial
meltdown.
In what ways are investment institutions similar to commercial banks? In what ways are they different? -
correct answersInvestment institutions are similar to commercial banks because they are financial
intermediaries that raise funds and invest them in loans and securities. Unlike commercial banks,
investment institutions do not raise funds through deposits and they have access to a wider variety of
investment assets than commercial banks.
, In what ways are contractual savings institutions similar to commercial banks? In what ways are they
different? - correct answersContractual savings institutions are similar to commercial banks because like
all financial intermediaries, they raise funds and invest them in loans and securities. Unlike commercial
banks, however, contractual savings institutions do not raise funds through deposits but rather, receive
payments from individuals as a result of a contract. They also have access to a wider range of assets than
commercial banks.
In what ways are insurance companies financial intermediaries? - correct answersInsurance companies
are financial intermediaries in that they obtain funds by charging premiums to policyholders and then
use these funds to make investments.
In what ways does the shadow banking system differ from the commercial banking system? - correct
answersThe shadow banking system is a collection of nonbank financial institutions that channel money
from savers to borrowers. Shadow banking firms are less regulated than commercial banks and so can
invest in more risky assets and become more highly leveraged than commercial banks. Unlike
commercial banks, there is no federal deposit insurance for the investors who provide funds to the
shadow banking system.
Why have runs on commercial banks become rare while multiple shadow banking firms experienced
runs during the financial crisis? - correct answersA run on a financial firm is the attempt by investors to
get their money out before the firm fails. Commercial banks do not typically have bank runs because
their deposits are insured by the Federal Deposit Insurance Corporation (FDIC) which reduces the risk to
depositors. The shadow banking industry, however, is not covered by the FDIC because their short-term
borrowing is not in the form of deposits.
What is underwriting? In what sense is an investment bank that engages in underwriting acting as a
financial intermediary? - correct answersUnderwriting is where investment banks guarantee (typically) a
price to the issuing firm for new stocks or bonds and then sell the new issue at a higher price in financial
markets or directly to investors (private placement.) Underwriting is financial intermediation because the
bank brings together savers and the firms who issue new securities.
Is an investment bank that buys securities with its own capital acting as a financial intermediary? -
correct answersAn investment bank that buys securities with its own capital is not acting as a financial
intermediary. It is buying securities with the expectation of profit from the yield or from changes in the
prices of the securities. Investing in this way does not involve acting as an intermediary by funneling
funds from savers to borrowers.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lynnettemuthoni99. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.49. You're not tied to anything after your purchase.
