Chapter 3 Test bank PDF

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The test bank for fins 1612 chapter 3...

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1. The financial institution that is a specialist provider of financial and advisory services to companies is a/ an: ฀ ฀ A. credit union B. finance company C. building society D. investment bank 2. Money market corporations: ฀ ฀ A. obtain all their funding by issuing bank bills B. are generally referred to as investment banks C. offer money market deposits to retail clients D. sell money market securities 3. The task of the investment bank in a public issue of new shares is to: ฀ A. offer interim financing to the firm B. invest the funds raised in the capital markets C. provide advice in designing and pricing a share issue D. act as a trustee of the funds raised

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4. Investment banks: ฀ ฀ A. are supervised by APRA, since they operate in the banking sector B. focus their activities in the bank bill sector and money market C. obtain their deposits only from large corporations D. are not required to comply with minimum capital adequacy requirements, but commercial banks are required to 5. A company may hire a/an ________ to advise on and underwrite its new share issue. ฀ A. loans officer B. investment banker C. share analyst D. treasury officer 6. The principal source of income for investment banks is: ฀ A. issuing bank bills B. off-balance-sheet business C. issuing secondary securities D. issuing certificates of deposit

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7. Money market corporations (merchant and investment banks) have significantly increased their offbalance-sheet business on account of competition. All of the following are off-balance-sheet activities of investment banks EXCEPT: ฀ ฀ A. mergers and acquisitions B. managing project finance undertakings C. trading in the short-term money market D. strategic risk management advice 8. Most corporations will seek advice from a/an ______ on possible mergers and acquisitions. ฀ A. investment broker B. commercial banker C. accounting firm D. investment banker

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9. The process of due diligence involves: ฀ ฀ A. underwriting of new equity issues by a company B. providing advice to companies on the raising of new equity C. detailed analysis of a firm's financial statements D. placement of securities to institutional investors 10. Underwriting is when a/an: ฀ ฀ A. broker places new share issues with selected financial institutions B. investment bank gives advice to a company about a merger C. broker guarantees prices on a security issue for a company D. investment bank finds funding for a company 11. When an investment bank guarantees a certain price for a company issuing new shares, it is acting as a/ an: ฀ ฀ A. auctioneer B. broker C. dealer D. underwriter 12. When an investment bank helps a company sell large parcels of shares directly to institutional investors, this is calleD. ฀ ฀ A. due diligence B. private placement C. securitisation D. underwriting 13. The ________ is the company in a merger transaction that tries to merge with or acquire another company. ฀ ฀ A. target company B. takeover company C. conglomerate company D. hostile company 14. The ________ is the company in a merger transaction that is being pursued as a takeover possibility. ฀ A. target company B. takeover company C. conglomerate company D. hostile company 15. If a car manufacturer were to purchase one of the companies listed below, which purchase would be called a horizontal takeover? ฀ ฀ A. A steel mill B. A rival car manufacturer C. A tyre manufacturer D. A finance company 16. A conglomerate takeover occurs when: ฀ ฀ A. companies from different business areas merge B. both parties are similar in size C. the merged entity is expected to have large additional value D. the management team of the target company is combined with that of the takeover company 17. All of the following are reasons for mergers EXCEPT: ฀ A. finances B. economies of scale C. business diversification D. having a dominating share of the market

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18. The amount of financial assets held by insurance companies has _______ over the past 20 years. ฀ A. decreased B. remained stable C. increased slowly D. increased dramatically 19. As of 2009, the largest proportion of assets held by life insurance companies is: ฀ A. Commonwealth securities B. loans and placements C. equities and units in trusts D. land and buildings 20. In Australia, the prudential supervisor of life insurance offices is: ฀ A. ASIC B. APRA C. the Reserve Bank of Australia D. PSLI

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21. Which of the following statements with regard to life insurance companies is true? ฀ ฀ A. Life insurance companies are more likely to acquire short-term assets than long-term securities, for liquidity reasons. B. Life insurance companies are more likely to acquire long-term assets because their liabilities are longterm in nature. C. Life insurance companies tend to acquire short-term assets because they have relatively predictable inflows and outflows. D. The Reserve Bank of Australia regulates life insurance companies. 22. Which of the following statements about life insurance companies is FALSE? ฀ ฀ A. As inflows of funds are relatively predictable, they have a very stable level of liabilities. B. They have greatly increased their assets over the past decade. C. They sell contracts that offer financial cover against premature death. D. They have large amounts of short-term liquid securities. 23. Life insurance companies: ฀ ฀ A. are significant investors in equities B. invest mainly in debt, which is generally in the form of debentures C. are not important suppliers of equity funding D. None of the given answers. 24. The change in the portfolio of financial assets for life insurance companies since the 1980s has been due mainly to: ฀ ฀ A. changes in government regulations B. strong financial markets C. changes in policies of life insurance companies D. strong growth in the number of life insurance policies 25. By the end of 2005, there had been a substantial expansion of assets in the life insurance industry. What is one of the primary reasons for this? ฀ ฀ A. Increased confidence in life policies by individual investors B. Growth in superannuation funds C. Decreased cost of regulation by the Australian Financial Institutions Commission D. Rationalisation through mergers of small life insurance companies

26. Life insurance companies attract a large proportion of their funds through regular premiums from policy holders. In regard to the matching principle, what types of assets would an insurance company hold the smallest proportions of? ฀ ฀ A. Equity investments B. Debentures and notes C. Housing loan mortgages D. Money market securities 27. A life insurance company that sells a large number of ________ will need a large portion of liquid assets to match the liabilities. ฀ ฀ A. whole-of-life policies B. 20-year-term policies C. annuities D. one-year renewable term policies 28. General insurance companies holD. ฀ ฀ A. a smaller number of short-term assets than life insurance companies B. a greater number of short-term assets than life insurance companies C. approximately the same number of short-term assets as life insurance companies D. only long-term assets 29. General insurance companies hold more liquid assets than life insurance companies do because: ฀ ฀ A. they have a legal requirement to do so B. events such as fires and earthquakes are difficult to predict C. more people try to get payouts from them by fraud D. as there are more items covered under a general insurance policy, there are more payouts to the insured 30. A major difference between a whole-of-life insurance policy and a term-life policy is: ฀ ฀ A. a whole-of-life policy is long-term, whereas a term policy is only for a term of one year B. a term policy has an investment component, specified only for the term C. only a whole-of-life policy has an investment part D term policies only pay bonuses at the end of the term, unlike the whole-of-life policy, which pays them . out immediately as they are accumulated 31. Which of the following does NOT apply to a whole-of-life insurance policy? ฀ A. It includes an investment component. B. It is a long-term insurance policy. C. It may pay a bonus if surplus investment returns are generated. D. Premiums reduce over time owing to accumulated bonuses. 32. In a/an _____ insurance policy, there is no savings component. ฀ A. term B. variable C. whole D. endowment

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33. For term-life policies with a stepped premium over time, the policy holder pays premiums: ฀ A. based on current market rates B. that increase gradually over time C. based on increases in inflation D. based on indexing the sum insured

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34. A portfolio manager for a general insurance company who expects a downturn in the markets is likely to shift more of the company's portfolio into: ฀ ฀ A. common stock B. long-term corporate bonds C. preference shares D. short-term securities

35. The function of a ________ is to provide income for employees of corporations or governments after they retire. ฀ ฀ A. building society B. credit union C. general insurer D. superannuation fund 36. Essentially, superannuation assets provide: ฀ ฀ A. indefinite income when employees stop working B. indefinite income as long as employees continue to work C. limited income if an employee is injured and unable to work D. D.: retirement income for employees 37. Since the early 1990s, the largest growth in assets held by superannuation funds outside life offices has been in: ฀ ฀ A. Commonwealth securities B. loans and placements C. equities and units in trusts D. land and buildings 38. Which of the following statements is true? ฀ ฀ A Since the 1990s, assets of superannuation funds outside life insurance offices have grown much slower . than life insurance office funds. B. Assets in defined benefit schemes have experienced greater growth than assets in accumulation schemes. C The introduction of the Superannuation Guarantee Charge (SGC) policy in 1992 resulted in rapid . growth in Australia's superannuation industry throughout the 1990s. DD. Industry superannuation funds are regulated superannuation entities with more than ten members . that provide benefits for employees working in the same industry. 39. Superannuation funds, because of the ______-term nature of their liabilities, prefer to hold _____-term assets. ฀ ฀ A. long, long B. long, short C. short, long D. short, short 40. A private superannuation fund to which an individual makes recurring, predetermined payments for a given number of years into the plan is called a/an: ฀ ฀ A. approved deposit scheme B. superannuation savings plan C. standard superannuation scheme D. single premium scheme 41. If an individual retires early but wants to retain their superannuation entitlements in a favourable taxation environment, they can hold their eligible superannuation funds in A. ฀ ฀ A. single-premium scheme B. growing annuity scheme C. rollover scheme D. termination scheme 42. Superannuation funds that aim at delivering a longer term income stream and capital appreciation by acquiring a diversified asset portfolio across a wider risk spectrum are classified as: ฀ ฀ A. managed growth funds B. capital guaranteed funds C. balanced growth funds D. capital stable funds

43. A defined benefit plan: ฀ ฀ A. is always fully funded, with no shortfall requirement B. may have a shortfall, but the Commonwealth government will make good the shortfall C. may have a shortfall, but the employer will make good the shortfall D. is where the employee bears the risk if the performance of the investment is bad 44. An investor who wishes to save for their retirement in 20 years' time and who has a high propensity for taking risk is likely to invest in a fund that invests in government securities anD. ฀ ฀ A. cash deposits B. some property C. debentures D. foreign equities 45. In an accumulation superannuation funD. ฀ ฀ A. the employee is promised an allocated benefit based on earnings and years of service B. superannuation income varies depending on how well the plan's investments have performed C. if the funds in the plan exceed the promised amount, the excess remains with the issuing firm or institution D. all of the earnings' taxes are paid by the employer 46. The superannuation fund where the employer must make good a shortfall in the fund when the benefit is to be paid up is a/an: ฀ ฀ A. accumulation fund B. defined benefit fund C. fully funded fund D. private fund 47. When an employee makes regular contributions equal to 7% of their salary and their employer also contributes the equivalent of 14% of salary to a superannuation fund that is an accumulation scheme: ฀ A. the final payout benefit is stated when the member joins the fund B. the final payout depends upon the investment performance of the fund C. payment is specified under the superannuation guarantee legislation D. the benefit is paid in the form of a life annuity 48. All of the following Acts are relevant to the operation of the Australian superannuation industry EXCEPT: ฀ ฀ A. Superannuation Industry (Supervision) Act 1993 B. Income Tax Assessment Act 1936 C. Superannuation (Agents and Brokers) Act 1984 D. None of the given answers. 49. Which of the following is NOT an important result of the compulsory guarantee charge implemented in July 1992? ฀ ฀ A. The amount of superannuation funds in Australia has increased significantly. B. The employer contribution SGC increased to 9% from July 2002. C. The vast majority of retirement savings are invested in superannuation funds. D. The SGC represents a penalty taxation charge on employers. 50. Finance companies generally: ฀ ฀ A. issue shares and use the proceeds to buy bonds B. raise funds in financial markets to lend to households and companies C. raise funds from banks to lend to households and companies D. issue bonds and use the proceeds to buy shares 51. Which of the following is NOT a feature of finance companies? ฀ ฀ A. They came into existence in response to regulations on interest rates. B. They sell unsecured notes and use the funds to make loans to borrowers. C. The majority of their funds are sourced from banks. D. Today the banks own the major finance companies.

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52. Since deregulation of the financial markets in the 1980s, finance companies have seen the largest growth in their assets in: ฀ ฀ A. bills of exchange B. local government securities C. placements and deposits D. loans to businesses 53. Which of the following liability types represents a main source of funding for finance companies? ฀ A. Fixed-term deposits B. Debentures and unsecured notes C. Bills of exchange D. Borrowings from non-residents (overseas)

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54. By the end of the 1990s, there had been a substantial contraction in the building society sector. What is the principal reason for this contraction in building societies? ฀ ฀ A. Loss of confidence in building societies by individual investors B. Conversion of building societies to banks C. Increased cost of regulation by the Australian Prudential Regulation Authority (APRA) D. Rationalisation through the merger of small building societies 55. In the 1980s, building societies expanded their lending operations to: ฀ A. foreign-currency loans for members B. commercial paper C. increased lending to high-risk business borrowers D. underwriting facilities

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56. Under deregulation, building societies lost market share to other financial institutions. Their response includeD. ฀ ฀ A. mergers with other building societies B. expenditure on technology C. expanding their range of products D. All of the given answers. 57. Permanent building societies are supervised by: ฀ A. ASIC B. APRA C. the Reserve Bank of Australia D. ASX

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58. A ________ is a financial intermediary that deals mainly in the flow of funds between members. Membership is generally derived from some common bond. ฀ ฀ A. savings bank B. superannuation fund C. credit union D. merchant bank 59. A credit union differs from most other financial institutions because: ฀ A. it accepts deposits mainly from members B. its assets are mainly loans to members C. there are stringent requirements to hold prime liquid assets D. All of the given answers. 60. An important source of funds for credit unions is: ฀ ฀ A. cheque accounts B. loan interest C. interest from government securities D. financial support from the organisations that employ its members

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61. The uses of funds for credit unions are mainly: ฀ A. company shares B. commercial paper C. debentures and unsecured notes D. mortgages

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62. Credit unions, while representing a very small proportion of total financial assets, have strong numerical representation throughout AustraliA. They derive this numerical strength: ฀ ฀ A. from a common bond of association among society members B. through the wide dispersion of societies throughout the country C. because of the full range of financial services provided D. because of a guarantee of deposits provided by the government 63. Currently, of finance companies, credit unions, managed funds and permanent building societies, which one holds the smallest percentage of total assets of financial institutions? ฀ ฀ A. Building societies B. Credit unions C. Finance companies D. Managed funds 64. The financial institution that pools funds for individuals and then invests them in both the money and capital markets is A. ฀ ฀ A. savings bank B. credit union C. investment bank D. D.: managed fund 65. Funds under management by managed funds in 2005 represented almost _____ of the total assets of financial institutions. ฀ ฀ A. 20% B. 40% C. 50% D. 60% 66. Which of the following is NOT a feature of unit trusts? ฀ ฀ A They are companies that accept funds from investors and make investments that yield returns in the . form of income and/or capital gains. B. The market determines the value of a listed unit trust. C. Unlisted unit trusts are generally highly liquid as they can accept money from investors at any time. D. The number of listed property trusts is far larger than the number of listed equity trusts. 67. A mutual investment fund that specialises in short-term debt instruments and is usually managed by a financial intermediary is called A. ฀ ฀ A. money market fund B. cash management trust C. certificate of deposit fund D. bank bill fund 68. The main feature of cash management trusts is: ฀ ฀ A. they allow individuals to access the money markets B. they provide liquidity and access to funds C. many are associated with stockbrokers, and the electronic purchasing and selling of securities by investors D. All of the given answers.

69. The average maturity of deposits and money market securities held in a cash management account is approximately: ฀ ฀ A. 10 days B. 20 days C. 40 days D. 90 days 70. Since the early 1990s, public unit trusts have seen the largest growth in assets in: ฀ A. cash and deposits B. long-term government securities C. equities and units in trusts D. land and buildings 71. The majority of securities owned by unlisted public unit trusts are: ฀ A. real physical assets B. money market securities C. capital market securities D. fixed interest trusts

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72. Which of the following is NOT a feature of public unit trusts? ฀ ฀ A. The four main classes of trusts are property, equity, mortgage and fixed interest trusts. B. There was enormous growth in public unit trusts during the 1990s. C. The majority of mortgages held by a mortgage trust are 'first' mortgages. D. Property trusts are generally unlisted as they need notice to sell their physical assets. 73. An investor is considering different methods of investment, including a public unit trust. Which of the following is NOT a function of a public unit trust? ฀ ฀ A. Acting as a vehicle for the pooling of investor funds. B. Providing a level of investor protection though the appointment of a trustee. C. Allowing small investors access to larger investment opportunities. D. Locking in a trust unit price by li...