Financial Institutions Instruments And Markets 9th Edition By Christopher Viney -Test Bank
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Sample Test
Chapter 03 Testbank
1. The
major distinction between non-bank financial institutions (NBFIs) and
commercial banks are the following except:
2. differentiated
by their source and use of funds.
3. differentiated
by their off-balanced business activities and regulations.
4. under
Banking Act-1959 (Common Wealth), commercial banks are authorized to operate as
banks.
5. Both
NBFIs and commercial banks attract deposit from the public.
2. Which
of the following non-bank financial institutions are authorised depository
institutions?
3. Savings
and loans limited, credit unions and building societies
4. Investment
banks, building societies and savings and loans limited
5. Investment
banks, life office and finance companies
6. Commercial
banks only
3. The
financial institution that is a specialist provider of financial and advisory
services to companies is a/an:
4. credit
union.
5. finance
company.
6. building
society.
7. investment
bank.
4. Major
functions of investment banks include the following except:
5. advising
and providing underwriting arrangement for clients by issuing financial
securities.
6. serving
as dealers or market makers in capital markets.
7. providing
advice on risk management and hedging.
8. attracting
deposits and providing investment loans.
5. Money
market corporations:
6. obtain
all their funding by issuing bank bills.
7. are
generally referred to as investment banks.
8. offer
money market deposits to retail clients.
9. sell
money market securities to retail clients.
6. The
task of the investment bank in a public issue of new shares is to:
7. offer
interim financing to the firm.
8. invest
the funds raised in the capital markets.
9. provide
advice in designing and pricing a share issue.
10.
act as a trustee of the funds raised.
7. Unlike
depository institutions such as commercial banks, building societies and credit
unions, investment banks:
8. are
supervised by APRA, since they operate in the banking sector.
9. focus
their activities in the bank bill sector and money market.
10.
obtain their deposits only from large corporations.
11.
are not required to comply with minimum capital adequacy
requirements.
8. A
company may hire a/an ________ to advise on and underwrite its new share issue.
9. loans
officer
10.
investment banker
11.
share analyst
12.
treasury officer
9. A
major source of income for investment banks is from:
10.
issuing bank bills.
11.
off-balance-sheet business activities.
12.
issuing secondary securities.
13.
issuing certificates of deposit.
10.
Money market corporations (merchant and investment banks) have
significantly increased their off-balance-sheet business on account of
competition. All of the following are off-balance-sheet activities of
investment banks except:
11.
mergers and acquisitions.
12.
managing project finance undertakings.
13.
trading in the short-term money market.
14.
strategic risk management advice.
11.
Most corporations will seek advice from a/an ______ on possible
mergers and acquisitions.
12.
investment broker
13.
commercial banker
14.
accounting firm
15.
investment banker
12.
The process of due diligence involves:
13.
underwriting of new equity issues by a company.
14.
providing advice to companies on the raising of new equity.
15.
detailed analysis of a firm’s financial statements.
16.
placement of securities to institutional investors.
13.
Which of the following statements correctly describes about an
underwriting?
14.
it is a service whereby investment banks agree to buy new
securities issued by a client company those are not fully subscribed or sold.
15.
investment bank gives advice to a company about a merger.
16.
an investment banker as an underwriter ensures funds are raised
for their clients from an equity or debt issue.
17.
both A and C are correct.
14.
When an investment bank guarantees a certain price for a company
issuing new shares, it is acting as a/an:
15.
auctioneer.
16.
broker.
17.
dealer.
18.
underwriter.
15.
When an investment bank helps a company sell large parcels of
shares directly to institutional investors, this is called:
16.
due diligence.
17.
private placement.
18.
securitisation.
19.
underwriting.
16.
The ________ is the company in a merger transaction that tries
to merge with or acquire another company.
17.
target company
18.
takeover company
19.
conglomerate company
20.
hostile company
17.
Venture capital is:
18.
a form of funding provided for a new start-up business by a
group of investors.
19.
providing advice to companies on the raising of new capital.
20.
short-term funding provided by banks.
21.
placement of securities to institutional investors.
18.
The ________ is the company in a merger transaction that is
being pursued as a takeover possibility.
19.
target company
20.
takeover company
21.
conglomerate company
22.
hostile company
19.
If a car manufacturer were to purchase one of the companies
listed below, which purchase would be called a horizontal takeover?
20.
A steel mill
21.
A rival car manufacturer
22.
A tyre manufacturer
23.
A finance company
20.
If an oil drilling company were to purchase one of the companies
listed below, which purchase would be called a vertical takeover?
21.
An oil refinery company
22.
A rival oil drilling company
23.
A travel company
24.
A finance company
21.
In recent year, investment banking deals have been dominated by
‘spin-off’. Spin-off is best described as:
1. where
a company breaks itself into new companies and the new companies become
separately listed public companies.
2. where
a publicly owned company breaks itself into new private equity firms.
3. where
a private equity firm transitions into a publicly owned company.
4. none
of the given answers.
22.
Which of the following statements are true for managed funds?
23.
They provide direct access to wholesale investment markets for
pooled savings of individuals (not an intermediary).
24.
They provide opportunities for small investors to invest in
financial securities and diversify the risk.
25.
They provide professional expertise, administrative efficiency,
economies of scale and a better diversification platform.
26.
All of the given answers.
23.
Reasons for mergers do NOT include:
24.
finances.
25.
economies of scale.
26.
business diversification.
27.
reduction of debt.
24.
The financial institution that pools funds from individuals and
then invests them in both the money and capital markets is a:
25.
savings bank.
26.
credit union.
27.
investment bank.
28.
managed fund.
25.
Which of the following statements about managed funds is NOT
correct?
26.
The assets of large managed funds may be managed by several
professional managers.
27.
A mutual fund is required to use the services of a mutual fund
custodian.
28.
Sources of funds for a managed fund may be in the form of
monthly payments.
29.
For Australia, recent figures show that the statutory funds of
life offices have the largest amounts of assets under management.
26.
A managed fund that is established under a trust deed and is
managed by a responsible entity is called a:
27.
mutual fund.
28.
trust fund.
29.
trustee fund.
30.
investment fund.
27.
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:
28.
managed growth funds.
29.
capital guaranteed funds.
30.
balanced growth funds.
31.
capital stable funds.
28.
An investor who wishes to save for their retirement in 20 years’
time and who is less risk-averse is likely to invest in a managed fund that
invests in government securities and:
29.
cash deposits.
30.
some property.
31.
debentures.
32.
foreign equities.
29.
Benefits of investing in mutual funds do NOT include:
30.
record keeping and administration.
31.
professional management.
32.
diversification.
33.
increasing supply of credit to the economy.
30.
Managed fund managers:
31.
invest funds according to their fund’s trust deed.
32.
generally reinvest income and any capital gains in the fund.
33.
will usually maintain a diversified portfolio of assets within
the asset classes.
34.
all of the given answers.
31.
A mutual investment fund that specialises in short-term debt
instruments and is managed by a financial intermediary is called a:
32.
money market fund.
33.
cash management trust.
34.
certificate of deposit fund.
35.
bank bill fund.
32.
The main feature of cash management trusts is:
33.
they allow individuals to access the money markets.
34.
they provide liquidity and access to funds.
35.
that many are associated with stockbrokers and the electronic
purchasing and selling of securities by investors.
36.
all of the given answers.
33.
The largest proportion of funds held by cash management funds in
Australia is in:
34.
cash and deposits.
35.
bills of exchange.
36.
promissory notes and CDs.
37.
bills of exchange and CDs.
34.
Which of the following statements is NOT a feature of unit
trusts?
35.
Unit trusts are companies that accept funds from investors and
make investments that yield returns in the form of income and/or capital gains.
36.
The market determines the value of a listed unit trust.
37.
Unlisted unit trusts are generally highly liquid as they can
accept money from investors at any time.
38.
The number of listed property trusts is far larger than the
number of listed equity trusts.
35.
The majority of securities owned by unlisted public unit trusts
are:
36.
real physical assets.
37.
money market securities.
38.
capital market securities.
39.
fixed interest trusts.
36.
One of the major disadvantages of investing in unlisted real
estate trusts is that:
37.
they are generally unable to meet the demand for a large number
of simultaneous withdrawal requests as they do not hold cash reserves to the
extent of the withdrawal demand.
38.
they are generally able to meet the demand for a large number of
simultaneous withdrawal requests as they hold cash reserves to the extent of
the withdrawal demand.
39.
they are generally able to meet the demand for a large number of
simultaneous withdrawal requests as the units are highly liquid.
40.
all of the given answers.
37.
Which of the following statements is NOT a feature of public
unit trusts?
38.
The four main classes of trusts are property, equity, mortgage
and fixed interest trusts.
39.
There was enormous growth in public unit trusts during the
1990s.
40.
The majority of mortgages held by a mortgage trust are ‘first’
mortgages.
41.
Property trusts are generally unlisted as they need notice to
sell their physical assets.
38.
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?
39.
Acting as a vehicle for the pooling of investor funds
40.
Providing a level of investor protection though the appointment
of a trustee
41.
Allowing small investors access to larger investment
opportunities
42.
Locking in a trust unit price by listing on the Australian
Securities Exchange
39.
A developer is promoting a large new suburban shopping centre
and decides to establish a publicly listed unit trust to attract investors.
Which type of unit trust would likely be established?
40.
A mortgage trust
41.
A property trust
42.
An equity trust
43.
A cash management trust
40.
The main advantage of a listed trust over an unlisted unit trust
is that a listed trust:
41.
has a trustee but an unlisted trust does not.
42.
units can be sold at any time by the unit holder in the
secondary market.
43.
invests in equities, while an unlisted trust invests only in
fixed interest.
44.
invests in equities, while an unlisted trust invests in
property.
41.
In Australia, listed property trusts dominate over the
proportion of unlisted property unit trusts because:
42.
the valuations of buildings are larger than share valuations.
43.
mortgages on buildings are larger than companies’ valuations.
44.
listed shares can be more advantageous in terms of liquidity.
45.
it reflects the liquid nature of properties.
42.
The function of a ________ is to provide income for employees of
corporations or governments after they retire.
43.
building society
44.
credit union
45.
general insurer
46.
superannuation fund
43.
Essentially, superannuation funds provide:
44.
indefinite income when employees stop working.
45.
indefinite income as long as employees continue to work.
46.
limited income if an employee is injured and unable to work.
47.
retirement income for employees.
44.
Recent records about superannuation assets in Australia show
that the largest amounts of assets are in:
45.
corporate superannuation funds.
46.
industry corporation funds.
47.
retail superannuation funds.
48.
self-managed superannuation funds.
45.
Which of the following funds is supervised by the Australian
Taxation Office?
46.
Corporate superannuation funds
47.
Industry corporation funds
48.
Retail superannuation funds
49.
Self-managed superannuation funds
46.
Which of the following statements is true?
47.
Since the 1990s, assets of superannuation funds outside life
insurance offices have grown much slower than life insurance office funds.
48.
Assets in defined benefit schemes have experienced greater
growth than assets in accumulation schemes.
49.
The introduction of the Superannuation Guarantee Charge (SGC)
policy in 1992 resulted in rapid growth in Australia’s superannuation industry
throughout the 1990s.
50.
Industry superannuation funds are regulated superannuation
entities with more than ten members that provide benefits for employees working
in the same industry.
47.
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:
48.
approved deposit scheme.
49.
superannuation savings plan.
50.
standard superannuation scheme.
51.
single premium scheme.
48.
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:
49.
single-premium scheme.
50.
growing annuity scheme.
51.
rollover scheme.
52.
termination scheme.
49.
A defined benefit plan:
50.
is always fully funded, with no shortfall requirement.
51.
may have a shortfall, but the Commonwealth government will make
good the shortfall.
52.
may have a shortfall, but the employer will make good the shortfall.
53.
is where the employee bears the risk if the performance of the
investment is bad.
50.
In an accumulation superannuation fund:
51.
the employee is promised an allocated benefit based on earnings
and years of service.
52.
superannuation income varies depending on how well the plan’s
investments have performed.
53.
if the funds in the plan exceed the promised amount, the excess
remains with the issuing firm or institution.
54.
all of the earnings’ taxes are paid by the employer.
51.
The superannuation fund that involves the amount of benefit paid
out on retirement being calculated by a formula based at the time when a person
joined the fund is called:
52.
a defined benefit fund.
53.
an accumulation fund.
54.
a defined termination fund.
55.
a defined payout fund.
52.
The superannuation fund where the amount of funds available at
retirement consists of past contributions plus earnings less taxes and expenses
is called:
53.
a defined benefit fund.
54.
an accumulation fund.
55.
a defined termination fund.
56.
a defined payout fund.
53.
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:
54.
accumulation fund.
55.
defined benefit fund.
56.
fully funded fund.
57.
private fund.
54.
When an employee makes regular contributions equal to 9.5 per cent
of their salary and their employer also contributes the equivalent of 14 per
cent of salary to a superannuation fund that is an accumulation scheme:
55.
the final payout benefit is stated when the member joins the
fund.
56.
the final payout depends upon the investment performance of the
fund.
57.
payment is specified under the superannuation guarantee
legislation.
58.
the benefit is paid in the form of a life annuity.
55.
All of the following Acts or Bills are relevant to the operation
of the Australian superannuation industry except the:
56.
Superannuation Industry (Supervision) Act
1993.
57.
Income Tax Assessment Act 1936.
58.
Superannuation (Agents and Brokers) Act
1984.
59.
Superannuation Guarantee Amendment Bill
2011.
56.
Which of the following is NOT an important result of the
compulsory guarantee charge implemented in July 1992?
57.
The amount of superannuation funds in Australia has increased
significantly.
58.
The employer contribution SGC increased to 9 per cent from July
2002.
59.
The vast majority of retirement savings are invested in
superannuation funds.
60.
The SGC represents a penalty taxation charge on employers.
57.
The amount of financial assets held by insurance companies has
_______ over the past 20 years.
58.
decreased
59.
remained stable
60.
increased slowly
61.
increased dramatically
58.
Which of the following has regular, relatively predictable and
long-term inflow of funds?
59.
Life insurance office
60.
General insurance
61.
Income protection insurance
62.
Trauma insurance
59.
Recent figures show the largest proportion of assets held by life
insurance companies is:
60.
Commonwealth securities.
61.
loans and placements.
62.
equities and units in trusts.
63.
land and buildings.
60.
Under a co-insurance clause, a house with a replacement cost of
$500 000 is covered for only 90 per cent of the losses. Which one of the
following statements is true?
61.
The insurance office will pay only $450 000 and the policy
holder will be said to have self-insured for the remaining 10 per cent of the
damage.
62.
The insurance office will pay only $400 000 and the policy
holder will be said to have self-insured for the remaining $100 000 of the
damage.
63.
The insurance office will pay only $50 000 and the policy holder
will be said to have self-insured for the remaining $450 000 of the damage.
64.
The insurance company will pay only $100 000.
61.
In Australia, the prudential supervisor of life insurance
offices is:
62.
ASIC.
63.
APRA.
64.
the Reserve Bank of Australia.
65.
PSLI.
62.
Which of the following statements with regard to life insurance
companies is true?
63.
Life insurance companies are more likely to acquire short-term
assets than long-term securities, for liquidity reasons.
64.
Life insurance companies are more likely to acquire long-term
assets because their liabilities are long-term in nature.
65.
Life insurance companies tend to acquire short-term assets because
they have relatively predictable inflows and outflows.
66.
The Reserve Bank of Australia regulates life insurance
companies.
63.
Which of the following statements about life insurance companies
is false?
64.
As inflows of funds are relatively predictable, they have a very
stable level of liabilities.
65.
Life insurance companies have greatly increased their assets
over the past decade.
66.
Life insurance companies sell contracts that offer financial
cover against premature death.
67.
Life insurance companies have large amounts of short-term liquid
securities.
64.
Life insurance companies:
65.
are significant investors in equities.
66.
invest mainly in debt, which is generally in the form of
debentures.
67.
are not important suppliers of equity funding.
68.
do not match any of these answers.
65.
In Australia there has been a substantial expansion of assets in
the life insurance industry. Which of the following factors is one of the
primary reasons for this?
66.
Increased confidence in life policies by individual investors
67.
Growth in superannuation funds
68.
Decreased cost of regulation by the Australian Financial
Institutions Commission
69.
Rationalisation through mergers of small life insurance
companies
66.
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?
67.
Equity investments
68.
Debentures and notes
69.
Housing loan mortgages
70.
Money market securities
67.
A life insurance company that sells a large number of ________
will need a large portion of liquid assets to match the liabilities.
68.
whole-of-life policies
69.
20-year-term policies
70.
annuities
71.
one-year renewable term policies
68.
General insurance companies hold:
69.
a smaller number of short-term assets than life insurance
companies.
70.
a greater number of short-term assets than life insurance
companies.
71.
approximately the same number of short-term assets as life
insurance companies.
72.
only long-term assets.
69.
General insurance companies hold more liquid assets than life
insurance companies because:
70.
they have a legal requirement to do so.
71.
events such as fires and earthquakes are difficult to predict.
72.
more people try to get payouts from them by fraud.
73.
there are more items covered under a general insurance policy so
there are more payouts to the insured.
70.
A major difference between a whole-of-life insurance policy and
a term-life policy is:
71.
a whole-of-life policy is long-term, whereas a term policy is
only for a term of one year.
72.
a term policy has an investment component, specified only for
the term.
73.
only a whole-of-life policy has an investment part.
74.
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.
71.
Which of the following does NOT apply to a whole-of-life
insurance policy?
72.
It includes an investment component
73.
It is a long-term insurance policy
74.
It may pay a bonus if surplus investment returns are generated
75.
Premiums reduce over time owing to accumulated bonuses
72.
In a/an _____ insurance policy, there is no savings component.
73.
term
74.
variable
75.
whole
76.
endowment
73.
In relation to insurance for term-life policies with a stepped
premium over time, the policy holder pays premiums:
74.
based on current market rates.
75.
that increase gradually over time.
76.
based on increases in inflation.
77.
based on indexing the sum insured.
74.
For motor vehicle insurance, a third party policy means:
75.
the policy covers damage to the named vehicle plus any damage to
any third party vehicle or party.
76.
the policy covers damage to both parties.
77.
the policy covers damage or loss to a third party or property
only.
78.
the policy covers damage to the named vehicle plus any theft.
75.
A fund that aims to achieve high investment returns by using
exotic financial products is called a:
76.
a hedge fund.
77.
project fund.
78.
money market fund.
79.
leverage fund.
76.
A hedge fund that takes a long position in the Australian dollar
is forecasting the Australian dollar will:
77.
depreciate in value.
78.
appreciate in value.
79.
remain the same in value.
80.
depreciate in value in the long-term.
77.
A hedge fund that takes a short position in equity markets:
78.
will sell forward shares.
79.
will buy a derivative that they expect will increase in price.
80.
will buy shares.
81.
is expecting the markets to increase.
78.
Finance companies generally:
79.
issue shares and use the proceeds to buy bonds.
80.
raise funds in financial markets to lend to households and
companies.
81.
raise funds from banks to lend to households and companies.
82.
issue bonds and use the proceeds to buy shares.
79.
Which of the following statements is NOT a feature of finance
companies?
80.
Finance companies came into existence in response to regulations
on interest rates.
81.
Finance companies sell unsecured notes and use the funds to make
loans to borrowers.
82.
The majority of finance companies’ funds are sourced from banks.
83.
Today the banks own many large finance companies.
80.
Since deregulation of the financial markets in the 1980s,
finance companies have seen the largest growth in their assets in:
81.
bills of exchange.
82.
local government securities.
83.
placements and deposits.
84.
loans to businesses.
81.
Finance companies use their funds to provide:
82.
loans to individuals.
83.
instalment credit to finance retail sales to retail stores.
84.
lease financing.
85.
all of the given answers.
82.
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?
83.
Loss of confidence in building societies by individual investors
84.
Conversion of building societies to banks
85.
Increased cost of regulation by the Australian Prudential
Regulation Authority (APRA)
86.
Rationalisation through the merger of small building societies
83.
Which of the following statement about building societies in
Australia is NOT correct?
84.
The main activities of building societies are to take in
deposits and provide mortgage finance.
85.
The largest building societies have tended to convert to
regional banks in recent times.
86.
Now currently the building society sector holds 2 per cent of
the total assets of the Australian financial system.
87.
Building societies are authorised deposit-taking institutions
and supervised by APRA.
84.
Under deregulation, building societies lost market share to
other financial institutions. Their response included:
85.
mergers with other building societies.
86.
expenditure on technology.
87.
expanding their range of products.
88.
all of the given answers.
85.
In Australia permanent building societies are supervised by:
86.
ASIC.
87.
APRA.
88.
the Reserve Bank of Australia.
89.
ASX.
86.
A ________ is a financial intermediary that deals mainly in the
flow of funds between members. Membership is generally derived from some common
bond.
87.
savings bank
88.
superannuation fund
89.
credit union
90.
merchant bank
87.
A credit union differs from most other financial institutions
because:
88.
it accepts deposits mainly from members.
89.
its assets are mainly loans to members.
90.
there are stringent requirements to hold prime liquid assets.
91.
all of the given answers.
88.
The uses of funds for credit unions are mainly:
89.
company shares.
90.
commercial paper.
91.
debentures and unsecured notes.
92.
mortgages.
89.
Which of the following holds the smallest percentage of total
assets of financial institutions?
90.
Building societies
91.
Credit unions
92.
Finance companies
93.
Managed funds
90.
Export Finance and Insurance Corporation’s function is:
91.
solely to lend directly to small- or medium-sized businesses
involved in export trade.
92.
solely to guarantee trade finance to small- or medium- sized
businesses involved in export trade.
93.
to encourage export trade by providing trade insurance and
financial services.
94.
solely to provide insurance for Australian suppliers of goods
and services against non-payment.
91.
The form of financing for large tourist resorts, property
developments, heavy industry and processing plant developments is called:
92.
euro finance.
93.
conglomerate finance.
94.
project finance.
95.
lease finance.
92.
The main difference between project finance and other forms of
lending is:
93.
lenders base their participation on expected future cash flows
and assets of the project.
94.
lenders take a major equity stake in the project.
95.
the project company, which is set up as a separate legal entity,
relies heavily on venture capitalists for equity funding.
96.
the lenders have a claim on the assets of the project as well as
the sponsors.
93.
When an oil refining company takes over an oil exploration
company, the result is a:
94.
vertical takeover.
95.
horizontal takeover.
96.
conglomerate takeover.
97.
hostile takeover.
94.
If someone does not want to make any investment decisions then
the best type of fund would be:
95.
a defined benefit fund.
96.
an accumulation fund.
97.
a rollover fund.
98.
a superannuation fund.
95.
Which insurance product is simply life insurance?
96.
Whole-of-life
97.
Term-life
98.
Total and permanent disablement
99.
Income protection
96.
Which type of fund or trust employs a strategy that often uses
high levels of leverage?
97.
Hedge fund
98.
Superannuation fund
99.
Public unit trusts
100.
Capital guaranteed funds
97.
Generally investment banks do not
98.
place new issues of securities.
99.
advise clients about restructuring.
100.
advise clients about risk management.
101.
accept deposits.
98.
In Australia the predominant type of public unit trust is _____.
Public unit trusts are _____.
99.
equity; listed and unlisted
100.
equity; unlisted only
101.
fixed income; listed and unlisted
102.
property; listed and unlisted
99.
Which type of fund is the least liquid for most investors?
100.
Public unit trust
101.
Superannuation fund
102.
Cash management trust
103.
Real estate investment trust
100.
Unlike commercial banks, investment banks only accept deposits
from large corporations.
True False
101.
As investment banks have increased their underwriting activities
in recent years, the number of financial assets held by them has similarly
increased.
True False
102.
In the context of a merger, the process of due diligence
involves valuing the target company shares.
True False
103.
In relation to Australian managed funds, cash management trusts
currently have the largest amount of funds under management.
True False
104.
A capital guaranteed fund guarantees that contributors will
receive at least the value of the contributions and future earnings of the
fund.
True False
105.
A managed growth fund is designed to maximise the return from
appreciation in the value of assets in its portfolio.
True False
106.
On average, the value of a balanced growth fund is subject to
less market fluctuation than that of a capital growth fund.
True False
107.
Unlike commercial banks, investment banks do not have a
depositor base from which to acquire assets.
True False
108.
Cash management trusts are restricted under their trust deed to
hold only bank deposits and cash.
True False
109.
An insurance company is not a depository financial institution.
True False
110.
The clients of investment banks include major corporations,
governments, private firms, financial institutions and qualified professional
investors.
True False
111.
Investment banks are involved in dealers’ markets and provide
bid and offer rates for major currencies.
True False
112.
Explain the role and operation of one of the largest types of
managed funds, superannuation funds.
______________________________________________________________________________
113.
Explain the operation of cash management trusts.
______________________________________________________________________________
114.
Identify and discuss the types of public unit trusts according
to their assets.
______________________________________________________________________________
115.
What do hedge funds do? Discuss any concerns their operations
may have for the financial system.
______________________________________________________________________________
116.
What are the principal assets of a finance company? How have
these been affected in recent years?
______________________________________________________________________________
117.
The distinction between listed and unlisted trusts is important.
Discuss the importance and significance of listed and unlisted unit trusts.
______________________________________________________________________________
Chapter 03 Testbank Key
1. The
major distinction between non-bank financial institutions (NBFIs) and
commercial banks are the following except:
2. differentiated
by their source and use of funds.
3. differentiated
by their off-balanced business activities and regulations.
4. under
Banking Act-1959 (Common Wealth), commercial banks are authorized to operate as
banks.
5. Both
NBFIs and commercial banks attract deposit from the public.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
2. Which
of the following non-bank financial institutions are authorised depository
institutions?
3. Savings
and loans limited, credit unions and building societies
4. Investment
banks, building societies and savings and loans limited
5. Investment
banks, life office and finance companies
6. Commercial
banks only
Ans: A
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: Introduction
Topic: Introduction
3. The
financial institution that is a specialist provider of financial and advisory
services to companies is a/an:
4. credit
union.
5. finance
company.
6. building
society.
7. investment
bank.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
4. Major
functions of investment banks include the following except:
5. advising
and providing underwriting arrangement for clients by issuing financial securities.
6. serving
as dealers or market makers in capital markets.
7. providing
advice on risk management and hedging.
8. attracting
deposits and providing investment loans.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
5. Money
market corporations:
6. obtain
all their funding by issuing bank bills.
7. are
generally referred to as investment banks.
8. offer
money market deposits to retail clients.
9. sell
money market securities to retail clients.
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
6. The
task of the investment bank in a public issue of new shares is to:
7. offer
interim financing to the firm.
8. invest
the funds raised in the capital markets.
9. provide
advice in designing and pricing a share issue.
10.
act as a trustee of the funds raised.
Ans: C
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
7. Unlike
depository institutions such as commercial banks, building societies and credit
unions, investment banks:
8. are
supervised by APRA, since they operate in the banking sector.
9. focus
their activities in the bank bill sector and money market.
10.
obtain their deposits only from large corporations.
11.
are not required to comply with minimum capital adequacy
requirements.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
8. A
company may hire a/an ________ to advise on and underwrite its new share issue.
9. loans
officer
10.
investment banker
11.
share analyst
12.
treasury officer
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
9. A
major source of income for investment banks is from:
10.
issuing bank bills.
11.
off-balance-sheet business activities.
12.
issuing secondary securities.
13.
issuing certificates of deposit.
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
10.
Money market corporations (merchant and investment banks) have
significantly increased their off-balance-sheet business on account of
competition. All of the following are off-balance-sheet activities of
investment banks except:
11.
mergers and acquisitions.
12.
managing project finance undertakings.
13.
trading in the short-term money market.
14.
strategic risk management advice.
Ans: C
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
11.
Most corporations will seek advice from a/an ______ on possible
mergers and acquisitions.
12.
investment broker
13.
commercial banker
14.
accounting firm
15.
investment banker
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
12.
The process of due diligence involves:
13.
underwriting of new equity issues by a company.
14.
providing advice to companies on the raising of new equity.
15.
detailed analysis of a firm’s financial statements.
16.
placement of securities to institutional investors.
Ans: C
AACSB: Ethical
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
13.
Which of the following statements correctly describes about an
underwriting?
14.
it is a service whereby investment banks agree to buy new
securities issued by a client company those are not fully subscribed or sold.
15.
investment bank gives advice to a company about a merger.
16.
an investment banker as an underwriter ensures funds are raised
for their clients from an equity or debt issue.
17.
both A and C are correct.
Ans: D
AACSB: Communication
Bloom’s: Synthesis
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular mergers
and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
14.
When an investment bank guarantees a certain price for a company
issuing new shares, it is acting as a/an:
15.
auctioneer.
16.
broker.
17.
dealer.
18.
underwriter.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
15.
When an investment bank helps a company sell large parcels of
shares directly to institutional investors, this is called:
16.
due diligence.
17.
private placement.
18.
securitisation.
19.
underwriting.
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
16.
The ________ is the company in a merger transaction that tries
to merge with or acquire another company.
17.
target company
18.
takeover company
19.
conglomerate company
20.
hostile company
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
17.
Venture capital is:
18.
a form of funding provided for a new start-up business by a
group of investors.
19.
providing advice to companies on the raising of new capital.
20.
short-term funding provided by banks.
21.
placement of securities to institutional investors.
Ans: A
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
18.
The ________ is the company in a merger transaction that is
being pursued as a takeover possibility.
19.
target company
20.
takeover company
21.
conglomerate company
22.
hostile company
Ans: A
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
19.
If a car manufacturer were to purchase one of the companies
listed below, which purchase would be called a horizontal takeover?
20.
A steel mill
21.
A rival car manufacturer
22.
A tyre manufacturer
23.
A finance company
Ans: B
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
20.
If an oil drilling company were to purchase one of the companies
listed below, which purchase would be called a vertical takeover?
21.
An oil refinery company
22.
A rival oil drilling company
23.
A travel company
24.
A finance company
Ans: A
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
21.
In recent year, investment banking deals have been dominated by
‘spin-off’. Spin-off is best described as:
1. where
a company breaks itself into new companies and the new companies become
separately listed public companies.
2. where
a publicly owned company breaks itself into new private equity firms.
3. where
a private equity firm transitions into a publicly owned company.
4. none
of the given answers.
Ans: A
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular mergers
and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
22.
Which of the following statements are true for managed funds?
23.
They provide direct access to wholesale investment markets for
pooled savings of individuals (not an intermediary).
24.
They provide opportunities for small investors to invest in
financial securities and diversify the risk.
25.
They provide professional expertise, administrative efficiency,
economies of scale and a better diversification platform.
26.
All of the given answers.
Ans: D
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Hard
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
23.
Reasons for mergers do NOT include:
24.
finances.
25.
economies of scale.
26.
business diversification.
27.
reduction of debt.
Ans: D
AACSB: Reflective thinking
Bloom’s: Synthesis
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.01 Describe the roles of investment banks, with an
emphasis on the nature of their off-balance-sheet business, in particular
mergers and acquisitions.
Section: 3.01 Investment banks
Topic: Investment banks
24.
The financial institution that pools funds from individuals and
then invests them in both the money and capital markets is a:
25.
savings bank.
26.
credit union.
27.
investment bank.
28.
managed fund.
Ans: D
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
25.
Which of the following statements about managed funds is NOT
correct?
26.
The assets of large managed funds may be managed by several
professional managers.
27.
A mutual fund is required to use the services of a mutual fund
custodian.
28.
Sources of funds for a managed fund may be in the form of
monthly payments.
29.
For Australia, recent figures show that the statutory funds of
life offices have the largest amounts of assets under management.
Ans: D
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
26.
A managed fund that is established under a trust deed and is
managed by a responsible entity is called a:
27.
mutual fund.
28.
trust fund.
29.
trustee fund.
30.
investment fund.
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
27.
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:
28.
managed growth funds.
29.
capital guaranteed funds.
30.
balanced growth funds.
31.
capital stable funds.
Ans: C
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
28.
An investor who wishes to save for their retirement in 20 years’
time and who is less risk-averse is likely to invest in a managed fund that
invests in government securities and:
29.
cash deposits.
30.
some property.
31.
debentures.
32.
foreign equities.
Ans: D
AACSB: Reflective thinking
Bloom’s: Synthesis
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
29.
Benefits of investing in mutual funds do NOT include:
30.
record keeping and administration.
31.
professional management.
32.
diversification.
33.
increasing supply of credit to the economy.
Ans: D
AACSB: Reflective thinking
Bloom’s: Synthesis
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
30.
Managed fund managers:
31.
invest funds according to their fund’s trust deed.
32.
generally reinvest income and any capital gains in the fund.
33.
will usually maintain a diversified portfolio of assets within
the asset classes.
34.
all of the given answers.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.02 Explain the structure, roles and operation of managed
funds and identify factors that have influenced their rapid growth.
Section: 3.02 Managed funds
Topic: Managed funds
31.
A mutual investment fund that specialises in short-term debt
instruments and is managed by a financial intermediary is called a:
32.
money market fund.
33.
cash management trust.
34.
certificate of deposit fund.
35.
bank bill fund.
Ans: B
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management trusts
and public unit trusts.
Section: 3.03 Cash management trusts
Topic: Cash management trusts
32.
The main feature of cash management trusts is:
33.
they allow individuals to access the money markets.
34.
they provide liquidity and access to funds.
35.
that many are associated with stockbrokers and the electronic
purchasing and selling of securities by investors.
36.
all of the given answers.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.03 Cash management trusts
Topic: Cash management trusts
33.
The largest proportion of funds held by cash management funds in
Australia is in:
34.
cash and deposits.
35.
bills of exchange.
36.
promissory notes and CDs.
37.
bills of exchange and CDs.
Ans: A
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.03 Cash management trusts
Topic: Cash management trusts
34.
Which of the following statements is NOT a feature of unit
trusts?
35.
Unit trusts are companies that accept funds from investors and
make investments that yield returns in the form of income and/or capital gains.
36.
The market determines the value of a listed unit trust.
37.
Unlisted unit trusts are generally highly liquid as they can
accept money from investors at any time.
38.
The number of listed property trusts is far larger than the
number of listed equity trusts.
Ans: C
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
35.
The majority of securities owned by unlisted public unit trusts
are:
36.
real physical assets.
37.
money market securities.
38.
capital market securities.
39.
fixed interest trusts.
Ans: C
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
36.
One of the major disadvantages of investing in unlisted real
estate trusts is that:
37.
they are generally unable to meet the demand for a large number
of simultaneous withdrawal requests as they do not hold cash reserves to the
extent of the withdrawal demand.
38.
they are generally able to meet the demand for a large number of
simultaneous withdrawal requests as they hold cash reserves to the extent of
the withdrawal demand.
39.
they are generally able to meet the demand for a large number of
simultaneous withdrawal requests as the units are highly liquid.
40.
all of the given answers.
Ans: A
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
37.
Which of the following statements is NOT a feature of public
unit trusts?
38.
The four main classes of trusts are property, equity, mortgage
and fixed interest trusts.
39.
There was enormous growth in public unit trusts during the
1990s.
40.
The majority of mortgages held by a mortgage trust are ‘first’
mortgages.
41.
Property trusts are generally unlisted as they need notice to
sell their physical assets.
Ans: D
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
38.
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?
39.
Acting as a vehicle for the pooling of investor funds
40.
Providing a level of investor protection though the appointment
of a trustee
41.
Allowing small investors access to larger investment
opportunities
42.
Locking in a trust unit price by listing on the Australian
Securities Exchange
Ans: D
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
39.
A developer is promoting a large new suburban shopping centre
and decides to establish a publicly listed unit trust to attract investors.
Which type of unit trust would likely be established?
40.
A mortgage trust
41.
A property trust
42.
An equity trust
43.
A cash management trust
Ans: B
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 3.03 Discuss the purpose and operation of cash management
trusts and public unit trusts.
Section: 3.04 Public unit trusts
Topic: Public unit trusts
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