Banking and Financial Institutions – Midterm, 2026 – Study
Material and Practice Questions
Primary Markets - ANS✔✔ Markets in which corporations raise funds through new issues of
securities
Secondary Markets - ANS✔✔ Markets that trade financial instruments once they are issues
Money Markets - ANS✔✔ Markets that trade debt securities or instruments with maturities of
more than one year
Capital Markets - ANS✔✔ Markets that trade debt and equity instruments with maturities of
more than one year
Foreign Exchange Markets - ANS✔✔ Markets in which cash flows from the sale of products or
assets denominated in a foreign currency are transacted
Derivative Markets - ANS✔✔ Markets in which derivative securities trade
Commercial Banks - ANS✔✔ Depository institutions whose major assets are loans and whose
major liabilities are deposits
Commercial Banks vs. Depository Institutions - ANS✔✔ Commercial banks' loans are broader in
range, including consumer, commercial, and real estate loans. Liabilities include more
nondeposit sources of funds also.
Thrifts - ANS✔✔ Depository institutions in the form of savings associations, savings banks, and
credit unions.
, Commercial Banks vs. Thrifts - ANS✔✔ Thrifts concentrate loans in one segment, such as real
estate or consumer.
Insurance Companies - ANS✔✔ Financial institutions that protect individuals and corporations
from adverse events.
Securities Firms and Investment Banks - ANS✔✔ Financial institutions that help firms issue
securities and engage in related activities such as securities brokerage and securities trading.
Finance Companies - ANS✔✔ Financial intermediaries that make loans to do with both
individuals and businesses.
Investment Funds - ANS✔✔ Financial institutions that pool financial resources of individuals
and companies and invest those resources in diversified portfolios of assets.
Pension Funds - ANS✔✔ Financial institutions that offer savings plans through which fund
participants accumulate savings during their working years before withdrawing them during
their retirement years.
Loanable Funds Theory - ANS✔✔ The level of interest rates results from factors that affect the
supply of and demand for loanable funds.
Unbiased Expectations Theory - ANS✔✔ At any given point in time, the yield curve reflects the
market's current expectations of future short-term rates.
Liquidity Premium Theory - ANS✔✔ Long-term rates are equal to geometric averages of current
and expected short-term rates, plus liquidity risk premiums that increase with the security's
maturity.
Material and Practice Questions
Primary Markets - ANS✔✔ Markets in which corporations raise funds through new issues of
securities
Secondary Markets - ANS✔✔ Markets that trade financial instruments once they are issues
Money Markets - ANS✔✔ Markets that trade debt securities or instruments with maturities of
more than one year
Capital Markets - ANS✔✔ Markets that trade debt and equity instruments with maturities of
more than one year
Foreign Exchange Markets - ANS✔✔ Markets in which cash flows from the sale of products or
assets denominated in a foreign currency are transacted
Derivative Markets - ANS✔✔ Markets in which derivative securities trade
Commercial Banks - ANS✔✔ Depository institutions whose major assets are loans and whose
major liabilities are deposits
Commercial Banks vs. Depository Institutions - ANS✔✔ Commercial banks' loans are broader in
range, including consumer, commercial, and real estate loans. Liabilities include more
nondeposit sources of funds also.
Thrifts - ANS✔✔ Depository institutions in the form of savings associations, savings banks, and
credit unions.
, Commercial Banks vs. Thrifts - ANS✔✔ Thrifts concentrate loans in one segment, such as real
estate or consumer.
Insurance Companies - ANS✔✔ Financial institutions that protect individuals and corporations
from adverse events.
Securities Firms and Investment Banks - ANS✔✔ Financial institutions that help firms issue
securities and engage in related activities such as securities brokerage and securities trading.
Finance Companies - ANS✔✔ Financial intermediaries that make loans to do with both
individuals and businesses.
Investment Funds - ANS✔✔ Financial institutions that pool financial resources of individuals
and companies and invest those resources in diversified portfolios of assets.
Pension Funds - ANS✔✔ Financial institutions that offer savings plans through which fund
participants accumulate savings during their working years before withdrawing them during
their retirement years.
Loanable Funds Theory - ANS✔✔ The level of interest rates results from factors that affect the
supply of and demand for loanable funds.
Unbiased Expectations Theory - ANS✔✔ At any given point in time, the yield curve reflects the
market's current expectations of future short-term rates.
Liquidity Premium Theory - ANS✔✔ Long-term rates are equal to geometric averages of current
and expected short-term rates, plus liquidity risk premiums that increase with the security's
maturity.
