Chapter 01 Why Are Financial Institutions Special?
KEY
1. Currently (2015) J.P. Morgan Chase is the largest bank holding company in the world and
operations in 60 countries.
FALSE
2. As of 2015, U.S. FIs held assets totaling over $29 trillion
TRUE
3. Financial institutions act as intermediaries between suppliers and users of money.
TRUE
4. If a household invests in corporate securities and does not supervise how the funds are
invested or used by the corporation, the risk of not earning the desired return or not having the
funds returned increase.
TRUE
5. If not done by FIs, the process of monitoring the actions of borrowers would reduce the
attractiveness and increase the risk of investing in corporate debt and equity by individuals.
TRUE
6. Failure to monitor the actions of firms in a timely and complete fashion after purchasing
securities in that firm exposes the investor to agency costs.
TRUE
7. The risk that the sale price of an asset will be less than the purchase price of an asset is called
liquidity risk.
FALSE
8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise
less monitoring power and control over the borrower.
FALSE
1-1
KEY
1. Currently (2015) J.P. Morgan Chase is the largest bank holding company in the world and
operations in 60 countries.
FALSE
2. As of 2015, U.S. FIs held assets totaling over $29 trillion
TRUE
3. Financial institutions act as intermediaries between suppliers and users of money.
TRUE
4. If a household invests in corporate securities and does not supervise how the funds are
invested or used by the corporation, the risk of not earning the desired return or not having the
funds returned increase.
TRUE
5. If not done by FIs, the process of monitoring the actions of borrowers would reduce the
attractiveness and increase the risk of investing in corporate debt and equity by individuals.
TRUE
6. Failure to monitor the actions of firms in a timely and complete fashion after purchasing
securities in that firm exposes the investor to agency costs.
TRUE
7. The risk that the sale price of an asset will be less than the purchase price of an asset is called
liquidity risk.
FALSE
8. Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise
less monitoring power and control over the borrower.
FALSE
1-1
