FIN 480 Exam 2 Questions and Answers
Graded A+
Financial Intermediary - Correct answer-firm that acts as a "middle man" between
borrowers & savers (ex: banks, insurance companies, pension funds, etc.)
Two Categories of Intermediaries - Correct answer-depository institutions & non-
depository institutions
Depository Institutions - Correct answer-take deposits & make loans, what most
people think of as banks
Non-Depository Institutions - Correct answer-ex: insurance companies, investment
banks, finance companies, pension funds
Insurance Companies - Correct answer-accept premiums, which they invest, in
return for promising compensation to policy holders under certain events
- at most basic level, all operate the same
- for individual policy holder, insurance is way to transfer risk
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,Pension Funds - Correct answer-invest individual and company contributions in
stocks, bonds, and real estate in order to provide payments to retired workers
Securities Firms - Correct answer-include:
- investment banks: issue stocks & bonds to corporate customers & trade them
- mutual fund companies: pool resources of individual & invest them in portfolios
Finance Companies - Correct answer-raise funds directly in financial markets to
make loans to individuals & firms (tend to specialize in particular types of loans)
Government-Sponsored Enterprises (GSEs) - Correct answer-federal credit
agencies that provide loans directly for farmers & home mortgagors... guarantee
programs that insure loans made by private lenders
Types of Depository Institutions - Correct answer-commercial banks, savings &
loans, credit unions
Commercial Banks - Correct answer-for-profit institution, has
owners/shareholders, gathers deposits & make loans
Savings & Loans - Correct answer-owned by "members", traditionally took
deposits & wrote mortgages, unable to issue checking accounts, limited amount of
commercial loans
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,Credit Unions - Correct answer-owned by "members", traditionally limited
membership, works like a bank
Retail Banks - Correct answer-"consumer banking", checking & savings account,
mortgages & car loans, credit cards, home equity lines of credit
Corporate Banks - Correct answer-"business banking", loans, cash management,
equipment lending (leases & loans), trade finance (letters of credit, bill collection)
Investment Banks - Correct answer-purchase & sale of stocks & bonds, IPOs,
M&As, frequently help with hedging activities, speculative trading
Banking - Correct answer-combination of businesses designed to deliver the
services already discussed
- linking borrowers and savers
- processing info
- diversification of risk
- payments & liquidity
???
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, In the last 30 years, the number of banks with branches has ____________, while
the number of unit banks has ______________. - Correct answer-increased;
decreased
Big 4 Banks - Correct answer-U.S. banking system dominated by small # of really
large banks... Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
McFadden Act - Correct answer-required that nationally chartered banks meet the
branching restriction of the states in which they were located
- most states have laws forbidding branch banking... results in large number of
small banks
- prohibited inter-state banks (could only branch in one state)
- fear that large banks would drive small banks out of business, reducing banking
quality in smaller communities (fragmented banking system nearly devoid of large
institutions)
Glass-Steagall Act - Correct answer-- created Federal Deposit Insurance
Corporation (FDIC)... provided insurance to individual depositors, so they would
not lose their savings in the event that a bank failed
- prohibited commercial banks from engaging in insurance & securities business
- restricted bank assets to certain approved forms of debt
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
Graded A+
Financial Intermediary - Correct answer-firm that acts as a "middle man" between
borrowers & savers (ex: banks, insurance companies, pension funds, etc.)
Two Categories of Intermediaries - Correct answer-depository institutions & non-
depository institutions
Depository Institutions - Correct answer-take deposits & make loans, what most
people think of as banks
Non-Depository Institutions - Correct answer-ex: insurance companies, investment
banks, finance companies, pension funds
Insurance Companies - Correct answer-accept premiums, which they invest, in
return for promising compensation to policy holders under certain events
- at most basic level, all operate the same
- for individual policy holder, insurance is way to transfer risk
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,Pension Funds - Correct answer-invest individual and company contributions in
stocks, bonds, and real estate in order to provide payments to retired workers
Securities Firms - Correct answer-include:
- investment banks: issue stocks & bonds to corporate customers & trade them
- mutual fund companies: pool resources of individual & invest them in portfolios
Finance Companies - Correct answer-raise funds directly in financial markets to
make loans to individuals & firms (tend to specialize in particular types of loans)
Government-Sponsored Enterprises (GSEs) - Correct answer-federal credit
agencies that provide loans directly for farmers & home mortgagors... guarantee
programs that insure loans made by private lenders
Types of Depository Institutions - Correct answer-commercial banks, savings &
loans, credit unions
Commercial Banks - Correct answer-for-profit institution, has
owners/shareholders, gathers deposits & make loans
Savings & Loans - Correct answer-owned by "members", traditionally took
deposits & wrote mortgages, unable to issue checking accounts, limited amount of
commercial loans
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,Credit Unions - Correct answer-owned by "members", traditionally limited
membership, works like a bank
Retail Banks - Correct answer-"consumer banking", checking & savings account,
mortgages & car loans, credit cards, home equity lines of credit
Corporate Banks - Correct answer-"business banking", loans, cash management,
equipment lending (leases & loans), trade finance (letters of credit, bill collection)
Investment Banks - Correct answer-purchase & sale of stocks & bonds, IPOs,
M&As, frequently help with hedging activities, speculative trading
Banking - Correct answer-combination of businesses designed to deliver the
services already discussed
- linking borrowers and savers
- processing info
- diversification of risk
- payments & liquidity
???
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, In the last 30 years, the number of banks with branches has ____________, while
the number of unit banks has ______________. - Correct answer-increased;
decreased
Big 4 Banks - Correct answer-U.S. banking system dominated by small # of really
large banks... Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
McFadden Act - Correct answer-required that nationally chartered banks meet the
branching restriction of the states in which they were located
- most states have laws forbidding branch banking... results in large number of
small banks
- prohibited inter-state banks (could only branch in one state)
- fear that large banks would drive small banks out of business, reducing banking
quality in smaller communities (fragmented banking system nearly devoid of large
institutions)
Glass-Steagall Act - Correct answer-- created Federal Deposit Insurance
Corporation (FDIC)... provided insurance to individual depositors, so they would
not lose their savings in the event that a bank failed
- prohibited commercial banks from engaging in insurance & securities business
- restricted bank assets to certain approved forms of debt
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
