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Economics
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23 Nov 2019

The "shadow banking system" is larger (and has become more important to the US money and capital markets) than the commercial banking system. But, unlike commercial banks, many types of "shadow banks" ---money market funds, pension plans, hedge funds, actively managed

mutual funds---are facing serious problems. What are these problems? Discuss for each of the

four types of shadow banks cited .

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Bunny Greenfelder
Bunny GreenfelderLv2
17 Sep 2019
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Related questions

1-Principal __________________ fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries.

Financial markets security exchanges financial intermediaries’ investment funds

Savings institutions

bitcoin/annuity payments securities/investment advice

2-Deposits that are payable on demand but do not allow their owner to write checks are called _______________.

Restricted deposits savings deposits time sensitive deposits non-checkable deposits demand deposits

3-Deposit with fixed terms to maturity are called ___________.

Relative deposits term deposits fixed deposits restricted deposits time deposits

4-Commercial banks ___________ primarily by issuing checking deposits, savings accounts, and time deposits.

Increase profits decrease cost attract investors raise funds increase assets

5-A type of depository institution that over time has become more like commercial banks and are now more competitive with each other are called ______________ associations and mutual savings banks.

savings and loan contractual savings institutions, investment intermediaries

crowd funding sites deposit and loan

6-Credit unions are typically very small cooperative lending institutions organized around a particular _____________________: members of the same union, employees of a particular firm, and members of the same profession, such as teachers.

Type of investment corporation financial strategy risk avoidance strategy

group that have something in common

7-Insurance companies and pension funds are examples of ________________ institutions.

contractual savings depository institutions (banks), investment intermediaries entrepreneurial at risk

8-Contractual savings institutions (CSI’s) acquire funds at _______________ on a contractual basis.

Estate sales periodic intervals bankruptcy auctions liquidations initial offerings

9-CSI’s do not worry as much as banks about losing funds quickly because they can predict with reasonable accuracy how much they will have to pay out in ___________ in coming years.

Interest payments dividends bank notes benefits IOU’s

10-_______________ is not as important a consideration for CSI’s as it is for banks.

Types of customers adverse selection Liquidity of assets portfolio diversification liabilities

11-CSI investments are typically ____________ such as corporate bonds, stocks, and mortgages.

Short-term securities long-term securities 3-month term securities overnight securities short-term assets

12-Companies that insure people against financial hazards following a death and sell annuities are called ________________________.

Predatory companies over-the-counter companies risky companies life insurance companies depository companies

13-_________________ that people pay to keep their policies in force constitute the funds life insurance companies use to buy corporate bonds and mortgages.

Interest dividends installments late fees Premiums

14-Companies that ___________ their policyholders against loss from theft, fire, and accidents are called fire and casualty insurance companies.

Insure Hold harmless guarantee advise oversee

15-Fire and casualty insurance companies acquire funds through the _________________ for their policies.

Sale of stock liquidation of collection of premiums interest payments dividends

16-Because of the greater possibility of loss of funds if major disasters occur, fire and casualty companies buy more ________________ than life insurance companies do.

Comprehensive insurance liquid assets risky assets corporate insurance bankruptcy insurance

17-Private pension funds and state and local retirement funds provide _______________ in the form of annuities to employees who are covered by a pension plan.

Dividends revenue stock options retirement income loans

18-Pension funds acquire funds from _____________ from employers and employees.

Fees pledges contributions garnishments payroll deductions

19-The largest ______________ of pension funds are corporate bonds and stocks.

Liability holdings asset holdings interest payments dividend payments fees

20-_________________________ include; finance companies, mutual funds and money market mutual funds.

depository institutions (banks), contractual savings institutions, stock markets

bond markets Investment intermediaries

21-Finance companies raise funds by ___________ commercial paper and by ____________ stocks and bonds.

Issuing/selling selling/buying selling/ issuing buying/issuing discounting/shorting

22-Finance companies lend these funds to __________, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses.

-depository institutions (banks), consumers contractual savings institutions,

investment intermediaries corporations

23-It is common for a finance company to be organized by a parent corporation to help _______________, such as; ford motor credit company.

Diversify its portfolio acquire assets liquidate liabilities sell its product off set profits

24-Selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds describes how _______________ acquire funds.

depository institutions (banks), mutual funds contractual savings institutions

stock markets bond markets

25-Shareholders can sell shares at any time but shares are subject to value fluctuations therefore mutual fund investments can be _______.

risky Subject to high returns certain investments interest rate neutral misunderstood

26-Money market funds sell _______ like mutual funds and offer checking accounts like ___________.

Deposits/insurance companies bonds/banks shares/insurance companies

Shares/ banks stock options/crowd sourcing sites

27-Money market funds invest in ________ and very ____________ and interest on these assets is paid out to the shareholders.

High risk/non-liquid junk bonds/risky assets low risk/ liquid assets low risk/junk bonds sub-prime securities/liquid assets

28-Money market funds have experienced extraordinary growth primarily because people like the idea of having a checking account that ____________________.

Has no fees pays them interest offers overdraft protection pays dividends

always has money in it

29-Investment banks help a ______________ issue securities.

Person foreign country stock market corporation bond market

30-Investment banks advises the corporation on which type of ______________ to issue; stocks or bonds.

Insurance loans interest rates dividends products securities

31-Investment banks help sell the corporations securities by purchasing them from the corporation and _______ them in the market.

Discounting re-selling insuring advertising financing

32-Investment banks also act as ___________ and earn enormous fees by helping corporations acquire other companies through mergers or acquisitions.

Depositories money launders deal makers insurance companies entrepreneurs

10. Which of the following instruments would most likely be utilized in the direct finance market?

A) Bank commercial loans. B) U.S. Treasury Bills.

C) Commercial Paper. D) Equities.

11. The managers of a firm met with a loan officer from a local bank to apply for a loan. They told the bank's loan

officer that the loan is intended to finance an expansion in the company’s production facility. Based on this

information, the loan officer granted the loan. However unexpected tariffs increased the cost of raw materials

needed in the production process and the loan had to be used to pay for materials rather than the planned

expansion. This incident is an example of

A) moral hazard.

B) market risk.

C) adverse selection.

D) banks' failing to charge high enough interest rates on business loans.

E) a situation in which direct finance, rather than indirect finance, should be employed.

12. From the choices below, indicate what is likely the most important asset category (in terms of $ value) in a

Money Market Mutual Fund.

A) Corporate Bonds B) Treasury Bills C) Non-Negotiable CDs D) Equities

13. Compared to interest rates on long-term U.S. Treasury debt, interest rates on short-term U.S. Treasury debt tends to

fluctuate________ and is usually __________ over time.

A) more: higher B) less: lower C) more; lower D) less; higher

14. Which of the following is true about legal tender?

A) Only legal tender may be used to pay taxes in the U.S.

B) Having legal tender status from the government is sufficient for something to be used as money.

C) Cash and checking accounts are legal tender.

D) None of the above is accurate.

15. When economists refer to the role of money as a unit of account, they mean that

A) most accounting systems reflect that goods are purchased with currency.

B) all goods are priced in terms of all other goods.

C) money gives traders a single, consistent way of measuring value in the economy.

D) money makes it possible for specialization to take place.

E) agents do not have to exercise their claim on scarce resources immediately.

16. The Federal Reserve System:

A) is required to make loans in the Fed Funds market

B) is required to create the money necessary for the U.S. Government to pay its bills.

C) is required to make loans to the U.S. Treasury.

D) is required to maintain price stability.

17. The interest rate that the Fed targets to indicate its stance on monetary policy is known as:

A) the discount rate. B) the prime rate. C) the fed funds rate. D) the standard rate.

18. Of money's three functions, the one that allows us to make decisions that maximize our satisfaction is its function as a

A) medium of exchange B) unit of account. C) standard of deferred payment D) store of value.

19. In the United States, money is backed by

A) gold and silver. B) Federal Reserve notes.

C) Congress D) Social infrastructure, political stability, and economic potential.

20. Which of the following would not be considered to be part of the money supply?

A) Currency in ATM machines

B) Coins stored in children’s piggy banks

C) U.S. Federal Reserve notes being used for transactions in India

D) A & B above

E) None of the above. All are part of the U.S. money supply.

Q1. The total resource cost of goods and services produced by the U. S. economy is known as
a. real GDP
b. personal income
c. national wealth
d. national income

Q2. The difference between GDP and final sales equals
a. depreciation
b. exports
c. imports
d. net inventory change

Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income.
a. true
b. false

Q4. If a lawn service mows your grass, it is included in the GDP.
a. true
b. false

Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n)
a. final good
b. intermediate good
c. consumer good
d. capital consumption allowance

Q6. Imports constitute a minus figure in national income accounting.
a. true
b. false

Q7. The total value added in the production of a final good
a. exceeds the price of the final good
b. equals the price of the final good
c. exceeds the total payments made to owners of productive resources used in the production
d. both (b) and (c)

Q8. The GDP is reported on a monthly basis by the Department of Commerce.
a. true
b. false

Q9. Transfer payments are added to NI in the process of determining personal income.
a. true
b. false

Q10. U.S. gross domestic product is converted to U.S. gross national product by
a. adding the value of output produced by U.S.-owned resources in foreign countries
b. subtracting the value of output produced by U.S.-owned resources in foreign countries
c. subtracting the value of output produced in the United States by foreign-owned resources
d. both (a) and (c)

Q11. Final sales are always larger than the GDP.
a. true
b. false

Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.)
a. the GDP value is automatically adjusted upward to reflect this
b. the GDP value is automatically adjusted downward to reflect this
c. Official GDP is surely smaller than true total output
d. Official GDP is surely larger than true total output

Q13. A government surplus may trigger a decline in the money supply.
a. true
b. false

Q14. Real wages are determined by multiplying money wages by the CPI.
a. true
b. false

Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment.
a. true
b. false

Q16. An increase in the money supply always causes an increase in the price level.
a. true
b. false

Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise?
a. 30 percent
b. 16.7 percent
c. 8.33 percent
d. 12 percent

Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have
a. increased about 40 percent
b. increased slightly
c. remained about the same
d. declined

Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of
a. $50,000
b. $500
c. $5,000
d. $4,500

Q20. The effect of a change in the money supply on economic activity may be offset by a change in velocity.
a. true
b. false

Q21. The current base period for the CPI is
a. 1967
b. 1977
c. 1982–1984
d. 1990

Q22. In the circular flow, an increase in the money supply tends to result when
a. planned I equals planned S
b. planned I is less than planned S
c. planned I is greater than planned S
d. there is a surplus government budget

Q23. COLA is a form of indexation.
a. true
b. false

Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by the reserve requirement.
a. true
b. false

Q25. The Financial Services Modernization Act
a. reinforced the Glass Steagall Act
b. prevented mergers of banks
c. eliminated barriers between banks, brokerage houses, and insurance companies
d. eliminated all banking regulations

Q26. Each Federal Reserve Bank has its own board of directors.
a. true
b. false

Q27. The most frequently used tool of U.S. monetary policy is
a. the discount rate
b. the reserve requirement
c. open-market operations
d. moral suasion

Q28. When the Fed conducts open-market operations, it primarily uses
a. Treasury bills
b. long-term U.S. government bonds
c. bonds of publicly traded corporations
d. overnight loans of major banks

Q29. The Board of Governors of the Federal Reserve System has
a. 6 members
b. 7 members
c. 1 member from each Federal Reserve Bank
d. 20 members

Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement.
a. true
b. false

Q31. The interest rate at which banks borrow excess reserves from each other is known as the
a. prime rate
b. federal funds rate
c. discount rate
d. T-bill rate

Q32. If member banks need to borrow reserves, they must do so through the discount window.
a. true
b. false

Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy Report.
a. true
b. false

Q34. In terms of the total number of payments, which of the following comprises the largest share?
a. cash
b. personal checks
c. debit cards
d. credit cards

Q35. By buying government securities, the Federal Open Market Committee adds to member banks' reserves.
a. true
b. false

Q36. More than 50 percent of commercial banks in the United States belong to the Federal Reserve System.
a. true
b. false

Q37. The Federal Reserve System is built around
a. 4 regional banks
b. 6 regional banks
c. 12 district banks
d. 1 bank with several branches

Q38. The time lags lead monetarists to contend that monetary policy is counterproductive.
a. true
b. false

Q39. The marginal propensity to consume is
a. the fraction of an increase in income that would be spent on consumer goods
b. the additional desire people have for consumer goods
c. the fraction of a person's total income normally spent for consumer goods
d. the change in consumption resulting from a $1 change in the price level

Q40. The consumption function shows
a. how fast the economy is consuming its capital
b. that the amount of national income determines the rate at which the economy consumes its resources
c. that households' incomes determine how much the households will spend for consumer goods
d. the rate at which people actually use up their consumer goods

Q41. In the simple Keynesian model, if output exceeds aggregate expenditures,
a. there will be no response from businesses
b. inventories will decrease and businesses will increase output
c. inventories will increase and businesses will increase output
d. inventories will increase and businesses will decrease output

Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by
a. $30 billion
b. $20 billion
c. $45 billion
d. $90 billion

Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the
a. multiplier effect
b. marginal propensity to consume
c. marginal propensity to invest
d. consumption function

Q44. In the multiplier formula, 1/MPS equals the multiplier.
a. true
b. false

Q45. The classical economists held that chronic unemployment was likely.
a. true
b. false

Q46. As income increases, the absolute level of planned consumption will increase.
a. true
b. false

Q47. The new classical school contends that government fiscal policy is better than monetary policy in controlling inflation.
a. true
b. false

Q48. Higher price levels are associated with lower aggregate expenditure at every level of income.
a. true
b. false

Q49. Any time that planned leakages exceed planned injections, the economy will expand.
a. true
b. false

Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to
a. reduce total employment in the United States
b. increase total employment in the foreign country
c. reduce total output in the United States
d. increase total output in the United States

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