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1 | |
The financial services industry lends and borrows money. Since the ability of the borrower to repay the loan depends upon future events, risk is a key feature of this industry. |
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| | A) | TRUE |
| | B) | FALSE |
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2 | |
Banks are financial institutions that receive deposits from individuals and firms and then make loans to individuals and firms. |
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| | A) | TRUE |
| | B) | FALSE |
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3 | |
Insurance companies are not financial institutions since they do not take-in deposits. |
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| | A) | TRUE |
| | B) | FALSE |
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4 | |
A primary function of the financial services industry is to channel the economy’s savings into good investments. |
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| | A) | TRUE |
| | B) | FALSE |
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5 | |
Another important function of the financial services industry is to correctly evaluate the true risk of various investments and to reward lenders for the risk. |
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| | A) | TRUE |
| | B) | FALSE |
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6 | |
Asymmetric information (the borrower knows more about the risks than the lender) is unavoidable and it tends to undermine the development of financial institutions and markets; this is one of the main reasons why financial transactions are heavily regulated in almost all nations. |
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| | A) | TRUE |
| | B) | FALSE |
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7 | |
Prior to the introduction of the euro, France and Germany had separate currencies; this acted as a barrier to trade in financial services since: |
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| | A) | tariffs made it more expensive to lend across international borders. |
| | B) | French and German banks colluded to divide the market between them. |
| | C) | the fact that the exchange rate could change made it extra risky for a lender based in one currency to lend to a borrower based in another; thus foreign banks typically would have to charge more for loans than local banks. |
| | D) | All of the above. |
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8 | |
European banks have tended to merge with other banks in the same nation, rather than merging across international lines. Nevertheless: |
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| | A) | competition can rise since banks have the right to make intra-EU loans and the introduction of the euro has made this less risky. |
| | B) | financial markets are replacing banks as a source of loans for companies. |
| | C) | the result has been a big increase in collusion among banks. |
| | D) | None of the above. |
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9 | |
European stock markets are: |
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| | A) | a way for medium and large companies to raise capital. |
| | B) | marked by a ‘home market bias’, i.e. European stock market investors tend to mainly buy stocks listed on their national stock market. |
| | C) | becoming more integrated due to the euro. |
| | D) | All of the above. |
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10 | |
In the 19th century, Sterling was the undisputed international currency. Sterling was displaced by the: |
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| | A) | Japanese yen. |
| | B) | US dollar. |
| | C) | euro. |
| | D) | deutschemark. |
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11 | |
A vehicle currency is one that is used to denominate ________ and _______ transactions, even when the currency is not that of either party in the transaction. |
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| | A) | capital, labour market |
| | B) | trade, financial market |
| | C) | car, truck |
| | D) | None of the above. |
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12 | |
The role of the euro as a vehicle currency has increased when it comes to _______, _______ and _______, but not when it comes to _______. |
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| | A) | trade, foreign exchange markets, bonds, international reserves |
| | B) | international reserves, trade, foreign exchange markets, corporate bonds |
| | C) | stocks, bonds, mortages, trade |
| | D) | imports, exports, foreign direct investment, trade. |
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13 | |
A parallel currency is one that circulates inside a country in addition to the national currency. At the moment the dollar is the main parallel currency, but the euro is an important parallel currency in ________, ________ and ________. |
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| | A) | Asia, Australia, Canada. |
| | B) | central and eastern Europe, Russia, parts of Sub-Saharan Africa |
| | C) | Asia, Australia, New Zealand |
| | D) | Canada, Australia, New Zealand |
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14 | |
The introduction of the euro led to a rapid integration of _______ markets, but not _______ markets in euroland. |
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| | A) | land, labour |
| | B) | labour, capital |
| | C) | bond, stock |
| | D) | land, mortage |