Chapter 21: Thrift Operations
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 3
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. ____ do not represent an asset of credit unions.
a.
Mortgage-backed securities
b.
Home equity loans
c.
Automobile loans
d.
Stocks
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
10. Which of the following is not an asset of savings institutions?
a.
loans
b.
mortgages
c.
NOW accounts
d.
mortgage-backed securities
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
11. Most mortgages originated by savings institutions are for
a.
commercial buildings.
b.
land for commercial purposes.
c.
single-family homes or multifamily dwellings.
d.
none of the above.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
12. If a savings institution’s assets have a considerably longer duration than its liabilities, it can reduce its exposure to
interest rate risk by
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 4
a.
reducing its proportion of assets in the short duration categories.
b.
increasing its proportion of liabilities in the short duration categories.
c.
increasing its proportion of liabilities in the long duration category.
d.
A and B
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
13. Adjustable-rate mortgages ____ the adverse impact of rising interest rates on a typical savings institution’s spread.
They ____ the favorable impact of declining interest rates on the spread.
a.
reduce; reduce
b.
reduce; increase
c.
increase; increase
d.
increase; reduce
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
14. To measure ____ risk, some savings institutions measure the duration of their respective assets and liabilities.
a.
credit
b.
interest rate
c.
liquidity
d.
none of the above
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
15. A contract that allows for the purchase of a specified debt security for a specified price at a future point in time is
known as a(n)
a.
interest rate futures contract.
b.
interest rate swap contract.
c.
interest cap contract.
d.
security swap contract.
ANSWER:
a
DIFFICULTY:
Moderate
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 6
d.
making loans to foreign governments.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
20. The risk that a credit union will experience an unanticipated wave of withdrawals without an offsetting amount of new
deposits is ____ risk.
a.
credit (default)
b.
interest rate
c.
liquidity
d.
exchange rate
e.
none of the above
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
21. Money market deposit accounts (MMDAs) are
a.
trust accounts managed by savings institutions.
b.
checking accounts that do not pay interest.
c.
accounts offered primarily by money market funds.
d.
deposit accounts offering limited checking and close-to-market interest rates.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
22. Savings institutions commonly ____ to reduce their risk.
a.
purchase futures contracts on stock indexes
b.
purchase futures contracts on Treasury bonds
c.
sell futures contracts on stock indexes
d.
sell futures contracts on Treasury bonds
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 8
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
27. Which of the following is not an advantage of credit unions?
a.
They can offer attractive rates to their member savers and borrowers because they are nonprofit and therefore
are not taxed.
b.
Their noninterest expenses are relatively low, because their labor, office, and furniture are often donated or
provided at a very low cost through the affiliation of their members.
c.
Their large membership allows them to effectively diversify geographically.
d.
All of the above are advantages of credit unions.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
28. A savings institution’s cash flows are ____ related to interest rate movements.
a.
positively related to
b.
inversely related to
c.
unrelated to
d.
none of the above
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
29. The primary use of credit union funds is
a.
loans to credit union members.
b.
the purchase of government securities.
c.
the purchase of agency securities.
d.
the purchase of corporate bonds.
e.
none of the above
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Copyright Cengage Learning. Powered by Cognero.
Page 9
30. ____ are nonprofit organizations composed of members with a common bond.
a.
Credit unions
b.
Savings banks
c.
Savings and loan associations
d.
Commercial banks
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
31. Because credit unions ____ stock, they are technically owned by the ____.
a.
issue; depositors
b.
do not issue; depositors
c.
issue; stockholders
d.
do not issue; management
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
32. Credit unions obtain most of their funds from
a.
issuing common stock.
b.
retained earnings.
c.
share deposits by members.
d.
issuing long-term bonds.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
33. Interest-paying checkable accounts offered by credit unions are called
a.
NOW accounts.
b.
money market deposit accounts.
c.
share certificates.
d.
share drafts.
ANSWER:
d
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 11
b.
interest rate
c.
credit
d.
none of the above
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
38. The maximum insurance per depositor provided by the National Credit Union Share Insurance Fund is
a.
$250,000.
b.
$50,000.
c.
$40,000.
d.
$25,000.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
39. Comparing credit unions with commercial banks and savings institutions
a.
credit unions are less able to quickly generate additional deposits.
b.
savings institutions and commercial banks can borrow from the Central Liquidity Facility, but credit unions
cannot.
c.
savings institutions and commercial banks are less able to quickly generate additional deposits.
d.
credit unions have less exposure to liquidity risk.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
40. The majority of maturities on consumer loans offered by credit unions are ____ term, causing income generated on
their asset portfolio to be ____ to interest rate movements.
a.
long; insensitive
b.
short or medium; sensitive
c.
long; sensitive
d.
short or medium; insensitive
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 13
c.
credit unions to pay a supplemental insurance premium each year.
d.
depository institutions to pay a supplemental insurance premium each year.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
45. According to your text, about ____ percent of credit unions are insured by the National Credit Union Share Insurance
Fund.
a.
20
b.
40
c.
60
d.
90
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
46. In general, savings institutions are larger than commercial banks.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
47. Today, savings institutions are not permitted to invest in junk bonds.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
48. Because savings institutions commonly use long-term liabilities to finance short-term assets, they depend on
additional deposits to accommodate withdrawal requests.
a.
True
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 14
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
49. Savings institutions commonly measure the gap between their rate-sensitive assets and rate-sensitive liabilities in
order to determine their exposure to credit risk.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
50. Savings institutions do not really know the actual maturity of the mortgages they hold and cannot perfectly match the
interest rate sensitivity of their assets and liabilities.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
51. In general, when interest rates fall, a savings institution’s cost of obtaining funds declines more than the decline in the
interest earned on its loans and investments.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
52. High economic growth results in more risk for a savings institution, since its consumer loans, mortgage loans, and
investments in debt securities are more likely to default.
a.
True
b.
False
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 15
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
53. Because credit unions do not issue stock, they are technically sole proprietorships.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
54. Because credit unions are for-profit organizations, their income is taxable.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. Credit unions obtain most of their funds by borrowing from the U.S. government.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
56. Credit unions use the majority of their funds to invest in the stock market.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Copyright Cengage Learning. Powered by Cognero.
Page 16
57. The National Credit Union Administration (NCUA) is responsible for regulating savings institutions.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
58. Credit unions are unregulated as to the types of services they offer.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
59. All federally chartered credit unions are required to obtain insurance from the National Credit Union Share Insurance
Fund (NCUSIF).
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
60. Which of the following is not an objective of a credit union?
a.
to satisfy credit union members
b.
to act as an intermediary for members by repackaging deposits
c.
to provide loans to members who are in need of funds
d.
All of the above are objectives of credit unions.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Copyright Cengage Learning. Powered by Cognero.
Page 17
61. ____ is (are) not a main source of funds for savings institutions.
a.
Deposits
b.
Borrowed funds
c.
Capital
d.
Mortgages
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
62. Which of the following is not a deposit source of funds for savings institutions?
a.
passbook savings
b.
retail CDs
c.
money market deposit accounts
d.
negotiable order of withdrawal (NOW) accounts
e.
All of the above are deposit sources of funds for savings institutions.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
63. ____ is (are) not a main use of funds for savings institutions.
a.
Capital
b.
Mortgages
c.
Consumer and commercial loans
d.
Mortgage-backed securities
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
64. To manage interest rate risk, a savings institution could use
a.
fixed-rate mortgages.
b.
currency options.
c.
interest rate futures contracts.
d.
letters of credit.
ANSWER:
c
Chapter 21: Thrift Operations
Copyright Cengage Learning. Powered by Cognero.
Page 19
c.
required savings institutions to sell off any holdings of junk bonds and prohibited them from investing in junk
bonds in the future.
d.
established the Consumer Financial Protection Bureau.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.21.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension