Financial Environments Comparison Quiz

What is a characteristic of depository institutions according to the text?

Buy securities at low prices

Accept deposits and issue contracts (correct)

Primarily offer life insurance

Issue contracts but not deposits

What characterized the New Financial Environment (NFE)?

Fixed rates on assets

Highly specialized financial system

Short-term loans only

Market-determined rates on assets (correct)

What type of banks were set up in the Old Financial Environment (OFE)?

Universal banks

Savings and mortgage banks

Commercial banks granting short-term loans (correct)

Rural banks investing low

Which type of financial institution falls under non-depository institutions category?

Trust companies Signup and view all the answers

What is the main risk associated with financial intermediation according to the text?

Possibility of deviating returns from expectations Signup and view all the answers

What differentiates the activities in the Old Financial Environment from the New Financial Environment?

Market-determined rates on assets in NFE Signup and view all the answers

What is the primary role of financial intermediaries?

Acting as a bridge between investors and savers Signup and view all the answers

How do financial intermediaries differ from market specialists or brokers?

They buy securities for their own account Signup and view all the answers

What distinguishes direct finance from indirect finance?

The involvement of financial intermediaries Signup and view all the answers

When a bank issues checking accounts or time deposit certificates to depositors, what type of finance is it considered?

Direct finance Signup and view all the answers

Which financial institution may underwrite certain original issues according to the text?

Investment banks/merchant banks Signup and view all the answers

Why do financial intermediaries issue their own financial instruments called secondary securities?

To directly sell them to investors or surplus units Signup and view all the answers

What type of financial intermediaries are market specialists?

They channel funds from surplus units to deficit units Signup and view all the answers

In indirect finance, what is the role of financial intermediaries?

They pool deposits and transform them into secondary securities Signup and view all the answers

What distinguishes old simple financial intermediaries from modern ones?

Old intermediaries had simple structures and single functions Signup and view all the answers

How do market specialists differ from traditional financial intermediaries?

Market specialists do not issue their own financial instruments Signup and view all the answers

What is the primary function of market specialists?

Channeling funds from surplus units to deficit units Signup and view all the answers

How does indirect finance differ from direct finance?

Direct finance connects depositors and borrowers directly Signup and view all the answers