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Financial Services Overview Quiz
47 Questions
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Financial Services Overview Quiz

Created by
@UnboundBouzouki3829

Questions and Answers

What do financial institutions earn by acting as financial intermediaries?

  • Net interest margin and fees (correct)
  • Only commissions
  • Direct loans from surplus economic units
  • Only fees from borrowed funds

    • In indirect financing, who are the ultimate borrowers?

  • Regulatory bodies
  • Financial institutions
  • Surplus economic units
  • Deficit economic units (correct)

    • What represents the difference between the average cost of funds and the average return from lending?

  • Net interest margin (correct)
  • Principal amounts
  • Loan terms
  • Service fees

    • What is the role of financial intermediaries with respect to economic units?

    <p>To act as both borrower and lender</p> Signup and view all the answers

    In the context of indirect financing, what is a primary security?

    <p>Debt instruments issued by deficit economic units</p> Signup and view all the answers

    What describes the primary financial markets?

    <p>Markets where new securities are created</p> Signup and view all the answers

    Why is it important not to confuse primary and secondary financial markets?

    <p>They relate to different types of securities and transactions</p> Signup and view all the answers

    What types of services do financial institutions provide?

    <p>A variety of services, including financial advice</p> Signup and view all the answers

    What is disintermediation in the context of finance?

    <p>The process of large borrowers relying more on direct finance.</p> Signup and view all the answers

    How do financial institutions typically generate revenue from indirect financing?

    <p>Net interest margin and fees.</p> Signup and view all the answers

    Which of the following is NOT a function of a financial institution?

    <p>Securitising secondary financial assets.</p> Signup and view all the answers

    Which type of financial institution primarily attracts savings through deposit accounts?

    <p>Deposit-taking financial institutions.</p> Signup and view all the answers

    What is the primary characteristic of non-bank financial institutions?

    <p>They raise funds based on their main financial activity.</p> Signup and view all the answers

    What types of accounts do deposit-taking financial institutions usually offer?

    <p>On-demand and term deposit accounts.</p> Signup and view all the answers

    Which of the following represents indirect finance?

    <p>A financial institution acts as a broker for investment services.</p> Signup and view all the answers

    Which type of revenue source is typically associated with direct financing?

    <p>Service fees and commissions.</p> Signup and view all the answers

    Which type of financial institution comprises more than 50% of the total assets of all financial systems?

    <p>Commercial banks</p> Signup and view all the answers

    What has contributed to the decline in percentage share of financial assets owned by building societies?

    <p>Conversion of building societies into banks</p> Signup and view all the answers

    Which sector is identified as one of the fastest growing within the financial system?

    <p>Superannuation funds</p> Signup and view all the answers

    What has led retail investors to move away from traditional forms of investment like bank deposits?

    <p>Growth of public unit trusts and managed investments</p> Signup and view all the answers

    When did the Reserve Bank begin officially collecting statistics on mortgage originators?

    <p>1996</p> Signup and view all the answers

    What happened to mortgage originators following the Global Financial Crisis?

    <p>They shrank in size and influence</p> Signup and view all the answers

    What major factor has influenced the growth of superannuation funds?

    <p>Government wages and taxation policy</p> Signup and view all the answers

    Which type of financial institution has been recognized more recently as a significant player in the financial system?

    <p>Securitisation vehicles</p> Signup and view all the answers

    What characterized the Australian financial system before the 1980s?

    <p>Extensive direct controls over financial institutions</p> Signup and view all the answers

    During which decade were direct controls on the Australian financial system progressively removed?

    <p>1980s</p> Signup and view all the answers

    What was a major goal of government intervention in financial markets?

    <p>To achieve macroeconomic objectives</p> Signup and view all the answers

    In which period did the role of government change to a stronger form of intervention?

    <p>Post-deregulation in the 1990s</p> Signup and view all the answers

    What are the macroeconomic objectives associated with government intervention?

    <p>Economic growth, full employment, and price stability</p> Signup and view all the answers

    How did government intervention change in nature after the 1980s?

    <p>It shifted to a stronger yet different approach</p> Signup and view all the answers

    Which of the following is not a reason for government intervention in finance markets?

    <p>To facilitate monopolistic behaviors</p> Signup and view all the answers

    What was a key feature of the financial system during the deregulation period?

    <p>Features of a competitive market</p> Signup and view all the answers

    What type of financial institution typically does not provide loans or take deposits?

    <p>Investment banks</p> Signup and view all the answers

    Which regulatory body supervises credit unions in Australia?

    <p>APRA</p> Signup and view all the answers

    Which type of institution has the highest percentage share of total assets in the Australian financial system?

    <p>Banks</p> Signup and view all the answers

    How many building societies were reported in Australia as of June 2017?

    <p>4</p> Signup and view all the answers

    What percentage share do finance companies hold in the Australian financial system?

    <p>1.98%</p> Signup and view all the answers

    Which of the following types of institutions is regulated by ASIC?

    <p>Securitisers</p> Signup and view all the answers

    What is the role of non-deposit taking financial institutions?

    <p>They manage funds under contractual arrangements.</p> Signup and view all the answers

    Which financial institution is primarily involved with life insurance in Australia?

    <p>Life insurance companies</p> Signup and view all the answers

    What is the total asset amount of superannuation funds as reported?

    <p>$1,865.10 billion</p> Signup and view all the answers

    How many general insurance companies are there in the Australian financial system?

    <p>104</p> Signup and view all the answers

    Which financial institution is primarily focused on investment and capital management?

    <p>Money market corporations</p> Signup and view all the answers

    Which of the following has the largest number of institutions in the Australian financial system?

    <p>Superannuation funds</p> Signup and view all the answers

    What is the total asset amount for cash management trusts?

    <p>$34 billion</p> Signup and view all the answers

    What percentage share do health insurance companies hold in the Australian financial system?

    <p>0.19%</p> Signup and view all the answers

    What type of institution does not fall under the category of deposit-taking institutions?

    <p>Non-ADI Financial Institutions</p> Signup and view all the answers

    Study Notes

    Financial Services Overview

    • Financial institutions provide a variety of services including financial advice, management, marketing, sales negotiation, and underwriting arrangements, for which they earn commissions or fees.

    Indirect Finance

    • Indirect finance, or intermediated financing, involves financial institutions as intermediaries between surplus economic units (savers) and deficit economic units (borrowers).
    • Surplus units lend funds to financial institutions, which then lend those funds to borrowers, creating a borrowing-lending dynamic.
    • Income for financial intermediaries comes from net interest margins and fees, representing profit from the difference between interest earned and interest paid.
    • Primary securities issued by deficit units are held by financial intermediaries which then issue secondary securities to surplus units, lacking direct claims on each other.

    Advantages of Financial Intermediation

    • Financial intermediaries provide numerous benefits, enhancing access to funds for borrowers while pooling savings for efficient allocation.
    • Securitization in secondary markets is less likely, as trading occurs primarily through secondary financial assets.
    • A trend towards disintermediation observed as large borrowers increasingly utilize direct financing options.

    Nature and Role of Financial Institutions

    • Financial institutions focus on financial intermediation and offering various financial services.
    • Revenue stems from net interest margins in indirect finance and fees in direct financing.
    • Distinction between deposit-taking institutions (e.g., banks) that accept deposits and provide loans, and non-deposit-taking institutions (e.g., investment firms) that do not.

    Current Institutional Features of the Australian Financial System

    • The Australian financial system hosts a range of institutions categorized by their fund-raising practices.
    • Banks, building societies, and credit unions play significant roles, with commercial banks controlling over 50% of total financial assets.
    • A noticeable growth in superannuation funds and investment products like public unit trusts is noted, reflecting shifts in investor behavior away from traditional deposits.

    Observations on Australian Financial Institutions

    • Building societies and credit unions, despite having many individual institutions, maintain a low percentage of total financial assets due to conversions into banks.
    • Life offices have seen a decline in market share while superannuation funds represent a fast-growing sector facilitated by government policy.
    • Recognition of mortgage originators as financial institutions since the late 1990s, which are tied to the growth of housing loans and subsequent securitization.

    Government Intervention in Financial Markets

    • Government intervention in financial markets has evolved significantly over the past fifty years, transitioning through regulation, deregulation, and increased intervention post-deregulation.
    • Regulation before the 1980s involved extensive control over banks, while the 1980s deregulation led to a more competitive financial environment.
    • Post-deregulation intervention focused on strengthening market stability and safety, differing from previous regulatory norms.

    Reasons for Government Intervention

    • Key objectives include promoting economic growth, full employment, price stability, and external balance, demonstrating the significant impact of the financial system on national performance.
    • Ensuring an efficient, fair, and competitive financial system remains a core rationale for government policy actions.

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    Description

    Test your understanding of financial services and intermediation. This quiz covers financial institutions, indirect finance, and the advantages of financial intermediation. Challenge yourself with questions that explore how financial intermediaries operate and their role in the economy.

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