Exam 3 Quizzes | FIN 3113 - Financial Systems, Quizzes of Finance

Download Exam 3 Quizzes | FIN 3113 - Financial Systems and more Quizzes Finance in PDF only on Docsity! TERM 1 securitized DEFINITION 1 Over recent years, many home mortgages have been ______________. This means that the mortgage loans are pooled, and bonds are issued against the mortgage loan payments represented in the pool. TERM 2 loans to higher-risk borrowers DEFINITION 2 We've encountered so-called "subprime" loans, which have been especially newsworthy over the last year or two. These are TERM 3 collateralized mortgage obligation DEFINITION 3 A/an ________________ can be viewed as a multi-class pass- through security, arising when mortgage loans are securitized. TERM 4 adjustable rate DEFINITION 4 A/an ________________ mortgage is one in which the interest rate is tied to some market interest rate. As the market rate changes, the mortgage interest rate will be re-set; hence, the payment amount can change. TERM 5 Lender; borrower DEFINITION 5 With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk. TERM 6 $1,529 DEFINITION 6 Julie is applying for a home mortgage loan of $190,000. The quoted interest rate is 9.0%. Julie will make equal monthly payments, to pay off the loan over 30 years. The monthly payment amount is _________. (nearest dollar) TERM 7 securitization of mortgage loans. DEFINITION 7 "Freddie Mac" and "Fannie Mae" are important institutions that came up in connection with: TERM 8 Higher; less interest DEFINITION 8 Mortgage payments are _____ on a 15 year fixed rate mortgage than on a 30 year fixed rate mortgage, and _____ is paid on a 15 year mortgage than on a 30 year mortgage, ceteris paribus TERM 9 is not a VA or FHA mortgage. DEFINITION 9 If a mortgage loan is called "conventional," this means that the loan: TERM 10 Prepayment penalty DEFINITION 10 Mortgage fees paid by the homeowner at or prior to closing upon the purchase of a house typically include all but which one of the following TERM 21 Loans DEFINITION 21 _______________ provide(s) the main revenue-generating asset category for banks TERM 22 interest rate spread DEFINITION 22 The difference between a commercial bank's average rate earned on loans and its average rate paid on deposits is called the TERM 23 economies of scope DEFINITION 23 When a bank displays lower its average production costs by offering wider variety of services, it demonstrates the phenomenon called: TERM 24 mortgage loans DEFINITION 24 In 2006 and 2007, there was a notable increase in delinquencies and bank foreclosures on: TERM 25 Commercial banks DEFINITION 25 _________________________ represent the largest group of depository institutions, measured by asset size TERM 26 community bank DEFINITION 26 A/an __________________is a smaller bank, specializing in consumer-oriented banking services. TERM 27 liability DEFINITION 27 Looking at a commercial bank's balance sheet, we observe the customer deposits as a/an _______________ item TERM 28 higher monitoring and information collection costs DEFINITION 28 Which of the following would not be among the advantages of international expansion by a bank TERM 29 (a) and (b) DEFINITION 29 Transactions accounts include TERM 30 NOW account DEFINITION 30 The _________________ is a bank account having check-writing privileges, which also pays interest. TERM 31 dual DEFINITION 31 The U.S. banking system is often referred to as a ____________________ banking system, because there are two governmental "levels" providing bank charters. TERM 32 systematic risk DEFINITION 32 Credit risk that is related to pervasive, economy-wide factors, would be termed: TERM 33 operational risk DEFINITION 33 In 2007, it was discovered that millions of credit card numbers had been stolen from TJX Company, due to a breach in computer network security. This episode provides an example of: TERM 34 credit risk DEFINITION 34 In the mid-2000s, a number of banks lost billions of dollars on failing mortgage loans. The risk of such occurrences would be categorized as TERM 35 asset value falling below liability value DEFINITION 35 The risk of "insolvency" is basically the risk of: TERM 46 advantages of securitization DEFINITION 46 -FIs can reduce liquidity risk, interest rate risk, and credit risk of their loan portfolios -FIs generate income from origination and service fees TERM 47 Federal National Mortgage Association (Fannie Mae) DEFINITION 47 established in the 1930s to buy FHA and VA mortgages from thrifts so they could make more mortgage loans TERM 48 Federal Home Loan Mortgage Corporation (Freddie Mac) DEFINITION 48 was formed in 1968 to facilitate financing of conventional mortgages TERM 49 securitization DEFINITION 49 The process of packaging and/or selling mortgages which are then used to back publicly traded debt securities is called TERM 50 lender; borrower DEFINITION 50 With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the _____ bears the interest rate risk. TERM 51 none of the above DEFINITION 51 As compared to FRMs, ARMs result in which of the following for the lender? I. higher interest rate risk II lower default risk III greater prepayment penalty fees TERM 52 I, III, IV DEFINITION 52 Which of the following statements about GNMA is/are true? I. GNMA provides timing insurance. II. GNMA creates pools of mortgages and issues securities. III. GNMA insures only FHA, VA and FmHA loans. IV. GNMA requires that all mortgages in the pool have the same interest rate. TERM 53 I, II, III DEFINITION 53 A MBB differs from a CMO or a pass-through in that . I. The MBB does not result in the removal of mortgages from the balance sheet. II. A MBB holder has no prepayment risk. III. Cash flows on a MBB are not directly passed through from mortgages. TERM 54 broker; transformer DEFINITION 54 In selling loans, FIs act as an asset _____ and in creating CMOs FIs act as an asset _____. TERM 55 larger; greater DEFINITION 55 If a mortgage pass through experiences larger prepayments than expected early on in the life of the security the result will be that pass through holders will receive _____ than expected cash flows early on and _____ than expected cash flows later on TERM 56 I, II, III DEFINITION 56 The traditional interbank loan sale market has diminished because of . I. Reduced importance of correspondent banking II. Decreases in barriers to nationwide banking III. Increases in moral hazard concerns TERM 57 I, II DEFINITION 57 Loan sales are likely to continue because . I. They can increase near term reported earnings II. They reduce the amount of capital required III. More corporate borrowers have access to the commercial paper market TERM 58 above average; below average DEFINITION 58 In a 3 class sequential pay CMO, if we consider Class B holders as having average prepayment risk then Class A holders have ________ prepayment risk and Class C holders have ________ prepayment risk. TERM 59 CMO DEFINITION 59 forms of securitization is usually "double securitization?" TERM 60 all; none; some DEFINITION 60 With a GNMA pass through the investor bears ____ of the prepayment risk, with a noncallable mortgage backed bond the investor bears ______ of the prepayment risk and with a CMO the investor bears _______ of the prepayment risk. TERM 71 liquidity risk DEFINITION 71 The risk that an unanticipated increase in liability withdrawals may cause an FI to have to sell assets at fire sale prices is an example of TERM 72 reinvestment risk DEFINITION 72 A bank has invested in U.S. Treasury investments that mature in 2 years. They will be held until maturity. The investments are funded with 3 year maturity time deposits. The primary risk this bank faces is TERM 73 rise; fall DEFINITION 73 If a bank is exposed to refinancing risk its profitability is reduced if interest rates _____, and if it is exposed to reinvestment risk its profitability is reduced if interest rates _____. TERM 74 vulture funds DEFINITION 74 specialized funds that invest in distressed loans TERM 75 correspondent banking DEFINITION 75 is a relationship between a small bank and a large bank in which the large bank provides a number of deposit, lending, and other services TERM 76 mortgage backed bonds (MBBs) DEFINITION 76 The FI is subject to prepayment risk on the underlying mortgages TERM 77 loans DEFINITION 77 largest asset item TERM 78 deposits DEFINITION 78 largest liability item TERM 79 interest rate spread DEFINITION 79 is the difference between lending and deposit rates TERM 80 off balance sheet items DEFINITION 80 contingent asset or contingent liability items TERM 81 why banks go global DEFINITION 81 l risk diversification l economies of scale l distribute new product innovations internationally l opportunity to find the cheapest and most available sources of funds l service the needs of domestic multinational corporations regulatory avoidance TERM 82 refinancing risk DEFINITION 82 If an FIs assets are longer-term than its liabilities, it faces TERM 83 reinvestment risk DEFINITION 83 If an FIs assets are shorter-term than its liabilities, it faces TERM 84 insolvency risk DEFINITION 84 is the risk that an FI may not have enough capital to offset a sudden decline in the value of its assets relative to its liabilities