金融機(jī)構(gòu)習(xí)題解答

1、Chapter OneWhy Are Financial Intermediaries Special?Chapter OutlineIntroductionFinancial Intermediaries Specialness· Information Costs· Liquidity and Price Risk· Other Special ServicesOther Aspects of Specialness· The Transmission of Monetary Policy· Credit Allocation ·

2、 Intergenerational Wealth Transfers or Time Intermediation· Payment Services· Denomination IntermediationSpecialness and Regulation· Safety and Soundness Regulation· Monetary Policy Regulation· Credit Allocation Regulation· Consumer Protection Regulation· Investor

3、Protection Regulation· Entry RegulationThe Changing Dynamics of Specialness· Trends in the United States· Future Trends· Global IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1.Identify and briefly explain the five risks common to financial instituti

4、ons.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2.Explain how economic transactions between household savers of funds and corporate users of fund

5、s would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front i

6、nformation costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would ha

7、ve to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3.Identify and explain three economic disincentives that probably would dampen the flow of funds between household savers of funds and corporate users

8、of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a resul

9、t, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those househ

10、olds willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4.Identify and expl

11、ain the two functions in which FIs may specialize that enable the smooth flow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can b

12、enefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which help reduce information costs, such as full-line firms like Merrill Lynch. The asset transformation functio

13、n is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities of corporations. Thus, FIs take on the costs associated with the purchase of securities. 5.In what sense

14、are the financial claims of FIs considered secondary securities, while the financial claims of commercial corporations are considered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?The funds raised by the financia

15、l claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly in

16、vesting in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing the investments directly with the commercial corporation are reduced because of the efficiencies of the FI. 6.Expl

17、ain how financial institutions act as delegated monitors. What secondary benefits often accrue to the entire financial system because of this monitoring process?By putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive

18、 the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create ne

19、w products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of

20、 funds in the economy.7.What are five general areas of FI specialness that are caused by providing various services to sectors of the economy?First, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have

21、better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchas

22、ed in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8.How do FIs solve the information and related agency costs when household s

23、avers invest directly in securities issued by corporations? What are agency costs? Agency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor the activities of the bo

24、rrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the bo

25、rrower.9.What often is the benefit to the lenders, borrowers, and financial markets in general of the solution to the information problem provided by the large financial institutions?One benefit to the solution process is the development of new secondary securities that allow even further improvemen

26、ts in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of the firm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to im

27、plement.10.How do FIs alleviate the problem of liquidity risk faced by investors who wish to invest in the securities of corporations? Liquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Y

28、et the banks make long-term loans or invest in illiquid assets because they are able to diversify their portfolios and better monitor the performance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without ac

29、cepting the liquidity risk of direct investment. 11.How do financial institutions help individual savers diversify their portfolio risks? Which type of financial institution is best able to achieve this goal?Money placed in any financial institution will result in a claim on a more diversified portf

30、olio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investments in many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the funds investment in a wide array o

31、f stocks and fixed income securities.12.How can financial institutions invest in high-risk assets with funding provided by low-risk liabilities from savers?Diversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification

32、is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13.How can individual savers us

33、e financial institutions to reduce the transaction costs of investing in financial assets?By pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the

34、money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14.What is maturity intermediation? What are some of the ways in which the risks of maturity intermediation are man

35、aged by financial intermediaries?If net borrowers and net lenders have different optimal time horizons, FIs can service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI

36、 can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI can reduce maturity risk exposure by utilizin

37、g liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15.What are five areas of institution-specific FI specialness, and which types of institutions are most likely to be the service providers?First, commercial ba

38、nks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditi

39、onally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutu

40、al funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16.How do depository institutions such as commercial banks assist in the implementation and transmission of monetary polic

41、y?The Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasury securities by the Fed involves the banks in the implementation of monetary p

42、olicy in a less direct manner.17.What is meant by credit allocation regulation? What social benefit is this type of regulation intended to provide?Credit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially import

43、ant. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms more viable leads to a more stable and productive society.18.Which intermediaries best fulfill the intergenerational wealth transfer function? What is this wealth transfer process?L

44、ife insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger g

45、enerations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19.What are two of the most important payment services provided by financial institutions? To what ext

46、ent do these services efficiently provide benefits to the economy?The two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and

47、potentially the international level.20.What is denomination intermediation? How do FIs assist in this process?Denomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest sm

48、all amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore s

49、mall investors can benefit in the returns and low risk which these assets typically offer.21.What is negative externality? In what ways do the existence of negative externalities justify the extra regulatory attention received by financial institutions? A negative externality refers to the action by

50、 one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion

51、 effect that can arise when the failure of one FI can cast doubt on the solvency of other institutions in that industry.22.If financial markets operated perfectly and costlessly, would there be a need for financial intermediaries?To a certain extent, financial intermediation exists because of financ

52、ial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits to intermediation, such as the transmission of monetary policy or credit alloca

53、tion, then FIs would exist even in the absence of financial market imperfections.23.What is mortgage redlining?Mortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a r

54、ed pencil.24.Why are FIs among the most regulated sectors in the world? When is net regulatory burden positive?FIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately ra

55、ises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation. Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI

56、failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI ar

57、e generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not e

58、xist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costs add to private operating costs.

59、To the extent that these additional costs help to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25.What forms of protection and regulation do regulators of FIs impose to ensure their safety and soundness?Regulators have issued s