Session 1 2016

1.

Which of the following are among the functions of financial systems in an economy?

A.

Mobilize and pool the savings of households and firms.
B.

Facilitate the management and diversification of risks.
C.

Facilitate the purchase and sale of goods and services.
D.

Allocate resources to fund investment and consumption.
E.

Monitor firm managers and exert corporate control

Correct Answer(s)
A. Mobilize and pool the savings of households and firms.
B. Facilitate the management and diversification of risks.
C. Facilitate the purchase and sale of goods and services.
D. Allocate resources to fund investment and consumption.
E. Monitor firm managers and exert corporate control

2.

Which of the following statements regarding the structure of financial systems (the mix in a country of financial institutions, instruments and markets) are true?

A.

Financial structure varies across countries.
B.

The financial structure in any given country tends not to change over time.
C.

Governments usually are best placed to define financial structure for their country.
D.

Supervisors should avoid actions that might effect the financial structure in their country.

Correct Answer
A. Financial structure varies across countries.

3.

Which are indicators of the level of financial development in a country?

A.

Total outstanding credit granted by private banks, insurers, etc.
B.

Size of the stock market.
C.

Number of banks and insurance companies.
D.

Ability of individuals and firms to access financial services.
E.

Ability of institutions to provide financial services at low cost while generating sustainable revenues and profits.

Correct Answer(s)
A. Total outstanding credit granted by private banks, insurers, etc.
B. Size of the stock market.
D. Ability of individuals and firms to access financial services.
E. Ability of institutions to provide financial services at low cost while generating sustainable revenues and profits.

4.

Which of the following statements regarding competition in the financial sector are false?

A.

Competition can improve the efficiency of the delivery of financial services.
B.

Supervisors should seek to limit competition so as to ensure established financial institutions generate sustainable revenues and remain profitable and financially sound.
C.

Competition can incentivize financial institutions to enter new product, geographic and client markets.
D.

Innovations in the delivery of financial services are often the result of competitive forces.
E.

Regulation should seek to limit cross-sectoral competition (e.g., between banks and insurers) so customers are not confused about where to go to obtain specific financial services.

Correct Answer(s)
B. Supervisors should seek to limit competition so as to ensure established financial institutions generate sustainable revenues and remain profitable and financially sound.
E. Regulation should seek to limit cross-sectoral competition (e.g., between banks and insurers) so customers are not confused about where to go to obtain specific financial services.

5.

What can be the consequence of the sudden withdrawal of funding for financial institutions and intermediaries that undertake maturity transformation by investing short-term funds in longer-term and/or illiquid assets?

A.

Fire-sale of assets.
B.

Extraordinary demand for liquidity assistance from the central bank or government.
C.

Suspension of mutual fund customers’ ability to redeem their investments.
D.

The collapse of effected financial institutions and intermediaries.

Correct Answer(s)
A. Fire-sale of assets.
B. Extraordinary demand for liquidity assistance from the central bank or government.
C. Suspension of mutual fund customers’ ability to redeem their investments.
D. The collapse of effected financial institutions and intermediaries.

6.

Which is not a typical reason for financial sector regulation and supervision?

A.

Ensure the soundness of the financial system in order to promote economic growth
B.

Poorly performing financial systems can be a drag on economic growth and cause recessions.
C.

Ensure the government receives all taxes it is due in order to help fund economic and social programs.
D.

Prevent criminal use of the financial system.

Correct Answer
C. Ensure the government receives all taxes it is due in order to help fund economic and social programs.

7.

Which of the following statements related to the nature of law and regulation are true?

A.

Establish the rules of the game for the provision of financial services in an economy.
B.

Are applicable not only to institutions and markets but also the individuals who control, influence and work in them.
C.

Should be the same for all financial institutions to ensure fairness.
D.

Should not unduly constrain competition and innovation.

Correct Answer(s)
A. Establish the rules of the game for the provision of financial services in an economy.
B. Are applicable not only to institutions and markets but also the individuals who control, influence and work in them.
D. Should not unduly constrain competition and innovation.

8.

Which of the following are among the roles of financial supervision?

A.

Assess and promote adherence to laws, regulations and sound business practices.
B.

Assess institutions’ financial condition and their ability to withstand stresses
C.

Monitor the functioning of markets and promote fair, efficient and transparent markets.
D.

Take action to ensure boards of directors and senior managers take prompt action to correct problems.

Correct Answer(s)
A. Assess and promote adherence to laws, regulations and sound business practices.
B. Assess institutions’ financial condition and their ability to withstand stresses
C. Monitor the functioning of markets and promote fair, efficient and transparent markets.
D. Take action to ensure boards of directors and senior managers take prompt action to correct problems.