TESTBANK FIM TỪ A ĐẾN Z HỌC ĐI QUYÊN SAP THI FINAL ROI QUYÊN

chap 3

1. The financial institution that is a specialist provider of financial and advisory services to companies
is a/an:

A. credit union.
B. finance company.
C. building society.
D. investment bank.

2. Money market corporations:

A. obtain all their funding by issuing bank bills.

B. are generally referred to as investment banks.
C. offer money market deposits to retail clients.
D. sell money market securities to retail clients.

3. The task of the investment bank in a public issue of new shares is to:

A. offer interim financing to the firm.

B. invest the funds raised in the capital markets.
C. provide advice in designing and pricing a share issue.
D. act as a trustee of the funds raised.

4. Investment banks:

A. are supervised by APRA, since they operate in the banking sector.

B. focus their activities in the bank bill sector and money market.
C. obtain their deposits only from large
corporations.
D. are not required to comply with minimum capital adequacy requirements like commercial banks
are required to.

5. A company may hire a/an ________ to advise on and underwrite its new share issue.

A. loans officer
B. investment banker
C. share analyst
D. treasury officer
6. According to the text, the principal source of income for investment banks is:

A. issuing bank bills.

B. off-balance-sheet business.
C. issuing secondary securities.
D. issuing certificates of deposit.

7. Money market corporations (merchant and investment banks) have significantly increased their off-
balance-sheet business on account of competition. All of the following are off-balance-sheet activities
of investment banks except:

A. mergers and acquisitions.

B. managing project finance undertakings.
C. trading in the short-term money market.
D. strategic risk management advice.

8. Most corporations will seek advice from a/an ______ on possible mergers and acquisitions.

A. investment broker
B. commercial banker
C. accounting firm
D. investment banker

9. The process of due diligence involves:

A. underwriting of new equity issues by a company.

B. providing advice to companies on the raising of new equity.
C. detailed analysis of a firm's financial statements.
D. placement of securities to institutional investors.

10. The detailed analysis of a firm's financial statements as part of a possible takeover is called:

A. share analysis.
B. technical analysis.
C. due diligence.
D. project management.

11. Underwriting is when a/an:

A. broker places new share issues with selected financial institutions.

B. investment bank gives advice to a company about a merger.
C. broker or a financial institution guarantees prices on a security issue for a company.
D. investment bank finds funding for a company.
 12. When an investment bank guarantees a certain price for a company issuing new shares, it is
acting as a/an:

A. auctioneer.
B. broker.
C. dealer.
D. underwriter.

13. When an investment bank helps a company sell large parcels of shares directly to institutional
investors, this is called:

A. due diligence.
B. placement.
C. securitisation.
D. underwriting.

14. The ________ is the company in a merger transaction that tries to merge with or acquire another
company.

A. target company
B. takeover company
C. conglomerate company
D. hostile company

15. Venture capital is:

A. funding provided for a new start-up business by a group of investors.

B. providing advice to companies on the raising of new capital.
C. short-term funding provided by banks.
D. placement of securities to institutional investors.

16. The ________ is the company in a merger transaction that is being pursued as a takeover
possibility.

A. target company
B. takeover company
C. conglomerate company
D. hostile company

17. If a car manufacturer were to purchase one of the companies listed below, which purchase would be
called a horizontal takeover?

A. A steel mill
B. A rival car manufacturer
C. A tyre manufacturer
D. A finance company
18. If a car manufacturer were to purchase one of the companies listed below, which purchase would be
called a vertical takeover?

A. An electronic components supplier

B. A rival car manufacturer
C. A travel company
D. A finance company

19. The following factors are all reasons for mergers except:

A. finances.
B. economies of scale.
C. business diversification.
D. reduction of debt.

20. The financial institution that pools funds for individuals and then invests them in both the
money and capital markets is a:

A. savings bank.
B. credit union.
C. investment bank.
D. managed fund.

21. Which of the following statements about managed funds is incorrect?

A. The assets of large managed funds may be managed by several professional managers.
B. A mutual fund is required to use the services of a mutual fund custodian.
C. Sources of funds for a managed fund may be in the form of monthly payments.
D. For Australia, recent figures show that the statutory funds of life offices have the largest
amounts of assets under management.

22. A managed fund that is established under a trust deed and is managed by a responsible entity is
called a:

A. mutual fund.
B. trust fund.
C. trustee fund.
D. investment fund.

23. Superannuation funds that aim at delivering a longer term income stream and capital appreciation by
acquiring a diversified asset portfolio across a wider risk spectrum are classified as:

A. managed growth funds.

B. capital guaranteed funds.
C. balanced growth funds.
D. capital stable funds.
 24. An investor who wishes to save for their retirement in 20 years' time and who has a high
propensity for taking risk is likely to invest in a managed fund which invests in government securities
and:

A. cash deposits.
B. some property.
C. debentures.
D. foreign equities.

25. Managed fund managers:

A. invest funds according to their fund's trust deed.

B. generally reinvest income and any capital gains in the fund.
C. will usually maintain a diversified portfolio of assets within the asset classes.
D. all of the given answers.

26. Funds under management by managed funds in 2010 have a value of:

A. $345b.
B. $500b.
C. $1000b.
D. $1666b.

27. A mutual investment fund that specialises in short-term debt instruments and managed by a financial
intermediary is called a:

A. money market fund.

B. cash management trust.
C. certificate of deposit fund.
D. bank bill fund.

28. The main feature of cash management trusts is:

A. they allow individuals to access the money markets.

B. they provide liquidity and access to funds.
C. that many are associated with stockbrokers and the electronic purchasing and
selling of securities by investors.
D. all of the given answers.

29. The largest proportion of funds held by cash management funds in Australia is in:

A. cash and deposits.

B. bills of exchange.
C. promissory notes and CDs.
D. bills of exchange and CDs.
30. Which of the following statements is NOT a feature of unit trusts?

A. Unit trusts are companies that accept funds from investors and make investments that
yield returns in the form of income and/or capital gains.
B. The market determines the value of a listed unit trust.
C. Unlisted unit trusts are generally highly liquid as they can accept money
from investors at any time.
D. The number of listed property trusts is far larger than the number of listed equity trusts.

31. Since the early 1990s, public unit trusts have seen the largest growth in assets in:

A. cash and deposits.

B. long-term government securities.
C. equities and units in trusts.
D. land and buildings.
32. The majority of securities owned by unlisted public unit trusts are:

A. real physical assets.

B. money market securities.
C. capital market securities.
D. fixed interest trusts.

33. Which of the following statements is NOT a feature of public unit trusts?

A. The four main classes of trusts are property, equity, mortgage and fixed interest trusts.
B. There was enormous growth in public unit trusts during the 1990s.
C. The majority of mortgages held by a mortgage trust are ‘first' mortgages.
D. Property trusts are generally unlisted as they need notice to sell their physical assets.

34. An investor is considering different methods of investment, including a public unit trust. Which of
the following is NOT a function of a public unit trust?

A. Acting as a vehicle for the pooling of investor funds

B. Providing a level of investor protection though the appointment of a trustee
C. Allowing small investors access to larger investment opportunities
D. Locking in a trust unit price by listing on the Australian Securities Exchange

35. A developer is promoting a large new suburban shopping centre and decides to establish a
publicly listed unit trust to attract investors. Which type of unit trust would likely be established?

A. A mortgage trust
B. A property trust
C. An equity trust
D. A cash management trust
36. The main advantage of a listed trust over an unlisted unit trust is that a listed trust:

A. has a trustee but an unlisted trust does not.

B. can be sold at any time by the unit holder in the marketplace.
C. invests in equities, while an unlisted trust invests only in fixed interest.
D. invests in equities, while an unlisted trust invests in property.

37. In Australia, listed property trusts dominate over the proportion of unlisted property unit trusts
because:

A. the valuations of buildings are larger than share valuations.

B. mortgages on buildings are larger than companies' valuations.
C. listed shares can be more advantageous in terms of liquidity.
D. it reflects the liquid nature of properties.

38. The function of a ________ is to provide income for employees of corporations or governments
after they retire.

A. building society
B. credit union
C. general insurer
D. superannuation fund

39. Essentially, superannuation assets provide:

A. indefinite income when employees stop working.

B. indefinite income as long as employees continue to work.
C. limited income if an employee is injured and unable to work.
D. retirement income for employees.

40. Recent figures about superannuation assets in Australia show that the largest amounts of assets
are in the ____:

A. corporate superannuation funds.

B. industry corporation funds.
C. retail superannuation funds.
D. self-managed superannuation funds.

41. Which of the following statements is true?

A. Since the 1990s, assets of superannuation funds outside life insurance offices have grown
much slower than life insurance office funds.
B. Assets in defined benefit schemes have experienced greater growth than assets
in accumulation schemes.
C. The introduction of the Superannuation Guarantee Charge (SGC) policy in 1992 resulted
in rapid growth in Australia's superannuation industry throughout the 1990s.
 D. Industry superannuation funds are regulated superannuation entities with more than ten
members that provide benefits for employees working in the same industry.

42. Superannuation funds, because of the ______-term nature of their liabilities, prefer to hold _____-
term assets.

A. long, long
B. long, short
C. short, long
D. short, short

43. A private superannuation fund to which an individual makes recurring, predetermined

payments for a given number of years into the plan is called a/an:

A. approved deposit scheme.

B. superannuation savings plan.
C. standard superannuation scheme.
D. single premium scheme.

44. If an individual retires early but wants to retain their superannuation entitlements in a
favourable taxation environment, they can hold their eligible superannuation funds in a:

A. single-premium scheme.
B. growing annuity scheme.
C. rollover scheme.
D. termination scheme.

45. A defined benefit plan:

A. is always fully funded, with no shortfall requirement.

B. may have a shortfall, but the Commonwealth government will make good the shortfall.
C. may have a shortfall, but the employer will make good the shortfall.
D. is where the employee bears the risk if the performance of the investment is bad.

46. In an accumulation superannuation fund:

A. the employee is promised an allocated benefit based on earnings and years of service.
B. superannuation income varies depending on how well the plan's investment
have performed.
C. if the funds in the plan exceed the promised amount, the excess remains with
the issuing firm or institution.
D. all of the earnings' taxes are paid by the employer.

47. The superannuation fund that involves the amount of benefit paid out on retirement being
calculated by a formula based at the time when a person joined the fund is called:
 A. a defined benefit fund.
B. an accumulation fund.
C. a defined termination fund.
D. a defined payout fund.

48. The superannuation fund where the amount of funds available at retirement consists of past
contributions plus earnings less taxes and expenses is called:

A. a defined benefit fund.

B. an accumulation fund.
C. a defined termination fund.
D. a defined payout fund.

49. The superannuation fund where the employer must make good a shortfall in the fund when the
benefit is to be paid up is a/an:

A. accumulation fund.
B. defined benefit fund.
C. fully funded fund.
D. private fund.

50. When an employee makes regular contributions equal to 7% of their salary and their employer
also contributes the equivalent of 14% of salary to a superannuation fund that is an accumulation
scheme:

A. the final payout benefit is stated when the member joins the fund.
B. the final payout depends upon the investment performance of the fund.
C. payment is specified under the superannuation guarantee legislation.
D. the benefit is paid in the form of a life annuity.

51. All of the following Acts or Bills are relevant to the operation of the Australian superannuation
industry except the:

A. Superannuation Industry (Supervision) Act 1993.

B. Income Tax Assessment Act 1936.
C. Superannuation (Agents and Brokers) Act 1984.
D. Superannuation Guarantee Amendment Bill 2011.

52. Which of the following is NOT an important result of the compulsory guarantee charge
implemented in July 1992?

A. The amount of superannuation funds in Australia has increased significantly.

B. The employer contribution SGC increased to 9% from July 2002.
C. The vast majority of retirement savings are invested in superannuation funds.
D. The SGC represents a penalty taxation charge on employers.

53. The amount of financial assets held by insurance companies has _______ over the past 20
years.
 A. decreased
B. remained stable
C. increased slowly
D. increased dramatically

54. Recent figures show the largest proportion of assets held by life insurance companies is:

A. Commonwealth securities.
B. loans and placements.
C. equities and units in trusts.
D. land and buildings.

55. In Australia, the prudential supervisor of life insurance offices is:

A. ASIC.
B. APRA.
C. the Reserve Bank of Australia.
D. PSLI.

56. Which of the following statements with regard to life insurance companies is true? (p. 56)

A. Life insurance companies are more likely to acquire short-term assets than long-
term securities, for liquidity reasons.
B. Life insurance companies are more likely to acquire long-term assets because their
liabilities are long term in nature.
C. Life insurance companies tend to acquire short-term assets because they have relatively
predictable inflows and outflows.
D. The Reserve Bank of Australia regulates life insurance companies.

57. Which of the following statements about life insurance companies is false?

A. As inflows of funds are relatively predictable, they have a very stable level of liabilities.
B. Life insurance companies have greatly increased their assets over the past decade.
C. Life insurance companies sell contracts that offer financial cover against premature death.
D. Life insurance companies have large amounts of short-term liquid securities.

58. Life insurance companies:

A. are significant investors in equities.

B. invest mainly in debt, which is generally in the form of debentures.
C. are not important suppliers of equity funding.
D. do not match any of these answers.

59. Life insurance offices are providers of superannuation products which make up ______ per cent
of the assets of life insurance offices' statutory funds.
 A. 57
B. 67
C. 77
D. 87

60. In Australia there has been a substantial expansion of assets in the life insurance industry. Which
of the following factors is one of the primary reasons for this?

A. Increased confidence in life policies by individual investors

B. Growth in superannuation funds
C. Decreased cost of regulation by the Australian Financial Institutions Commission
D. Rationalisation through mergers of small life insurance companies

61. Life insurance companies attract a large proportion of their funds through regular premiums from
policy holders. In regard to the matching principle, what types of assets would an insurance
company hold the smallest proportions of?

A. Equity investments
B. Debentures and notes
C. Housing loan mortgages
D. Money market securities

62. A life insurance company that sells a large number of ________ will need a large portion of liquid
assets to match the liabilities.

A. whole-of-life policies
B. 20-year-term policies
C. annuities
D. one-year renewable term policies

63. General insurance companies hold:

A. a smaller number of short-term assets than life insurance companies.

B. a greater number of short-term assets than life insurance companies.
C. approximately the same number of short-term assets as life insurance companies.
D. only long-term assets.

64. General insurance companies hold more liquid assets than life insurance companies because:

A. they have a legal requirement to do so.

B. events such as fires and earthquakes are difficult to predict.
C. more people try to get payouts from them by fraud.
D. there are more items covered under a general insurance policy so there are
more payouts to the insured.
65. A major difference between a whole-of-life insurance policy and a term-life policy is:

A. a whole-of-life policy is long-term, whereas a term policy is only for a term of one year.
B. a term policy has an investment component, specified only for the term.
C. only a whole-of-life policy has an investment part.
D. term policies only pay bonuses at the end of the term, unlike the whole–of-life policy,
which pays them out immediately as they are accumulated.

66. Which of the following does NOT apply to a whole-of-life insurance policy?

A. It includes an investment component

B. It is a long-term insurance policy
C. It may pay a bonus if surplus investment returns are generated
D. Premiums reduce over time owing to accumulated bonuses

67. In a/an _____ insurance policy, there is no savings component.

A. term
B. variable
C. whole
D. endowment

68. In relation to insurance for term-life policies with a stepped premium over time, the policy holder
pays premiums:

A. based on current market rates.

B. that increase gradually over time.
C. based on increases in inflation.
D. based on indexing the sum insured.

69. For motor vehicle insurance, a third party policy means:

A. the policy covers damage to the named vehicle plus any damage to any third party vehicle
or party.
B. the policy covers damage to both parties.
C. the policy covers damage or loss to a third party or property only.
D. the policy covers damage to the named vehicle plus any theft.

70. A fund that aims to achieve high investment returns by using exotic financial products is called a:

A. a hedge fund.
B. project fund.
C. money market fund.
D. leverage fund.
71. A hedge fund that takes a long position in the Australian foreign exchange market is forecasting
Australian foreign currency will:

A. decrease.
B. increase.
C. stay the same.
D. decrease in the long term.

72. A hedge fund that takes a short position in equity markets:

A. will sell forward shares.

B. will buy a derivative that they expect will increase in price.
C. will buy shares.
D. is expecting the markets to increase.

73. Finance companies generally:

A. issue shares and use the proceeds to buy bonds.

B. raise funds in financial markets to lend to households and companies.
C. raise funds from banks to lend to households and companies.
D. issue bonds and use the proceeds to buy shares.

74. Which of the following statements is NOT a feature of finance companies?

A. Finance companies came into existence in response to regulations on interest rates.

B. Finance companies sell unsecured notes and use the funds to make loans to borrowers.
C. The majority of finance companies' funds are sourced from banks.
D. Today the banks own many large finance companies.

75. Since deregulation of the financial markets in the 1980s, finance companies have seen the largest
growth in their assets in:

A. bills of exchange.
B. local government securities.
C. placements and deposits.
D. loans to businesses.

76. Finance companies use their funds to provide:

A. loans to individuals.
B. instalment credit to finance retail sales to retail stores.
C. lease financing.
D. all of the given answers.
77. By the end of the 1990s, there had been a substantial contraction in the building society sector.
What is the principal reason for this contraction in building societies?

A. Loss of confidence in building societies by individual investors

B. Conversion of building societies to banks
C. Increased cost of regulation by the Australian Prudential Regulation Authority (APRA)
D. Rationalisation through the merger of small building societies

78. Which of the following statement about building societies in Australia is incorrect?

A. The main activities of building societies are to take in deposits and provide mortgage
finance.
B. The largest building societies have tended to convert to regional banks in
recent times.
C. Now currently the building society sector holds 2 per cent of the total assets
of the Australian financial system.
D. Building societies are authorised deposit-taking institutions and supervised by
APRA.

79. Under deregulation, building societies lost market share to other financial institutions. Their
response included:

A. mergers with other building

societies.
B. expenditure on
technology.
C. expanding their range of
products.
D. all of the given
answers.

80. In Australia permanent building societies are supervised by:

A. ASIC.
B. APRA.
C. the Reserve Bank of Australia.
D. ASX.

81. A ________ is a financial intermediary that deals mainly in the flow of funds between members.
Membership is generally derived from some common bond.

A. savings bank
B. superannuation fund
C. credit union
D. merchant bank
82. A credit union differs from most other financial institutions because:

A. it accepts deposits mainly from members.

B. its assets are mainly loans to members.
C. there are stringent requirements to hold prime liquid assets.
D. all of the given answers are correct.

83. An important source of funds for credit unions is:

A. cheque accounts.
B. loan interest.
C. interest from government securities.
D. financial support from the organisations that employ its members.

84. The uses of funds for credit unions are mainly:

A. company shares.
B. commercial paper.
C. debentures and unsecured notes.
D. mortgages.

85. Credit unions, while representing a very small proportion of total financial assets, have
strong numerical representation throughout Australia. They derive this numerical strength:

A. from a common bond of association among society members.

B. through the wide dispersion of societies throughout the country.
C. because of the full range of financial services provided.
D. because of a guarantee of deposits provided by the government.

86. Which of the following holds the smallest percentage of total assets of financial institutions:
finance companies, credit unions, managed funds and permanent building societies?

A. Building societies
B. Credit unions
C. Finance companies
D. Managed funds

87. Export Finance and Insurance Corporation's function is:

A. solely to lend directly to small- or medium-sized businesses involved in export trade.

B. solely to guarantee trade finance to small- or medium- sized businesses involved in export
trade.
 C. to encourage export trade by providing trade insurance and financial services.
D. solely to provide insurance for Australian suppliers of goods and services against
nonpayment.

88. The form of financing for large tourist resorts, property developments, heavy industry and
processing plant developments is called:

A. euro finance.
B. conglomerate finance.
C. project finance.
D. lease finance.

89. The main difference between project finance and other forms of lending is:

A. lenders base their participation on expected future cash flows and assets of the project.
B. lenders take a major equity stake in the project.
C. the project company, which is set up as a separate legal entity, relies heavily on
venture capitalists for equity funding.
D. the lenders have a claim on the assets of the project as well as the sponsors.

90. Which of the following features is NOT generally true of project finance in Australia?

A. Guarantees provided by sponsors to lenders usually do not cover all the

risks involved in the project.
B. A project company is usually established as a separate legal entity.
C. Lenders rely mainly on the expected future cash flows and the assets of the project.
D. Finance is usually established on a non-recourse basis.

91. Unlike commercial banks, investment banks only accept deposits from large corporations.

FALSE
Investment banks are specialist providers of financial and advisory services to
corporations, high-net-worth individuals and governments.

92. As investment banks have increased their underwriting activities in recent years, the number of
financial assets held by them has similarly increased.

FALSE
The number of financial assets held by them has decreased as they are focused on advisory
services.

93. In the context of a merger, the process of due diligence involves valuing the target company
shares.

FALSE
Due diligence is detailed analysis of the financial and operational condition of the target
company.
94. In relation to Australian managed funds, cash management trusts currently have the largest
amount of funds under management.

FALSE
Superannuation trusts have the largest amount of funds under management.

95. In relation to Australian managed funds, superannuation funds currently have the largest amount
of funds under management.

TRUE
Since the introduction of compulsory superannuation, superannuation funds have achieved
significant growth.

96. A capital guaranteed fund guarantees that contributors will receive at least the value of the
contributions and future earnings of the fund.

FALSE
Only the capital is guaranteed.

97. A managed growth fund is designed to maximise the return from appreciation in the value
of assets in its portfolio.

TRUE
The proportion of equity is generally larger than for a balanced growth fund and the equity
part of the fund includes a greater range of risk securities than a balanced growth fund.
These offer the possibility of potentially higher returns.

98. On average, the value of a balanced growth fund is subject to less market fluctuation than that of
a capital growth fund.

TRUE
The proportion of equity is lower and so a balanced growth fund has generally lower
volatility.

99. Cash management trusts are restricted under their trust deed to hold only bank deposits and
cash.

FALSE
Cash management trusts are generally restricted to short-term money market securities.

100. An insurance company is not a depository financial institution.

TRUE
Insurance companies receive funds in the form of premiums.

101. Explain the role and operation of one of the largest types of managed funds, superannuation
funds.

Their sources of funds are individuals who set aside funds for their retirement so that they can
maintain their lifestyle once they retire from the workforce. The majority of members make regular
contributions over their working life. The superannuation funds invest these funds in a range of
assets from money market, government securities, property and domestic and international equities.
102. Explain the operation of cash management trusts.

A cash management trust invests the majority of its funds in money market securities such as bills
and commercial paper. They provide a high degree of liquidity and often a higher rate of return for
the short-term funds of smaller investors as a consequence of indirect access to the wholesale
money markets.

103. Identify and discuss the types of public unit trusts according to their assets.

Public unit trusts may be grouped into property trusts, both listed and unlisted; equity trusts, both
listed and unlisted; mortgage trusts, and other trusts including fixed interest trusts. Two major types
of trusts according to assets under management are listed property trusts and listed equity trusts.

104. What do hedge funds do? Discuss any concerns their operations may have for the financial
system.

Hedge funds use supposedly complicated investment strategies and invest in exotic financial
products to try to achieve higher returns. Some of the instruments they invest in are commodities,
private equity, foreign exchange, bonds and derivatives. They tend to leverage their positions using
derivative products and are vulnerable to pressure to liquidate assets quickly if they sustain
significant losses. They also operate largely outside the regulatory framework established to protect
the stability of the financial system.

105. What are the principal assets of a finance company? How have these been affected in recent
years?

The main assets are loans to individuals, instalment credit to finance retail sales, lease financing,
loans to businesses including floor plan financing, factoring and accounts receivable financing.