Which of the following statements about transaction costs and financial intermediation is not true? A. Low transaction costs allow banks to offer diversified assets to their customers B. Low transaction costs allow banks to offer liquidity services C. Low transaction costs are due to diseconomies of scale in financial intermediation D. Low transaction costs allow banks to engage in risk sharing

Which of the following statements about transaction costs and financial intermediation is not true? A. Low transaction costs allow banks to offer diversified assets to their customers B. Low transaction costs allow banks to offer liquidity services C. Low transaction costs are due to diseconomies of scale in financial intermediation D. Low transaction costs allow banks to engage in risk sharing

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash, Marketable Securities, And Complex Financial Instruments

Section: Chapter Questions

Problem 40CYBK

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QUESTION 2 Which of the following statements about transaction costs and financial intermediation is not true? A. Low transaction costs allow banks to offer diversified assets to their customers B. Low transaction costs allow banks to engage in risk sharing C. Low transaction costs are due to diseconomies of scale in financial intermediation D. Low transaction costs allow banks to offer liquidity services
A bank that grants loans to firms in a many different lines of business: will increase its information cost and decrease its credit risk will increase both its information cost and its credit risk will decrease its information cost and decerase its credit risk will decrease its information costs and increase its credit risk
Which of the following statements is INCORRECT ? Large investment banks finance most of their activities by using retail consumer deposits as the primary source of funds. Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in the firms exposes investors to agency costs. As a delegated monitor, a financial institution's actions reduce agency costs. Financial institutions provide economies of scale in transaction costs
Off-balance-sheet (OBS) banking business contributes to a significant growth in bank income, but can also result in heightened risk exposure. Give examples of two (2) OBS products to illustrate why OBS activities may involve more risk than the traditional balance sheet business.
Which statement is incorrect? a. Information and transaction costs related to financial market transactions would be higher if there is no participation of financial intermediaries. b. The common trait of savings banks, commercial banks, credit unions and savings and loan associations is that all of them accept deposits from SSUs and provide credit to DSUs through loans and purchases of securities. c. Finance companies act as a factor by purchasing a firm's receivables at a discount and subsequently processing and collecting the balances of these accounts. d. A lending company operating in the Philippines cannot charge more than 12% annual interest on the loans it grants to borrowers. e. none of the above
Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy... Banks’ managers do not want to mmaintain much capital because they do not bear fully the costs of their failure. In addition to this reason others claim that banks’ managers do not want to maintain higher levels of capital because higher levels of capital attract greater scrutiny from bank regulators. Comment on this claim. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits. Identify and discuss the second demand on the bank for liquidity.
Which statement is incorrect? Information and transaction costs related to financial market transactions would be higher if there is no participation of financial intermediaries. The common trait of savings banks, commercial banks, credit unions and savings and loan associations is that all of them accept deposits from SSUs and provide credit to DSUs through loans and purchases of securities. Finance companies act as a factor by purchasing a firm's receivables at a discount and subsequently processing and collecting the balances of these accounts. A lending company operating in the Philippines cannot charge more than 12% annual interest on the loans it grants to borrowers. none of the above
Since risks, such as credit, liquidity, default, technological, and legal risks, among others, may affect the financial operations of the business or organizations. Laws are created to enfore financial regulations. In financial markets, these laws, rules and regulations control the following drivers: competitiveness, market behavior, consistency and stability. Stability. Market Stability is important. Given that market behavior is dependent on a lot of factors, the risk is very high., Most of the players failed to survive because their ability to forecast and to mitigate the market risk. In the financial market, the impact of financial risk is something that the regulatory environment should consider. The regulation must be able to protect the interest of the clients as well as the companies to enable their corporate sustainability. QUESTION: Explain further what "stability" means. How do laws control stability in financial markets? Explain. Then identify the risks that arise from…
Information risk is a. The cost a company incurs to issue and service equity and debt. b. The risk of the client not being able to pay off a bank loan. c. The company's cost of capital. d. The risk that the information in financial statements is materially misstated.
The asymmetric information problems that act as a barrier to efficient allocation of capital is referred to as financial friction. When financial friction increases, economic activity declines. A financial crisis occurs when information flows in financial markets experience a large disruption, with the result that financial friction increases sharply and the markets stop functioning, economic activity will collapse. Discuss the dynamics of financial crises in advanced economies.
Banks still make more money on investments than fees for customer-related non-credit-related fees. They structure loans to earn more in the form of increased interest and reduced risk. In which area do critics accuse investment banks of only being interested in pocketing fees? Select the correct choice : a.Mergers and acquisitions b.Market making c.Commodities trading d.Client-related trading
Which of the following is a reason for financial regulation? a. To ensure market dominance by strong financial institutions. b. The failure of any financial institution may have a serious negative impact on individuals and economies. c. Banks cannot be trusted. d. To ensure government control of the economy.

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	A.	Low transaction costs allow banks to offer diversified assets to their customers
	B.	Low transaction costs allow banks to offer liquidity services
	C.	Low transaction costs are due to diseconomies of scale in financial intermediation
	D.	Low transaction costs allow banks to engage in risk sharing