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Chapter 12 Nonbank Finance Multiple Choice The federal regulatory agency responsible for regulating the activities of life insurance companies is the FDIC. the Fed. the FHLBS. none of the above; there is no such federal regulatory agency. Question Status: Previous Edition Which of the following is true of life insurance companies? They hold long-term assets that are not particularly liquid. They hold short-term liquid assets. Payouts to policyholders are relatively predictable. Both (a) and (c) of the above. Question Status: Previous Edition Life insurance companies are regulated by state governments because they have never experienced bankruptcy. they have never experienced profitability. they have never experienced widespread failures. they hold only highly liquid assets. they are insured by the federal government. Question Status: New The insurance industry’s share of total financial intermediary assets fell because of poor investment returns in the 1960s and 1970s. widespread failures of life insurance companies. federal regulations limiting the sale of life insurance. unpredictability of payouts. all of the above. Question Status: New 418 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition An example of permanent insurance is __________ insurance, and an example of temporary insurance is _____ insurance. whole life; universal whole life; variable life whole life; term term; whole life term; variable life Question Status: New A contract requiring payment of an annual premium in exchange for the payment of a future stream of payments beginning at a specified age and continuing until death is whole life insurance. an annuity. term life insurance. variable life insurance. universal life insurance. Question Status: New The key factor causing life insurance companies to move into the management of pension funds was the investment expertise of insurance companies. a request for this change by managers of pension funds. a change in state laws. a change in federal legislation. all of the above. Question Status: New Property and casualty insurance companies hold the largest share of their assets in long-term government bonds. short-term government securities and commercial paper. tax-exempt municipal bonds. medium-term corporate bonds. Question Status: Previous Edition Property and casualty insurance companies are organized both as stock and mutual companies. only as stock companies. only as mutual companies. primarily as cooperatives. Question Status: Previous Edition Chapter 12 Nonbank Finance 419 Relative to life insurance companies, property and casualty insurance companies hold more liquid assets. more long-term government bonds. more commercial mortgages. fewer municipal bonds. Question Status: Previous Edition Reinsurance allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to another company in exchange for a portion of the premium. allows insurance companies to reduce their risks of exposure by allocating a portion of the risk to the insured in exchange for a rebate on the premium. allows the insured to reduce the premium by accepting a portion of the risk that would otherwise be allocated to the insurance company. is none of the above. Question Status: Previous Edition Insurance companies reduce risk exposure in exchange for a portion of their insurance premiums by obtaining government loan guarantees. federal insurance. reinsurance. all of the above. both (a) and (c) of the above. Question Status: New The specialty of Lloyd’s of London is annuities. hedge funds. mutual funds. underwriting. reinsurance. Question Status: Study Guide 420 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition In recent years, bank regulatory authorities have encouraged banks to enter the insurance field. discouraged banks to enter the insurance field. asked Congress to write new legislation that would make it illegal for banks to enter the insurance field. asked Congress to write new legislation that would make it legal for banks to enter the insurance field. Question Status: Previous Edition A Supreme Court ruling in March 1996 held that state laws to prevent banks from selling insurance can be superseded by federal rulings from banking regulators that allow banks to sell insurance. state laws to prevent banks from selling insurance cannot be superseded by federal rulings from banking regulators that allow banks to sell insurance. state laws to prevent banks from selling insurance can be superseded only if Congress enacts legislation that allow banks to sell insurance. state laws to prevent banks from selling insurance cannot be superseded by federal legislation. Question Status: Previous Edition When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of fraudulent claims. moral hazard. adverse selection. pecuniary purchases. Question Status: Previous Edition Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of fraudulent claims. moral hazard. adverse selection. pecuniary purchases. Question Status: Previous Edition Chapter 12 Nonbank Finance 421 In the case of an insurance policy, _____ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff. moral hazard opportunism adverse selection shirking Question Status: Previous Edition Adverse selection occurs when those _____ likely to get _____ insurance payoffs are the ones who want to purchase insurance the most. least; large least; small most; large most; small Question Status: Previous Edition In the case of an insurance policy, _____ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; _____ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most. moral hazard; insurance market discrimination moral hazard; insurance segregation moral hazard; adverse selection adverse selection; moral hazard Question Status: Previous Edition Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Risk-assessment screening Risk-based premiums Restrictive provisions All of the above Only (a) and (b) of the above Question Status: Previous Edition 422 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Collateral deposits Risk-based premiums Compensating balances All of the above Only (a) and (b) of the above Question Status: Previous Edition Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Collection of information and screening of potential policyholders Risk-based premiums Restrictive provisions All of the above Only (a) and (b) of the above Question Status: Previous Edition Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Gender-neutral premiums Flat-rate premiums Restrictive provisions All of the above Only (a) and (b) of the above Question Status: Previous Edition Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Collection of information and screening of potential policyholders Risk-based premiums Cancellation of insurance All of the above Question Status: Previous Edition Chapter 12 Nonbank Finance 423 Insurance companies’ attempts to minimize adverse selection and moral hazard explains which of the following insurance practices? Collection of information and screening of potential policyholders Risk-based premiums Deductibles and coinsurance All of the above Only (a) and (b) of the above Question Status: Previous Edition To prevent adverse selection, health and life insurance companies sometimes charge higher premiums to people with certain pre-existing health conditions. require potential policyholders to submit medical records, and may refuse to sell policies to people with certain pre-existing health conditions. charge the same premiums to all policyholders. will do both (a) and (b) of the above. Question Status: Previous Edition To prevent adverse selection, health and life insurance companies always charge the same premiums to people regardless of certain pre-existing health conditions. require potential policyholders to submit medical records, and may refuse to sell policies to people with certain pre-existing health conditions. charge the same premiums to all policyholders. will do both (a) and (b) of the above. Question Status: Previous Edition To prevent the adverse selection of AIDS patients, health and life insurance companies refuse to grant policies to people living in New York City and Los Angeles. require potential policyholders to submit medical records, and may refuse to sell policies to people with AIDS. will do both (a) and (b) of the above. will do neither (a) nor (b) of the above. Question Status: Previous Edition To prevent the moral hazard problem, insurance companies may write policies requiring that the insured experience a loss when a claim is made. containing provisions that discourage risky behavior. limiting the amount the companies will pay in the event that claims are submitted by policyholders. with all of the above provisions. with only (a) and (b) of the above provisions. Question Status: Revised 424 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition To prevent the moral hazard problem, insurance companies may write policies that increase benefits when the insured engages in risky behavior. discourage the insured from engaging in risky behavior. that increase the amount of insurance when the insured engages in risky behavior. with only (a) and (c) of the above provisions. Question Status: Revised A deductible reduces __________ in exactly the same way as __________ moral hazard; risk-based premiums. adverse selection; restrictive provisions. moral hazard; cancellation of insurance. adverse selection; limits on the amount of insurance. moral hazard; coinsurance. Question Status: New Coinsurance reduces moral hazard in exactly the same way as limits on insurance. risk-based premiums. deductibles. restrictive provisions. all of the above. Question Status: New If automobile insurance companies were to be prevented from charging risk-based premiums, but could selectively screen potential policyholders, the likely effect would be to increase the number of young men obtaining insurance coverage relative to young women. decrease the number of young women obtaining insurance coverage relative to young men. decrease the number of young men obtaining insurance coverage relative to young women. both (a) and (b) of the above. Question Status: Previous Edition The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of risk-based premiums. an attempt to minimize adverse selection. coinsurance. all of the above. only (a) and (b) of the above. Question Status: Previous Edition Chapter 12 Nonbank Finance 425 Charging risk-based insurance premiums is a time-honored principle of insurance management to reduce moral hazard. adverse selection. free riding. principal-agent problems. all of the above Question Status: Previous Edition Insurance management tools that give policyholders incentives to avoid accidents insured against include: deductibles. risk-based premiums coinsurance. all of the above. Question Status: Previous Edition Clauses in life insurance policies that eliminate death benefits if the insured person commits suicide is an example of a restrictive provision. restrictive covenant. anti-fraud exclusion. risk-based deductible. Question Status: Previous Edition When a life-long chain smoker attempts to purchase a life insurance policy, the life insurance company faces the problem of adverse selection. the smoker can expect to pay a much higher premium than a nonsmoker. the smoker is said to commit fraud. only (a) and (b) of the above. Question Status: Previous Edition When a life-long chain smoker attempts to purchase a life insurance policy, the life insurance company faces the problem of adverse selection. the smoker can expect to pay a much higher premium than a nonsmoker. there may be a limit on the amount of insurance provided. all of the above. only (a) and (b) of the above. Question Status: Previous Edition 426 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Life insurance companies face the problem of adverse selection when persons who have contracted AIDS attempt to purchase life insurance. life-long chain smokers attempt to purchase life insurance. school teachers attempt to purchase life insurance. all of the above attempt to purchase life insurance. only (a) and (b) of the above attempt to purchase life insurance. Question Status: Previous Edition Because young males have a much higher rate of accidents on average than young females, automobile insurers will be likely to charge young males higher insurance premiums than young females, all else equal. encourage young males to purchase collision insurance policies with relatively high deductibles. encourage young females to purchase collision insurance policies with no deductibles. all of the above. only (a) and (b) of the above. Question Status: Previous Edition Because insurance companies cannot always screen good from bad risks, and because policyholders may behave in a manner that increases the likelihood of insurance payouts, they base premiums on the risk classification of the policyholder. hire investigators to uncover fraudulent claims. sometimes require that policyholders share part of the loss by paying deductibles and coinsurance. do all of the above. do only (a) and (b) of the above. Question Status: Previous Edition Because insurance companies cannot always screen good risks from bad, and because policyholders may behave in a manner that increases the likelihood of insurance payouts, insurance companies charge flat-rate premiums based on worse-case scenarios. hire investigators to uncover fraudulent claims. require that policyholders purchase all their insurance from just one company. do all of the above. do only (a) and (b) of the above. Question Status: Previous Edition Chapter 12 Nonbank Finance 427 The higher the insurance coverage, the _____ the policyholder can gain from risky activities that make an insurance payoff _____ likely. more; less more; more less; less less; more Question Status: Previous Edition Between 1960 and 2002, pension funds’ share of total financial intermediary assets increased from _____ percent to _____ percent. 5; 35 10; 35 10; 30 5; 30 Question Status: Revised Vesting refers to the length of time an insurance company has been in business. the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits. the length of time until a CD matures. the premium required under term insurance. Question Status: Previous Edition A defined-benefit pension determines benefits by contributions and their earnings. fixes benefits in advance. links benefits to investment performance. all of the above. both (b) and (c) of the above. Question Status: New A defined-defined contribution pension plan determines benefits by contributions and their earnings. fixes benefits in advance. may be underfunded. all of the above. both (a) and (c) of the above. Question Status: New 428 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition If a pension fund has sufficient contributions and earnings to pay benefits, it is said to be underfunded. vested. fully funded. both (a) and (b) of the above. both (b) and (c) of the above. Question Status: New If a pension fund has insufficient contributions and earnings to pay benefits, it is said it be underfunded. vested. fully funded. both (a) and (b) of the above. both (b) and (c) of the above. Question Status: New Fraudulent practices and other abuses of private pension funds led Congress to enact the FDIC Act. Federal Reserve Act. FHLBS. Employee Retirement Income Security Act. Question Status: Previous Edition The Employee Retirement Income Security Act (ERISA) was enacted because of mismanagement. fraudulent practices. underfunding. all of the above. both (a) and (c) of the above. Question Status: New The Employee Retirement Income Security Act (ERISA) established standards for pension plans, including rules for vesting. rules for the degree of underfunding. restrictions on investment practices. all of the above. both (a) and (b) of the above. Question Status: New Chapter 12 The government corporation that insures pension benefits is Fannie Mae. Ginnie Mae. Freddie Mac. Sallie Mae. Penny Benny. Question Status: New The Pension Benefit Guarantee Corporation performs a role similar to that of the Federal Reserve System. the Comptroller of the Currency. the FDIC. the Office of Thrift Supervision. Question Status: Previous Edition Keough plans and IRAs are individual pension plans. government pension plans. corporate pension plans. public pension plans. Question Status: Previous Edition Social Security is a fully funded pension plan. federally insured private pension plan. government sponsored private pension plan. “pay-as-you-go” system. Question Status: Previous Edition The Social Security system is an example of a public pension plan that is underfunded. fully funded. overfunded. none of the above. Question Status: Previous Edition Nonbank Finance 429 430 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Since social security benefits are paid from current contributions, the system is a fully funded system. overfunded system. “pay-as-you-go” system. defined contribution system. privatized system. Question Status: New Privatization of social security involves tax reductions. benefit reductions. increasing the retirement age. investing portions of the trust fund in corporate securities. abolishing the system. Question Status: New Plans for privatization of social security involve government investment of the trust fund in corporate securities. shift of trust fund assets to individual accounts that can be invested in private assets. shifting management of the trust fund to private investment managers. all of the above. both (a) and (b) of the above. Question Status: New Allowing individuals to manage a portion of their social security funds is socialization. privatization. democratization. regeneration. disintermediation. Question Status: New Privatization of the Social Security system is being considered due to the desire to reduce taxes. demands to reduce the retirement age. reduced life expectancy. underfunding of the system. the fact that returns to corporate securities are always positive. Question Status: New Chapter 12 Compared to commercial banks and thrift institutions, finance companies are heavily regulated. able to attract small depositors. prevented from making relatively small loans. virtually unregulated. Question Status: Previous Edition When compared to banks, finance companies are virtually unregulated. are heavily regulated. borrow in large amounts and lend in small amounts. both (a) and (c) of the above. both (b) and (c) of the above. Question Status: Revised Which of the following is not provided by business finance companies? Factoring Leasing equipment Checking accounts All are provided by business finance companies. Question Status: Previous Edition Which of the following is provided by business finance companies? Factoring Equipment that can be leased Checking accounts Each of the above Only (a) and (b) of the above Question Status: Previous Edition The practice of factoring involves the syndication of underwriting large security issues. the selling of accounts receivable at a discount in return for cash. breaking up large mutual funds into smaller funds. spreading the risk of insurance through reinsurance. government guarantees of loans. Question Status: Study Guide Nonbank Finance 431 432 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Loans made to consumers by finance companies are typically only for the purchase of cars or boats. at interest rates below those charged by banks for the same type of loan. at interest rates above those charged by banks for the same type of loan. not made for less than $10,000. Question Status: Previous Edition The General Motors Acceptance Company (GMAC) is a sales finance company. consumer finance company. business finance company. public finance company. government finance company. Question Status: Study Guide A person remodeling her house could obtain a loan from a sales finance company. consumer finance company. business finance company. public finance company. government finance company. Question Status: Study Guide Before 1970, mutual funds invested almost solely in corporate bonds. corporate common stocks. United States government bonds. municipal bonds and money market securities. Question Status: Revised Mutual funds are primarily held by financial institutions. households. nonfinacial businesses. the Social Security trust fund. Question Status: Previous Edition Chapter 12 Nonbank Finance 433 In 1980, only about _____ percent of households held mutual fund shares, while this number has risen to nearly _____ percent in recent years. 3; 25 4; 35 6; 50 8; 60 Question Status: Revised Mutual funds that allow shares to be redeemed at any time at a price that is tied to the asset value of the fund are known as close-end funds. open-end funds. asset-value funds. redeemable funds. Question Status: Previous Edition Mutual funds in which a fixed number of nonredeemable shares are sold at an initial offering and are then traded in the over-the-counter market, like shares of common stock, are called open-end funds. close-end funds. OTC funds. primary-issue funds. Question Status: Previous Edition Most mutual funds are no-load funds. load funds. large-load funds. small-load funds. Question Status: Previous Edition A sales commission is charged for the purchase of no-load mutual funds. load mutual funds. sinking mutual funds. syndicated funds. brokered funds. Question Status: Study Guide 434 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Which of the following was the fastest-growing financial intermediary of the 1970s? Commercial banks Credit unions Finance companies Money market mutual funds Question Status: Previous Edition In 1977, the assets in money market mutual funds was less than $4 billion; by 1980, assets had climbed to $50 billion and now stand at $1,500 billion, or about _____ of the asset value of all mutual funds. one-tenth one-fourth one-third one-half Question Status: Revised Because the assets they offer individuals are virtually identical, banks face serious competition from load mutual funds. stock mutual funds. closed-end mutual funds. bond mutual funds. money market mutual funds. Question Status: New Several features distinguish hedge funds from traditional mutual funds including: Hedge funds have a minimum investment requirement between $100,000 and $20 million. Hedge funds are limited to no more than ninety-nine investors (limited partners). Hedge fund investors must have steady annual incomes of $200,000 or more or a net worth of $1 million, excluding their homes. All of the above. Only (a) and (b) of the above. Question Status: Revised Several features distinguish hedge funds from traditional mutual funds including: Mutual funds have a minimum investment requirement of $1,000 or more; hedge funds have no minimum investment requirement. Hedge funds typically charge investors large fees relative to mutual funds. Hedge fund investors need not commit their money for than a few weeks at a time, explaining why they pay higher fees. All of the above. Only (a) and (b) of the above. Question Status: Previous Edition Chapter 12 Nonbank Finance 435 Several features distinguish hedge funds from traditional mutual funds including: Hedge funds have a minimum investment requirement of $100,000 or more. Hedge funds typically charge investors large fees relative to mutual funds. Hedge fund investors need not commit their money for than a few weeks at a time, explaining why they pay higher fees. All of the above. Only (a) and (b) of the above. Question Status: Previous Edition Several features distinguish hedge funds from traditional mutual funds including: Hedge funds have a minimum investment requirement of $100,000 or more. Hedge funds typically charge investors smaller fees relative to mutual funds. Hedge fund investors must commit their money for long periods time (often several years), which explains why they pay lower fees. All of the above. Only (a) and (b) of the above. Question Status: Previous Edition The experience of Long-Term Capital demonstrates that hedge funds are far from risk-free, despite their use of market-neutral strategies. Nobel prize winners can fail to predict the changes in the spread between prices on government and corporate bonds. the failure of the largest hedge fund had no discernable effect on U.S. financial markets. All of the above. Only (a) and (b) of the above. Question Status: Previous Edition Long-Term Capital got into trouble when it thought that the spread between prices on long-term Treasury bonds and long-term corporate bonds was too ____, and bet that this “anomaly” would disappear and the spread would _____. high; narrow low; widen low; narrow high; widen Question Status: Revised 436 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition Of the following financial intermediaries, which holds the least liquid assets? Property and casualty insurance companies Life insurance companies Money market mutual funds Commercial banks Question Status: Previous Edition Financial intermediaries include commercial banks. insurance companies. pension funds. mutual funds. all of the above. Question Status: Study Guide In order to promote residential housing, the government has created the following agencies to provide funds to the mortgage market by selling bonds and using the proceeds to buy mortgages: the Federal National Mortgage Association. the Government National Mortgage Association. the Federal Home Loan Mortgage Company. all of the above. only (a) and (b) of the above. Question Status: Previous Edition In order to promote residential housing, the government has created the following agencies to provide funds to the mortgage market by selling bonds and using the proceeds to buy mortgages: Fannie Mae. Ginnie Mae. Freddie Mac. all of the above. only (a) and (b) of the above. Question Status: Previous Edition In order to promote residential housing, the government has created the following agencies to provide funds to the mortgage market by selling bonds and using the proceeds to buy mortgages: Fannie Mae. Ginnie Mae. Sallie Mae. all of the above. only (a) and (b) of the above. Question Status: Previous Edition Chapter 12 Nonbank Finance 437 Of the three agencies that have been created to promote residential housing, the only one that is an entity of the U.S. government is the Federal National Mortgage Association. the Government National Mortgage Association. the Federal Home Loan Mortgage Company. none of the above. Question Status: Previous Edition Of the three agencies that have been created to promote residential housing, the only one that is an entity of the U.S. government is Fannie Mae. Ginnie Mae. Freddie Mac. Sallie Mae. Question Status: Previous Edition Concerns about Fannie Mae and Freddie Mac are based on the large volume of debt that they hold. their low capital-to-asset ratios. the fact that they are government agencies. all of the above. both (a) and (b) of the above. Question Status: New Failure of Fannie Mae and Freddie Mac would be a shock to the financial system because of the amount of debt they hold. they have low capital-to-asset ratios. they are federally-sponsored agencies. all of the above. both (a) and (c) of the above. Question Status: New Should Fannie Mae or Freddie Mac fail, the costs would be born by their shareholders. their customers. the taxpayers. all of the above. both (a) and (c) of the above. Question Status: New 438 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition When a corporation wishes to sell its securities, it usually employs a takeover specialist. a finance company. an investment bank. a commercial bank. none of the above. Question Status: Previous Edition In financial markets an IPO is an investment portfolio option. initial public offering. initial portfolio offering. investment portfolio offering. Question Status: Revised In financial markets, when a firm issuing new securities has previously issued securities, these securities are called seasoned issues. an initial public offering. secondary issues. investment-grade issues. private offerings. Question Status: New In financial markets, when a firm issues stock for the first time it is called an investment portfolio option. initial public offering. initial portfolio offering. investment portfolio offering. Question Status: Revised IPOs have become very important in the U.S. economy because they are a major source of financing for so-called “blue-chip” companies. hedge funds. internet companies. mutual funds. Question Status: Previous Edition Chapter 12 Nonbank Finance 439 Investment banks purchase new security issues in the hope of making a profit. This is the act of pawning. factoring. syndicating. underwriting. reinsuring. Question Status: Study Guide ______ assume the risk of issuing a new stock in the hope of earning profits on its sale. Stock brokers Securities dealers Underwriters Stock speculators Reinsurers Question Status: Study Guide Dealers, in contrast to brokers, make their living on the spread between the bid price and asked price. hold inventories of securities. are subject to the risk of falling securities prices. do all of the above. do only (b) and (c) of the above. Question Status: Previous Edition Brokers, in contrast to security dealers, hold inventories of securities. make their income through commissions. make their living on the spread between the bid price and the asked price. do all of the above. Question Status: Previous Edition _____ assist in the initial sale of securities in the primary market; _____ assist in the trading of securities in the secondary markets. commercial banks; hedge funds commercial banks; mutual funds investment banks; securities brokers and dealers commercial banks; securities brokers and dealers investment banks; mutual funds Question Status: Previous Edition 440 Frederic S. Mishkin • Economics of Money, Banking, and Financial Markets, Seventh Edition The federal agency that ensures that potential security purchasers are well informed is the FCC. FTC. NRC. SEC. RFC. Question Status: Study Guide An innovation that blurred the distinction between brokerage firms and commercial banks was Merrill Lynch’s development in 1977 of the cash management account. money market mutual fund. individual retirement account. discount brokerage. Question Status: Previous Edition A specialist performs the functions of a broker. dealer. underwriter. all of the above. both (a) and (b) of the above. Question Status: New A specialist matches buy and sell orders. buys or sells from personal inventory when orders do not match. maintains orderly trading of securities. all of the above. both (a) and (b) of the above. Question Status: New Elimination of minimum brokerage commission rates occurred because of competition from banks. demands of institution investors. competition from foreign brokerage firms. changes in state laws. an action of the securities and Exchange Commission. Question Status: New Chapter 12 Nonbank Finance 441 Internationalization of capital markets has resulted in foreign companies being listed on the U.S. stock exchanges. 24-hour trading of stocks. federal regulations prohibiting security transactions on the Internet. both (a) and (c) of the above. both (a) and (b) of the above. Question Status: New The financial supermarket concept would provide consumers the convenience of using one firm to buy real estate. obtain a student loan. buy socks. all of the above. both (a) and (b) of the above. Question Status: New Essay Questions Explain the problems that necessitate insurance management, and three methods insurance companies use to address these problems. Identify the problem that each practice addresses. Explain why the Social Security system faces problems. Discuss the possible solutions to these problems. Explain the factors that account for the large increase in market share experienced by mutual funds since 1980.