EXAM 2  Review Questions:   EM368 (Revised

• Define and contrast:
          Money and Capital Markets
          Exchanges versus Over-the-counter markets
          Primary versus Secondary markets
          Debt versus Equity markets
• Define and give examples of:
          Depository Institutions
          Contractual Savings Institutions
          Investment Intermediaries
• What are the most important sources of external funds for businesses
• What are the major asset and liabilities for depository institutions
• Use t-accounts to illustrate the basic operation of a bank.
• Use t-accounts to illustrate a liquidity problem at a bank.
• How do banks try to minimize liquidity problems.
• Use t-accounts to illustrate a capital problem at a bank.
• What is the role of capital
• How do banks raise capital if it falls below required levels.
• Why has the number of banks declined since the 1980s?
• Overview Glass-Steagall (esp. section 20).
• Explain exactly how Glass-Steagall limited banks in the securities business.
• How did bank holding companies eventually provide banks a way to get back into the securities business.
• Prior to 1999, how did banks engage in securities business.
• How did the 1999 Act alter banks and securities firms relationship.
• How do S&Ls differ from Banks today and 50 years ago.
• What led to the S&L crisis of the mid 1980s.
• How did the government make the problem worse.
• How did the government finally deal with the crisis.
• Know the major provisions of the 1980, 1982 and 1989 Acts.
• What is the "too big to fail" theory.
• How does FDIC insurance lead to moral hazard.
• Contrast term and whole life insurance.
• How is insurance part of the financial intermediation process.
• What is an annuity
• Define and contrast defined benefit and defined contribution pension plans. 
• Which type of plan is Social Security.
• What are the pros and cons of a defined benefit plan.
• Overview ERISA.
• Overview the underwriting process
• What is a "best efforts" offering
• Contrast a broker and a dealer
• Contrast an open-end and closed-end mutual fund
• Explain front-end and back-end sales loads versus operating fees
• Contrast venture capital firms and private equity funds