Question

In the following statements, which is NOT a role of financial institutions?

①Pooling savings

②Safekeeping and accounting

③Maximizing the investment return

④Collecting and processing information services

(          ) is not an off-balance sheet activities

①Lines of credit

②Letter of credit

③Credit card’s credit limit

④Mortgage

Which of the following statements is NOT true about the function of insurance companies?

①They pool small premiums and make large investments with them

②They diversify risks across a large population

③By screening applicants, they can reduce adverse selection

④They provide liquidity

Answer 1

Q1:

Ans: Maximizing the investment return ;

Eventhough people go for financial institution expecting a return, it is not termed as a role of financial institutions

Q2:

Mortgage;

Off balance sheet activities are those activities which are not listed in balance sheet till the action or result has taken place. Mortgages unless resold at MBS, CDO etc will come under a balance sheet.

Q3:

They provide liquidity ; All the other are functions of insurance companies.