Question 1

The crisis involving the Hunt brothers had its greatest impact on the market for

Accepted Answer

A) commercial paper. 
B) commodity futures. 
C) negotiable certificates of deposit. 
D) Eurodollars. 
A) commercial paper. 
B) commodity futures. 
C) negotiable certificates of deposit. 
D) Eurodollars.

Question 2

The 1981-1982 recession hurt thrifts by

Accepted Answer

A) lowering interest rates. 
B) raising interest rates. 
C) raising default rates on mortgages. 
D) reducing the demand for negotiable CDs. 
A) lowering interest rates. 
B) raising interest rates. 
C) raising default rates on mortgages. 
D) reducing the demand for negotiable CDs.

Question 3

NOW accounts were developed in order to

Accepted Answer

A) circumvent Regulation Q. 
B) provide banks with a checkable deposit on which they did not have to pay interest. 
C) provide banks with a liquid, interest-earning asset. 
D) provide banks with a means of earning interest on the funds in their reserve accounts with the Fed. 
A) circumvent Regulation Q. 
B) provide banks with a checkable deposit on which they did not have to pay interest. 
C) provide banks with a liquid, interest-earning asset. 
D) provide banks with a means of earning interest on the funds in their reserve accounts with the Fed.

Question 4

Negotiable certificates of deposit were developed in order to

Accepted Answer

A) compete for loan business that had been going to the commercial paper market. 
B) circumvent interest rate regulations on deposits. 
C) increase assets that were acceptable as collateral for discount loans. 
D) circumvent reserve requirements. 
A) compete for loan business that had been going to the commercial paper market. 
B) circumvent interest rate regulations on deposits. 
C) increase assets that were acceptable as collateral for discount loans. 
D) circumvent reserve requirements.

Question 5

The greatest problem with bank capital requirements as they currently exist is that they

Accepted Answer

A) do nothing to reduce the moral hazard problem of deposit insurance. 
B) do nothing to lessen the willingness of bank managers to take risks. 
C) are based on historical cost rather than market value. 
D) are too low. 
A) do nothing to reduce the moral hazard problem of deposit insurance. 
B) do nothing to lessen the willingness of bank managers to take risks. 
C) are based on historical cost rather than market value. 
D) are too low.

Question 6

In 1995, the FDIC deposit insurance premiums for most banks were

Accepted Answer

A) eliminated. 
B) raised. 
C) adjusted for inflation. 
D) set at $2000 per year. 
A) eliminated. 
B) raised. 
C) adjusted for inflation. 
D) set at $2000 per year.

Question 7

Which of the following statements concerning the problems of commercial banks during the 1980s is NOT true?

Accepted Answer

A) The rising cost of funds led banks to make riskier loans. 
B) Interest rate risk was at least as great a problem for banks as for thrifts. 
C) Banks increased their exposure to risk through their investments in HLTs. 
D) By limiting diversification, branching restrictions contributed to the increase in bank failures. 
A) The rising cost of funds led banks to make riskier loans. 
B) Interest rate risk was at least as great a problem for banks as for thrifts. 
C) Banks increased their exposure to risk through their investments in HLTs. 
D) By limiting diversification, branching restrictions contributed to the increase in bank failures.

Question 8

The first stage in the regulatory process is

Accepted Answer

A) a banking crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response. 
A) a banking crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response.

Question 9

The second stage in the regulatory process is

Accepted Answer

A) a banking crisis 
B) regulation 
C) response by the financial system 
D) regulatory response 
A) a banking crisis 
B) regulation 
C) response by the financial system 
D) regulatory response

Question 10

Adjustable-rate mortgages do not fully eliminate interest-rate risk for all of the following reasons EXCEPT

Accepted Answer

A) annual rate increases are limited. 
B) the indexes on which they are based are imperfect. 
C) financial institutions are reluctant to raise interest rates too much so as to not lose customers. 
D) interest rate can only increase by a specified amount during the term of the mortgage. 
A) annual rate increases are limited. 
B) the indexes on which they are based are imperfect. 
C) financial institutions are reluctant to raise interest rates too much so as to not lose customers. 
D) interest rate can only increase by a specified amount during the term of the mortgage.

Question 11

The weakness of the Fed's actions during the banking crisis of the early 1930s resulted in

Accepted Answer

A) a change in the law restricting its ability to make discount loans. 
B) the introduction of a federal system of deposit insurance. 
C) the establishment of the savings-and-loan industry. 
D) the elimination of reserve requirements on demand deposits. 
A) a change in the law restricting its ability to make discount loans. 
B) the introduction of a federal system of deposit insurance. 
C) the establishment of the savings-and-loan industry. 
D) the elimination of reserve requirements on demand deposits.

Question 12

Negotiable certificates of deposit differ from demand deposits in that they

Accepted Answer

A) are not subject to early withdrawal penalties. 
B) may be bought and sold in the secondary market. 
C) generally have lower interest rates. 
D) are not subject to state and local income taxes. 
A) are not subject to early withdrawal penalties. 
B) may be bought and sold in the secondary market. 
C) generally have lower interest rates. 
D) are not subject to state and local income taxes.

Question 13

The thrift industry prospered during the period from the 1930s to the 1960s because

Accepted Answer

A) there was very little government regulation of the industry. 
B) interest rates were continually increasing, but inflation rates were low. 
C) interest rates were stable and regulation limited interest payments to depositors. 
D) banks were prohibited from engaging in mortgage lending. 
A) there was very little government regulation of the industry. 
B) interest rates were continually increasing, but inflation rates were low. 
C) interest rates were stable and regulation limited interest payments to depositors. 
D) banks were prohibited from engaging in mortgage lending.

Question 14

Which of the following organizations has check clearing as its main role?

Accepted Answer

A) CHIPS 
B) SEC 
C) FDIC 
D) COMEX 
A) CHIPS 
B) SEC 
C) FDIC 
D) COMEX

Question 15

The Garn-St. Germain Act aided savings institutions by

Accepted Answer

A) imposing new regulatory burdens on banks. 
B) eliminating all reserve requirements on deposits in savings institutions. 
C) broadening their ability to invest in areas other than mortgages. 
D) eliminating Regulation Q ceilings on deposits in them. 
A) imposing new regulatory burdens on banks. 
B) eliminating all reserve requirements on deposits in savings institutions. 
C) broadening their ability to invest in areas other than mortgages. 
D) eliminating Regulation Q ceilings on deposits in them.

Question 16

When households and businesses substitute Treasury bills, commercial paper, and repurchase agreements for short-term bank deposits in their portfolios, they are

Accepted Answer

A) sacrificing liquidity for return. 
B) sacrificing return for liquidity. 
C) increasing both their liquidity and return. 
D) decreasing both their liquidity and return. 
A) sacrificing liquidity for return. 
B) sacrificing return for liquidity. 
C) increasing both their liquidity and return. 
D) decreasing both their liquidity and return.

Question 17

Many economists believe

Accepted Answer

A) the Fed could have reduced the severity of the Great Depression by raising interest rates. 
B) the Fed could have reduced the severity of the Great Depression by encouraging banks to make fewer loans to insolvent businesses. 
C) bank failures increased the severity of the Great Depression. 
D) the severity of the Great Depression and the policies of the Fed were unrelated. 
A) the Fed could have reduced the severity of the Great Depression by raising interest rates. 
B) the Fed could have reduced the severity of the Great Depression by encouraging banks to make fewer loans to insolvent businesses. 
C) bank failures increased the severity of the Great Depression. 
D) the severity of the Great Depression and the policies of the Fed were unrelated.

Question 18

When did Regulation Q finally disappear?

Accepted Answer

A) 1934 
B) 1945 
C) 1986 
D) 2000 
A) 1934 
B) 1945 
C) 1986 
D) 2000

Question 19

Under FIRREA what are the capital requirements for S&Ls?

Accepted Answer

A) 1% of assets 
B) 8% of assets 
C) 15% of net worth 
D) $50,000,000 
A) 1% of assets 
B) 8% of assets 
C) 15% of net worth 
D) $50,000,000

Question 20

By 2006, total lending in the commercial paper market accounted for about what percentage of short-term business financing?

Accepted Answer

A) 1% 
B) 7% 
C) 15% 
D) 40% 
A) 1% 
B) 7% 
C) 15% 
D) 40%

Exam 15: Banking Regulation: Crisis and Response

The crisis involving the Hunt brothers had its greatest impact on the market for

The 1981-1982 recession hurt thrifts by

NOW accounts were developed in order to

Negotiable certificates of deposit were developed in order to

The greatest problem with bank capital requirements as they currently exist is that they

In 1995, the FDIC deposit insurance premiums for most banks were

Which of the following statements concerning the problems of commercial banks during the 1980s is NOT true?

The first stage in the regulatory process is

The second stage in the regulatory process is

Adjustable-rate mortgages do not fully eliminate interest-rate risk for all of the following reasons EXCEPT

The weakness of the Fed's actions during the banking crisis of the early 1930s resulted in

Negotiable certificates of deposit differ from demand deposits in that they

The thrift industry prospered during the period from the 1930s to the 1960s because

Which of the following organizations has check clearing as its main role?

The Garn-St. Germain Act aided savings institutions by

When households and businesses substitute Treasury bills, commercial paper, and repurchase agreements for short-term bank deposits in their portfolios, they are

Many economists believe

When did Regulation Q finally disappear?

Under FIRREA what are the capital requirements for S&Ls?

By 2006, total lending in the commercial paper market accounted for about what percentage of short-term business financing?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters