Question 1

The __________ is a regulator of financial markets?

Accepted Answer

A)  U.S. Treasury 
B)  SEC 
C)  FDIC 
D)  NCUA 
A)  U.S. Treasury 
B)  SEC 
C)  FDIC 
D)  NCUA

Question 2

The larger the leverage ratio of a bank,

Accepted Answer

A)  the greater the proportion of its deposits that are fully insured. 
B)  the smaller the proportion of its deposits that are fully insured. 
C)  the thicker its cushion against failure. 
D)  the thinner its cushion against failure. 
A)  the greater the proportion of its deposits that are fully insured. 
B)  the smaller the proportion of its deposits that are fully insured. 
C)  the thicker its cushion against failure. 
D)  the thinner its cushion against failure.

Question 3

Suppose a bank has total assets of $4,000,000,000 and total deposits and other liabilities of $3,500,000,000. The bank's leverage ratio is

Accepted Answer

A)  11.2%. 
B)  12.5%. 
C)  14.3%. 
D)  87.5%. 
A)  11.2%. 
B)  12.5%. 
C)  14.3%. 
D)  87.5%.

Question 4

"Insider trading" laws are meant to prevent

Accepted Answer

A)  the executives of a corporation from holding a majority of its outstanding shares. 
B)  buying or selling shares based on information not available to the public. 
C)  foreign investors from gaining controlling interest in U.S. corporations. 
D)  the issuing of bonds for the purpose of buying stock. 
A)  the executives of a corporation from holding a majority of its outstanding shares. 
B)  buying or selling shares based on information not available to the public. 
C)  foreign investors from gaining controlling interest in U.S. corporations. 
D)  the issuing of bonds for the purpose of buying stock.

Question 5

The proposed Basel II capital adequacy rules

Accepted Answer

A)  address the incentive banks have to switch from riskier to safer assets. 
B)  avoid the use of statistical rules by relying mostly on "common sense." 
C)  use highly theoretical measures of risk. 
D)  will likely be adopted initially to a handful of large banks with significant international exposure. 
A)  address the incentive banks have to switch from riskier to safer assets. 
B)  avoid the use of statistical rules by relying mostly on "common sense." 
C)  use highly theoretical measures of risk. 
D)  will likely be adopted initially to a handful of large banks with significant international exposure.

Question 6

A bank has total assets of $2,000,000 and capital of $150,000. The bank's leverage ratio is

Accepted Answer

A)  20%. 
B)  15%. 
C)  7.5%. 
D)  None of the above. 
A)  20%. 
B)  15%. 
C)  7.5%. 
D)  None of the above.

Question 7

The existence of multiple federal bank regulatory authorities has been permitted to continue because

Accepted Answer

A)  the regulators coordinate their activities well enough to avoid differences. 
B)  different types of banks require different kinds of regulation. 
C)  many regulatory authorities are necessary to insure the safety of depositor's funds. 
D)  the legislative will to replace the current regulatory system has been lacking. 
A)  the regulators coordinate their activities well enough to avoid differences. 
B)  different types of banks require different kinds of regulation. 
C)  many regulatory authorities are necessary to insure the safety of depositor's funds. 
D)  the legislative will to replace the current regulatory system has been lacking.

Question 8

In the wake of the failure of __________ in 1984, the FDIC announced the "too big to fail" policy.

Accepted Answer

A)  Mariners' Trust of Detroit 
B)  Manufacturers Hanover Bank 
C)  Silverado Savings-and-Loan 
D)  Continental Illinois Bank 
A)  Mariners' Trust of Detroit 
B)  Manufacturers Hanover Bank 
C)  Silverado Savings-and-Loan 
D)  Continental Illinois Bank

Question 9

The problem of moral hazard that resulted from federal deposit insurance can be attributed to all of the following except

Accepted Answer

A)  depositors have little incentive to monitor their bank. 
B)  deposit premiums until recently did not depend on risk. 
C)  risk aversion by managers of banks plus bank examination. 
D)  the incentive of bank stockholders to increase risk because they share disproportionately in success but the FDIC shares disproportionately in failure. 
A)  depositors have little incentive to monitor their bank. 
B)  deposit premiums until recently did not depend on risk. 
C)  risk aversion by managers of banks plus bank examination. 
D)  the incentive of bank stockholders to increase risk because they share disproportionately in success but the FDIC shares disproportionately in failure.

Question 10

As a bank's assets become less risky, its

Accepted Answer

A)  risk-based capital ratio rises. 
B)  risk-based capital ratio falls. 
C)  leverage ratio rises. 
D)  leverage ratio falls. 
A)  risk-based capital ratio rises. 
B)  risk-based capital ratio falls. 
C)  leverage ratio rises. 
D)  leverage ratio falls.

Question 11

All issuers of publicly-traded securities must file an annual report on its financial condition with the SEC, called a __________ report.

Accepted Answer

A)  1040A 
B)  C311 
C)  10K 
D)  G-109 
A)  1040A 
B)  C311 
C)  10K 
D)  G-109

Question 12

Which of the following is not a reason for regulation of U.S. financial markets?

Accepted Answer

A)  Protection of individual investors 
B)  Disclosure of information about securities is the best way to safeguard investors 
C)  Full disclosure broadens investor's participation in the financial markets 
D)  The operation of financial markets requires government regulation if they are to be efficient in channeling funds from savers to borrowers. 
A)  Protection of individual investors 
B)  Disclosure of information about securities is the best way to safeguard investors 
C)  Full disclosure broadens investor's participation in the financial markets 
D)  The operation of financial markets requires government regulation if they are to be efficient in channeling funds from savers to borrowers.

Question 13

Under the PCA guidelines, the FDIC must start closure proceedings on a bank once its leverage ratio falls below __________ percent.

Accepted Answer

A)  0 
B)  2 
C)  5 
D)  10 
A)  0 
B)  2 
C)  5 
D)  10

Question 14

The FDIC handles most bank failures by the __________ method.

Accepted Answer

A)  payoff 
B)  nationalization 
C)  purchase and assumption 
D)  share transfer 
A)  payoff 
B)  nationalization 
C)  purchase and assumption 
D)  share transfer

Question 15

A "forbearance" policy in dealing with weak banks is opposed by the __________ policy.

Accepted Answer

A)  prompt corrective action 
B)  too-big-to-fail 
C)  risk-based capital ratio 
D)  leverage ratio 
A)  prompt corrective action 
B)  too-big-to-fail 
C)  risk-based capital ratio 
D)  leverage ratio

Question 16

The "dual" nature of our banking system got its start in the

Accepted Answer

A)  1820s. 
B)  1860s. 
C)  1910s. 
D)  1930s. 
A)  1820s. 
B)  1860s. 
C)  1910s. 
D)  1930s.

Question 17

The __________ is a regulator of intermediated markets?

Accepted Answer

A)  SEC 
B)  Commodities Futures Trading Commission 
C)  National Association of Securities Dealers 
D)  Comptroller of the Currency 
A)  SEC 
B)  Commodities Futures Trading Commission 
C)  National Association of Securities Dealers 
D)  Comptroller of the Currency

Question 18

Margin requirements on stocks are set by

Accepted Answer

A)  the New York Stock Exchange. 
B)  the National Association of Securities Dealers. 
C)  the Federal Reserve System. 
D)  the Securities Exchange Commission. 
A)  the New York Stock Exchange. 
B)  the National Association of Securities Dealers. 
C)  the Federal Reserve System. 
D)  the Securities Exchange Commission.

Question 19

Which of the following does NOT appear on a prospectus?

Accepted Answer

A)  The price of the securities being issued 
B)  The salaries of the borrowing firm's top executives 
C)  Audited financial statements of the borrower 
D)  An explanation of any unusual rights granted to stockholders 
A)  The price of the securities being issued 
B)  The salaries of the borrowing firm's top executives 
C)  Audited financial statements of the borrower 
D)  An explanation of any unusual rights granted to stockholders

Question 20

Deposit insurance has been __________ in achieving its goals of preventing runs and __________.

Accepted Answer

A)  successful; protecting small investors 
B)  successful; protecting large investors 
C)  unsuccessful; protecting small investors 
D)  unsuccessful; protecting large investors 
A)  successful; protecting small investors 
B)  successful; protecting large investors 
C)  unsuccessful; protecting small investors 
D)  unsuccessful; protecting large investors

Exam 15: The Regulation of Markets and Institutions

The __________ is a regulator of financial markets?

The larger the leverage ratio of a bank,

Suppose a bank has total assets of $4,000,000,000 and total deposits and other liabilities of $3,500,000,000. The bank's leverage ratio is

"Insider trading" laws are meant to prevent

The proposed Basel II capital adequacy rules

A bank has total assets of $2,000,000 and capital of $150,000. The bank's leverage ratio is

The existence of multiple federal bank regulatory authorities has been permitted to continue because

In the wake of the failure of __________ in 1984, the FDIC announced the "too big to fail" policy.

The problem of moral hazard that resulted from federal deposit insurance can be attributed to all of the following except

As a bank's assets become less risky, its

All issuers of publicly-traded securities must file an annual report on its financial condition with the SEC, called a __________ report.

Which of the following is not a reason for regulation of U.S. financial markets?

Under the PCA guidelines, the FDIC must start closure proceedings on a bank once its leverage ratio falls below __________ percent.

The FDIC handles most bank failures by the __________ method.

A "forbearance" policy in dealing with weak banks is opposed by the __________ policy.

The "dual" nature of our banking system got its start in the

The __________ is a regulator of intermediated markets?

Margin requirements on stocks are set by

Which of the following does NOT appear on a prospectus?

Deposit insurance has been __________ in achieving its goals of preventing runs and __________.

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

Deposit insurance has been in achieving its goals of preventing runs and .