Question 1

Deposit insurance is a guarantee by the CDIC to pay deposits off in full on the first ________ they have deposited in the bank.

Accepted Answer

A)  $60000 
B)  $200,000 
C)  $100,000 
D)  $150,000 
A)  $60000 
B)  $200,000 
C)  $100,000 
D)  $150,000

Question 2

The contagion effect refers to the fact that ________.

Accepted Answer

A)  deposit insurance has eliminated the problem of bank failures 
B)  bank runs involve only sound banks 
C)  bank runs involve only insolvent banks 
D)  the failure of one bank can hasten the failure of other banks 
A)  deposit insurance has eliminated the problem of bank failures 
B)  bank runs involve only sound banks 
C)  bank runs involve only insolvent banks 
D)  the failure of one bank can hasten the failure of other banks

Question 3

The ________ allowed chartered banks to own investment banking subsidiaries.

Accepted Answer

A)  Bank of Canada Act 
B)  Financial Institutions and Deposit Insurance System Amendment Act 
C)  Bank Holding Company Act 
D)  Monetary Control Act 
A)  Bank of Canada Act 
B)  Financial Institutions and Deposit Insurance System Amendment Act 
C)  Bank Holding Company Act 
D)  Monetary Control Act

Question 4

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 2 was ________.

Accepted Answer

A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  26.0 percent 
A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  26.0 percent

Question 5

In the early stages of the 1980s banking crisis, financial institutions were especially harmed by ________.

Accepted Answer

A)  declining interest rates from late 1979 until 1981 
B)  the severe recession in 1981-82 
C)  the disinflation from mid 1980 to early 1983 
D)  the increase in energy prices in the early '80s 
A)  declining interest rates from late 1979 until 1981 
B)  the severe recession in 1981-82 
C)  the disinflation from mid 1980 to early 1983 
D)  the increase in energy prices in the early '80s

Question 6

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 3 was ________.

Accepted Answer

A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  26.0 percent 
A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  26.0 percent

Question 7

Which of the following is not a reason financial regulation and supervision is difficult in real life?

Accepted Answer

A)  Financial institutions have strong incentives to avoid existing regulations 
B)  Unintended consequences may happen if details in the regulations are not precise 
C)  Regulated firms lobby politicians to lean on regulators to ease the rules 
D)  Financial institutions are not required to follow the rules 
A)  Financial institutions have strong incentives to avoid existing regulations 
B)  Unintended consequences may happen if details in the regulations are not precise 
C)  Regulated firms lobby politicians to lean on regulators to ease the rules 
D)  Financial institutions are not required to follow the rules

Question 8

The CDIC does not insure term deposits with an initial maturity date of more than ________.

Accepted Answer

A)  5 years 
B)  2 years 
C)  1 year 
D)  90 days 
A)  5 years 
B)  2 years 
C)  1 year 
D)  90 days

Question 9

What are the three pillars that Basel 2 is based on?

Accepted Answer

Pillar 1 links capital requirements for

Question 10

In the 1998-1999 fiscal year, the flat rate insurance premium was ________.

Accepted Answer

A)  1/6 of 1 percent 
B)  1/4 of 1 percent 
C)  1/3 of 1 percent 
D)  1/2 of 1 percent 
A)  1/6 of 1 percent 
B)  1/4 of 1 percent 
C)  1/3 of 1 percent 
D)  1/2 of 1 percent

Question 11

The Differential Premiums By-law came into effect for the premium year beginning ________.

Accepted Answer

A)  May 1, 1999 
B)  January 1, 1999 
C)  May 31, 1999 
D)  December 31, 1999 
A)  May 1, 1999 
B)  January 1, 1999 
C)  May 31, 1999 
D)  December 31, 1999

Question 12

Although the CDIC was created to prevent bank failures, its existence encourages banks to ________.

Accepted Answer

A)  take too much risk 
B)  hold too much capital 
C)  open too many branches 
D)  buy too much stock 
A)  take too much risk 
B)  hold too much capital 
C)  open too many branches 
D)  buy too much stock

Question 13

The Basel Committee ruled that regulators in other countries could ________ of a foreign bank if they feel that it lacks effective oversight.

Accepted Answer

A)  restrict operations 
B)  ban operations 
C)  takeover 
D)  merge operations 
A)  restrict operations 
B)  ban operations 
C)  takeover 
D)  merge operations

Question 14

Moral hazard is an important concern of insurance arrangements because the existence of insurance ________.

Accepted Answer

A)  provides increased incentives for risk taking 
B)  is a hindrance to efficient risk taking 
C)  causes the private cost of the insured activity to increase 
D)  creates an adverse selection problem 
A)  provides increased incentives for risk taking 
B)  is a hindrance to efficient risk taking 
C)  causes the private cost of the insured activity to increase 
D)  creates an adverse selection problem

Question 15

Regulations designed to provide information to the marketplace so that investors can make informed decisions are called ________.

Accepted Answer

A)  disclosure requirements 
B)  efficient market requirements 
C)  asset restrictions 
D)  capital requirements 
A)  disclosure requirements 
B)  efficient market requirements 
C)  asset restrictions 
D)  capital requirements

Question 16

The evidence from banking crises in other countries indicates that ________.

Accepted Answer

A)  deposit insurance is to blame in each country 
B)  a government safety net for depositors need not increase moral hazard 
C)  regulatory forbearance never leads to problems 
D)  deregulation combined with poor regulatory supervision raises moral hazard incentives 
A)  deposit insurance is to blame in each country 
B)  a government safety net for depositors need not increase moral hazard 
C)  regulatory forbearance never leads to problems 
D)  deregulation combined with poor regulatory supervision raises moral hazard incentives

Question 17

Consumer protection legislation includes legislation to ________.

Accepted Answer

A)  require banks to make loans to everyone who applies 
B)  reduce the amount of interest that bank's can charge on loans 
C)  require banks to make periodic reports to the Better Business Bureau 
D)  reduce discrimination in credit markets 
A)  require banks to make loans to everyone who applies 
B)  reduce the amount of interest that bank's can charge on loans 
C)  require banks to make periodic reports to the Better Business Bureau 
D)  reduce discrimination in credit markets

Question 18

The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

Accepted Answer

A)  regulatory forbearance; moral hazard 
B)  regulatory forbearance; adverse hazard 
C)  regulatory agnosticism; moral hazard 
D)  regulatory agnosticism; adverse hazard 
A)  regulatory forbearance; moral hazard 
B)  regulatory forbearance; adverse hazard 
C)  regulatory agnosticism; moral hazard 
D)  regulatory agnosticism; adverse hazard

Question 19

Off-balance-sheet activities ________.

Accepted Answer

A)  generate fee income with no increase in risk 
B)  increase bank risk but do not increase income 
C)  generate fee income but increase a bank's risk 
D)  generate fee income and reduce risk 
A)  generate fee income with no increase in risk 
B)  increase bank risk but do not increase income 
C)  generate fee income but increase a bank's risk 
D)  generate fee income and reduce risk

Question 20

Banks are required to file ________ usually quarterly that list information on the bank's assets and liabilities, income and dividends, and so forth.

Accepted Answer

A)  call reports 
B)  balance reports 
C)  regulatory sheets 
D)  examiner updates 
A)  call reports 
B)  balance reports 
C)  regulatory sheets 
D)  examiner updates

Exam 9: Economic Analysis of Financial Regulation

Deposit insurance is a guarantee by the CDIC to pay deposits off in full on the first ________ they have deposited in the bank.

The contagion effect refers to the fact that ________.

The ________ allowed chartered banks to own investment banking subsidiaries.

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 2 was ________.

In the early stages of the 1980s banking crisis, financial institutions were especially harmed by ________.

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 3 was ________.

Which of the following is not a reason financial regulation and supervision is difficult in real life?

The CDIC does not insure term deposits with an initial maturity date of more than ________.

What are the three pillars that Basel 2 is based on?

In the 1998-1999 fiscal year, the flat rate insurance premium was ________.

The Differential Premiums By-law came into effect for the premium year beginning ________.

Although the CDIC was created to prevent bank failures, its existence encourages banks to ________.

The Basel Committee ruled that regulators in other countries could ________ of a foreign bank if they feel that it lacks effective oversight.

Moral hazard is an important concern of insurance arrangements because the existence of insurance ________.

Regulations designed to provide information to the marketplace so that investors can make informed decisions are called ________.

The evidence from banking crises in other countries indicates that ________.

Consumer protection legislation includes legislation to ________.

The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

Off-balance-sheet activities ________.

Banks are required to file ________ usually quarterly that list information on the bank's assets and liabilities, income and dividends, and so forth.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

The policy of exacerbated problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.