Question 1

The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of banks, includes the following, except:

Accepted Answer

A)  asset quality. 
B)  losses. 
C)  management. 
D)  earnings. 
A)  asset quality. 
B)  losses. 
C)  management. 
D)  earnings.

Question 2

The need for a lender of last resort was identified as far back as:

Accepted Answer

A)  the start of the Great Depression in 1929. 
B)  1913, when the Federal Reserve was created. 
C)  1873, by British economist Walter Bagehot. 
D)  1776, by the first U.S. Secretary of the Treasury, Alexander Hamilton. 
A)  the start of the Great Depression in 1929. 
B)  1913, when the Federal Reserve was created. 
C)  1873, by British economist Walter Bagehot. 
D)  1776, by the first U.S. Secretary of the Treasury, Alexander Hamilton.

Question 3

The government's role of lender of last resort is directed to:

Accepted Answer

A)  large manufacturing firms that employ thousands of people. 
B)  depositors; this is role the government plays when they insure depositors' balances in banks that fail. 
C)  developing countries that are trying to build their financial systems. 
D)  banks that experience sudden deposit outflows. 
A)  large manufacturing firms that employ thousands of people. 
B)  depositors; this is role the government plays when they insure depositors' balances in banks that fail. 
C)  developing countries that are trying to build their financial systems. 
D)  banks that experience sudden deposit outflows.

Question 4

An economic rationale for government protection of small investors is that:

Accepted Answer

A)  large investors can better afford losses. 
B)  many small investors cannot adequately judge the soundness of their bank. 
C)  there is inadequate competition to ensure a bank is operating efficiently. 
D)  banks are often run by unethical managers who will often exploit small investors. 
A)  large investors can better afford losses. 
B)  many small investors cannot adequately judge the soundness of their bank. 
C)  there is inadequate competition to ensure a bank is operating efficiently. 
D)  banks are often run by unethical managers who will often exploit small investors.

Question 5

The creation of the Federal Reserve in 1913:

Accepted Answer

A)  provided the opportunity for lender of last resort but not the guarantee that it would be used. 
B)  guaranteed the Federal Reserve would always act as lender of last resort. 
C)  eliminated bank panics in the U.S. 
D)  was in response to the Great Depression in the U.S. 
A)  provided the opportunity for lender of last resort but not the guarantee that it would be used. 
B)  guaranteed the Federal Reserve would always act as lender of last resort. 
C)  eliminated bank panics in the U.S. 
D)  was in response to the Great Depression in the U.S.

Question 6

What three strategies are employed by government officials to ensure that the risks created by the government safety net are contained?

Accepted Answer

Governments have developed three strateg

Question 7

The payoff method used by the FDIC to address the insolvency of a bank is when the FDIC:

Accepted Answer

A)  pays the owners of the bank for the losses they would otherwise face. 
B)  pays off all depositors the balances in their accounts so no depositor suffers a loss, though the owners of the bank may suffer losses. 
C)  pays off the depositors up to the current $250,000 limit, so it is possible that some depositors will suffer losses. 
D)  takes all of the assets of the bank, sells them, pays off the liabilities of the bank in full, and then replenishes their fund with any remaining balance. 
A)  pays the owners of the bank for the losses they would otherwise face. 
B)  pays off all depositors the balances in their accounts so no depositor suffers a loss, though the owners of the bank may suffer losses. 
C)  pays off the depositors up to the current $250,000 limit, so it is possible that some depositors will suffer losses. 
D)  takes all of the assets of the bank, sells them, pays off the liabilities of the bank in full, and then replenishes their fund with any remaining balance.

Question 8

You have two savings accounts at an FDIC insured bank. You have $225,000 in one account and $40,000 in the other. If the bank fails, you will receive:

Accepted Answer

A)  $225,000. 
B)  $40,000. 
C)  $115,000. 
D)  $250,000. 
A)  $225,000. 
B)  $40,000. 
C)  $115,000. 
D)  $250,000.

Question 9

Many states had their own insurance fund to protect depositors. The critical problem with these state funds is:

Accepted Answer

A)  they are monopolies in their own state and extract extremely high prices for the insurance they provide. 
B)  they are highly inefficient they cannot achieve the economies of scale a federal fund can achieve. 
C)  they do not have regulators as knowledgeable as the regulators at FDIC. 
D)  no state fund is large enough to withstand a run on all of the banks it insures. 
A)  they are monopolies in their own state and extract extremely high prices for the insurance they provide. 
B)  they are highly inefficient they cannot achieve the economies of scale a federal fund can achieve. 
C)  they do not have regulators as knowledgeable as the regulators at FDIC. 
D)  no state fund is large enough to withstand a run on all of the banks it insures.

Question 10

Which of the following statements is most correct?

Accepted Answer

A)  Financial regulators do everything possible to encourage competition in banking. 
B)  Financial regulators work to prevent monopolies but also work to prevent strong competition in banking. 
C)  Financial regulators discourage competition in banking. 
D)  Financial regulators prefer banks to have monopoly power in their geographic markets. 
A)  Financial regulators do everything possible to encourage competition in banking. 
B)  Financial regulators work to prevent monopolies but also work to prevent strong competition in banking. 
C)  Financial regulators discourage competition in banking. 
D)  Financial regulators prefer banks to have monopoly power in their geographic markets.

Question 11

In 1873, British economist Walter Bagehot proposed that the central bank function as the lender of last resort. Specifically, he suggested the central bank lend freely to banks which have good collateral at high rates of interest. Why the requirements of good collateral and a high rate of interest?

Accepted Answer

The requirement of good collateral is to

Question 12

Contagion is:

Accepted Answer

A)  the failure of one bank spreading to other banks through depositors withdrawing of funds. 
B)  the phenomenon that if one bank loan defaults it will cause other bank loans to default. 
C)  the rapid contraction of investment spending that occurs when interest rates are increased by the Federal Reserve. 
D)  the rapid inflation that results from the printing of money. 
A)  the failure of one bank spreading to other banks through depositors withdrawing of funds. 
B)  the phenomenon that if one bank loan defaults it will cause other bank loans to default. 
C)  the rapid contraction of investment spending that occurs when interest rates are increased by the Federal Reserve. 
D)  the rapid inflation that results from the printing of money.

Question 13

How do banks potentially make economic downturns more severe and how do economic downturns contribute to the increased failure of banks?

Accepted Answer

When an economy begins to slow some peop

Question 14

Governments supervise banks mainly to do each of the following, except:

Accepted Answer

A)  reduce the potential cost to taxpayers of bank failures. 
B)  be sure the banks are following the regulations set out by banking laws. 
C)  reduce the moral hazard risk. 
D)  eliminate all risk faced by investors. 
A)  reduce the potential cost to taxpayers of bank failures. 
B)  be sure the banks are following the regulations set out by banking laws. 
C)  reduce the moral hazard risk. 
D)  eliminate all risk faced by investors.

Question 15

Identify at least two problems a borrower would face if banks were not required to disclose the information that they are currently required to make available.

Accepted Answer

One problem that quickly comes to mind w

Question 16

One lesson learned from the bank panics of the early 1930's is:

Accepted Answer

A)  the lender of last resort function almost guarantees that bank panics are a thing of the past. 
B)  the mere existence of a lender of last resort will not keep the financial system from collapsing. 
C)  only the U.S. Treasury can be a true lender of last resort. 
D)  the financial system will collapse without a lender of last resort. 
A)  the lender of last resort function almost guarantees that bank panics are a thing of the past. 
B)  the mere existence of a lender of last resort will not keep the financial system from collapsing. 
C)  only the U.S. Treasury can be a true lender of last resort. 
D)  the financial system will collapse without a lender of last resort.

Question 17

Empirical evidence points to the fact that financial crises:

Accepted Answer

A)  are newsworthy but have no impact on economic growth. 
B)  have a negative impact on economic growth only for the year of the crisis. 
C)  have a negative impact on economic growth for years. 
D)  can have a positive impact on economic growth as weak borrowers are weeded out. 
A)  are newsworthy but have no impact on economic growth. 
B)  have a negative impact on economic growth only for the year of the crisis. 
C)  have a negative impact on economic growth for years. 
D)  can have a positive impact on economic growth as weak borrowers are weeded out.

Question 18

If your stockbroker gives you bad advice and you lose your investment:

Accepted Answer

A)  the government will reimburse you similar to reimbursing depositors if a bank fails. 
B)  the government will not reimburse you for the loss; you are not protected from bad advice by your stockbroker. 
C)  these losses would be covered under FDIC insurance. 
D)  your investment would only be covered if the stockbroker was employed by a bank. 
A)  the government will reimburse you similar to reimbursing depositors if a bank fails. 
B)  the government will not reimburse you for the loss; you are not protected from bad advice by your stockbroker. 
C)  these losses would be covered under FDIC insurance. 
D)  your investment would only be covered if the stockbroker was employed by a bank.

Question 19

Credit Unions are regulated by a combination of agencies which includes:

Accepted Answer

A)  state authorities. 
B)  The Federal Reserve. 
C)  The Federal Deposit Insurance Corporation. 
D)  The Office of the Comptroller of the Currency. 
A)  state authorities. 
B)  The Federal Reserve. 
C)  The Federal Deposit Insurance Corporation. 
D)  The Office of the Comptroller of the Currency.

Question 20

What matters most during a bank run is:

Accepted Answer

A)  the number of loans outstanding. 
B)  the solvency of the bank. 
C)  the liquidity of the bank. 
D)  the size of the bank's assets. 
A)  the number of loans outstanding. 
B)  the solvency of the bank. 
C)  the liquidity of the bank. 
D)  the size of the bank's assets.

Exam 14: Regulating the Financial System

The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of banks, includes the following, except:

The need for a lender of last resort was identified as far back as:

The government's role of lender of last resort is directed to:

An economic rationale for government protection of small investors is that:

The creation of the Federal Reserve in 1913:

What three strategies are employed by government officials to ensure that the risks created by the government safety net are contained?

The payoff method used by the FDIC to address the insolvency of a bank is when the FDIC:

You have two savings accounts at an FDIC insured bank. You have $225,000 in one account and $40,000 in the other. If the bank fails, you will receive:

Many states had their own insurance fund to protect depositors. The critical problem with these state funds is:

Which of the following statements is most correct?

In 1873, British economist Walter Bagehot proposed that the central bank function as the lender of last resort. Specifically, he suggested the central bank lend freely to banks which have good collateral at high rates of interest. Why the requirements of good collateral and a high rate of interest?

Contagion is:

How do banks potentially make economic downturns more severe and how do economic downturns contribute to the increased failure of banks?

Governments supervise banks mainly to do each of the following, except:

Identify at least two problems a borrower would face if banks were not required to disclose the information that they are currently required to make available.

One lesson learned from the bank panics of the early 1930's is:

Empirical evidence points to the fact that financial crises:

If your stockbroker gives you bad advice and you lose your investment:

Credit Unions are regulated by a combination of agencies which includes:

What matters most during a bank run is:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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