Question 1

During the boom years of the 1920s,bank failures were quite

Accepted Answer

A) uncommon,averaging less than 30 per year. 
B) uncommon,averaging less than 100 per year. 
C) common,averaging about 600 per year. 
D) common,averaging about 1000 per year. 
A) uncommon,averaging less than 30 per year. 
B) uncommon,averaging less than 100 per year. 
C) common,averaging about 600 per year. 
D) common,averaging about 1000 per year. C

Question 2

A system of deposit insurance

Accepted Answer

A) attracts risk-taking entrepreneurs into the banking industry. 
B) encourages bank managers to decrease risk. 
C) increases the incentives of depositors to monitor the riskiness of their bank's asset portfolio. 
D) increases the likelihood of bank runs. 
A) attracts risk-taking entrepreneurs into the banking industry. 
B) encourages bank managers to decrease risk. 
C) increases the incentives of depositors to monitor the riskiness of their bank's asset portfolio. 
D) increases the likelihood of bank runs. A

Question 3

In the ten year period 1981-1990,1202 commercial banks were closed,with a peak of 206 failures in 1989.This rate of failures was approximately ________ times greater than that in the period from 1934 to 1980.

Accepted Answer

A) two 
B) three 
C) five 
D) ten 
A) two 
B) three 
C) five 
D) ten D

Question 4

Deposit insurance has not worked well in countries with

Accepted Answer

A) a weak institutional environment. 
B) strong supervision and regulation. 
C) a tradition of the rule of law. 
D) few opportunities for corruption. 
A) a weak institutional environment. 
B) strong supervision and regulation. 
C) a tradition of the rule of law. 
D) few opportunities for corruption.

Question 5

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is

Accepted Answer

A) that the FDIC guarantees all deposits when it uses the "payoff" method. 
B) that the FDIC guarantees all deposits when it uses the "purchase and assumption" method. 
C) that the FDIC is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures. 
D) that the FDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions. 
A) that the FDIC guarantees all deposits when it uses the "payoff" method. 
B) that the FDIC guarantees all deposits when it uses the "purchase and assumption" method. 
C) that the FDIC is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures. 
D) that the FDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions.

Question 6

How did the increase in the interest rates in the early 80s contribute to the S&L crisis?

Accepted Answer

The S&Ls suffered from an interest-rate

Question 7

The Argentine banking crisis of 2001 resulted from Argentina's banks being required to

Accepted Answer

A) purchase large amounts of government debt. 
B) pay back the value of failed loans. 
C) make risky real estate loans. 
D) make loans to only state-owned businesses. 
A) purchase large amounts of government debt. 
B) pay back the value of failed loans. 
C) make risky real estate loans. 
D) make loans to only state-owned businesses.

Question 8

The ability to use the too-big-to-fail policy was curtailed by the passage of the FDICIA.To use this action today,the FDIC must get approval of a two-thirds majority of both the Board of Governors of the Federal Reserve and the directors of the FDIC and also the approval of the

Accepted Answer

A) Secretary of the Treasury. 
B) Senate Finance Committee Chairperson. 
C) President of the United States. 
D) governor of the state in which the failed bank is located. 
A) Secretary of the Treasury. 
B) Senate Finance Committee Chairperson. 
C) President of the United States. 
D) governor of the state in which the failed bank is located.

Question 9

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 10

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

Question 11

In May 1991,the FDIC announced that it would sell the government's final 26% stake in Continental Illinois,ending government ownership of the bank that it had rescued in 1984.The FDIC took control of the bank,rather than liquidate it,because it believed that Continental Illinois

Accepted Answer

A) was a good investment opportunity for the government. 
B) could be the Chicago branch of a new governmentally-owned interstate banking system. 
C) was too big to fail. 
D) would become the center of the new midwest region central bank system. 
A) was a good investment opportunity for the government. 
B) could be the Chicago branch of a new governmentally-owned interstate banking system. 
C) was too big to fail. 
D) would become the center of the new midwest region central bank system.

Question 12

The chartering process is especially designed to deal with the ________ problem,and regular bank examinations help to reduce the ________ problem.

Accepted Answer

A) adverse selection;adverse selection 
B) adverse selection;moral hazard 
C) moral hazard;adverse selection 
D) moral hazard;moral hazard 
A) adverse selection;adverse selection 
B) adverse selection;moral hazard 
C) moral hazard;adverse selection 
D) moral hazard;moral hazard

Question 13

Regulators attempt to reduce the riskiness of banks' asset portfolios by

Accepted Answer

A) limiting the amount of loans in particular categories or to individual borrowers. 
B) encouraging banks to hold risky assets such as common stocks. 
C) establishing a minimum interest rate floor that banks can earn on certain assets. 
D) requiring collateral for all loans. 
A) limiting the amount of loans in particular categories or to individual borrowers. 
B) encouraging banks to hold risky assets such as common stocks. 
C) establishing a minimum interest rate floor that banks can earn on certain assets. 
D) requiring collateral for all loans.

Question 14

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A) increased the FDIC's ability to borrow from the Treasury to deal with failed banks. 
B) increased the FDIC's ability to use the too-big-to-fail doctrine. 
C) eliminated governmentally-administered deposit insurance. 
D) eliminated restrictions on nationwide banking. 
A) increased the FDIC's ability to borrow from the Treasury to deal with failed banks. 
B) increased the FDIC's ability to use the too-big-to-fail doctrine. 
C) eliminated governmentally-administered deposit insurance. 
D) eliminated restrictions on nationwide banking.

Question 15

Banking crises have occurred throughout the world.What similarities do we find when we look at the different countries?

Accepted Answer

Financial deregulation with inadequate s

Question 16

Because banks engage in regulatory arbitrage,the Basel Accord on risk-based capital requirements may result in

Accepted Answer

A) reduced risk taking by banks. 
B) reduced supervision of banks by regulators. 
C) increased fraudulent behavior by banks. 
D) increased risk taking by banks. 
A) reduced risk taking by banks. 
B) reduced supervision of banks by regulators. 
C) increased fraudulent behavior by banks. 
D) increased risk taking by banks.

Question 17

An important factor in producing the global financial crisis was

Accepted Answer

A) lax consumer protection regulation. 
B) onerous rules placed on mortgage originators. 
C) weak incentives for mortgage brokers to use complicated mortgage products. 
D) strong incentives for the mortgage brokers to verify income information. 
A) lax consumer protection regulation. 
B) onerous rules placed on mortgage originators. 
C) weak incentives for mortgage brokers to use complicated mortgage products. 
D) strong incentives for the mortgage brokers to verify income information.

Question 18

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 19

The Basel Committee ruled that regulators in other countries can ________ the operations of a foreign bank if they believe that it lacks effective oversight.

Accepted Answer

A) restrict 
B) encourage 
C) renegotiate 
D) enhance 
A) restrict 
B) encourage 
C) renegotiate 
D) enhance

Question 20

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.

Exam 10: Economic Analysis of Financial Regulation

During the boom years of the 1920s,bank failures were quite

A system of deposit insurance

In the ten year period 1981-1990,1202 commercial banks were closed,with a peak of 206 failures in 1989.This rate of failures was approximately ________ times greater than that in the period from 1934 to 1980.

Deposit insurance has not worked well in countries with

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is

How did the increase in the interest rates in the early 80s contribute to the S&L crisis?

The Argentine banking crisis of 2001 resulted from Argentina's banks being required to

The ability to use the too-big-to-fail policy was curtailed by the passage of the FDICIA.To use this action today,the FDIC must get approval of a two-thirds majority of both the Board of Governors of the Federal Reserve and the directors of the FDIC and also the approval of the

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

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

In May 1991,the FDIC announced that it would sell the government's final 26% stake in Continental Illinois,ending government ownership of the bank that it had rescued in 1984.The FDIC took control of the bank,rather than liquidate it,because it believed that Continental Illinois

The chartering process is especially designed to deal with the ________ problem,and regular bank examinations help to reduce the ________ problem.

Regulators attempt to reduce the riskiness of banks' asset portfolios by

The Federal Deposit Insurance Corporation Improvement Act of 1991

Banking crises have occurred throughout the world.What similarities do we find when we look at the different countries?

Because banks engage in regulatory arbitrage,the Basel Accord on risk-based capital requirements may result in

An important factor in producing the global financial crisis was

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

The Basel Committee ruled that regulators in other countries can ________ the operations of a foreign bank if they believe that it lacks effective oversight.

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

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior 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 and the Management of Financial Institutions

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

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

The chartering process is especially designed to deal with the problem,and regular bank examinations help to reduce the problem.