Question 1

As in the United States,an important factor in the banking crises in Latin America was the

Accepted Answer

A)  financial liberalization that occurred in the 1980s. 
B)  decline in real interest rates that occurred in the 1980s. 
C)  high inflation that occurred in the 1980s. 
D)  sluggish economic growth that occurred in the 1980s. 
A)  financial liberalization that occurred in the 1980s. 
B)  decline in real interest rates that occurred in the 1980s. 
C)  high inflation that occurred in the 1980s. 
D)  sluggish economic growth that occurred in the 1980s.

Question 2

Regular bank examinations and restrictions on asset holdings help to indirectly reduce the ________ problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be discouraged from entering the banking industry.

Accepted Answer

A)  moral hazard 
B)  adverse selection 
C)  ex post shirking 
D)  post-contractual opportunism 
A)  moral hazard 
B)  adverse selection 
C)  ex post shirking 
D)  post-contractual opportunism

Question 3

Although the FDIC 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 4

The bailout of the savings and loan industry was much delayed and,therefore,much more costly to taxpayers because

Accepted Answer

A)  of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B)  politicians listened to the taxpayers rather than the S&L lobbyists. 
C)  Congress did not wait long enough for many of the problems in the thrift industry to correct themselves. 
D)  regulators could not be fired, therefore, they didn't care if they did a good job or not. 
A)  of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B)  politicians listened to the taxpayers rather than the S&L lobbyists. 
C)  Congress did not wait long enough for many of the problems in the thrift industry to correct themselves. 
D)  regulators could not be fired, therefore, they didn't care if they did a good job or not.

Question 5

The leverage ratio is the ratio of a bank's

Accepted Answer

A)  assets divided by its liabilities. 
B)  income divided by its assets. 
C)  capital divided by its total assets. 
D)  capital divided by its total liabilities. 
A)  assets divided by its liabilities. 
B)  income divided by its assets. 
C)  capital divided by its total assets. 
D)  capital divided by its total liabilities.

Question 6

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A)  separated investment banks and commercial banks. 
B)  restricted the use of ATS accounts. 
C)  imposed restrictive usury ceilings on large agricultural loans. 
D)  increased deposit insurance from $40,000 to $100,000. 
A)  separated investment banks and commercial banks. 
B)  restricted the use of ATS accounts. 
C)  imposed restrictive usury ceilings on large agricultural loans. 
D)  increased deposit insurance from $40,000 to $100,000.

Question 7

The Volcker Rule addresses the off-balance-sheet problem involving

Accepted Answer

A)  trading risks. 
B)  selling loans. 
C)  loan guarantees. 
D)  interest rate risks. 
A)  trading risks. 
B)  selling loans. 
C)  loan guarantees. 
D)  interest rate risks.

Question 8

During times of financial crisis,mark-to-market accounting

Accepted Answer

A)  requires that a financial firms' assets be marked down in value which can worsen the lending crisis. 
B)  leads to an increase in the financial firms' balance sheets since they can now get assets at bargain prices. 
C)  leads to an increase in financial firms' lending. 
D)  results in financial firms' assets increasing in value. 
A)  requires that a financial firms' assets be marked down in value which can worsen the lending crisis. 
B)  leads to an increase in the financial firms' balance sheets since they can now get assets at bargain prices. 
C)  leads to an increase in financial firms' lending. 
D)  results in financial firms' assets increasing in value.

Question 9

All of the following are common to banking crises in different countries except

Accepted Answer

A)  financial liberalization or innovation. 
B)  weak bank regulatory systems. 
C)  a government safety net. 
D)  a dual banking system. 
A)  financial liberalization or innovation. 
B)  weak bank regulatory systems. 
C)  a government safety net. 
D)  a dual banking system.

Question 10

The new Consumer Financial Protection Bureau is an independent agency but is funded and housed within

Accepted Answer

A)  the Treasury Department. 
B)  the Federal Reserve. 
C)  the SEC. 
D)  the IRS. 
A)  the Treasury Department. 
B)  the Federal Reserve. 
C)  the SEC. 
D)  the IRS.

Question 11

The Japanese banking system went through a cycle of ________ in the 1990s similar to the one that occurred in the U.S.in the 1980s.

Accepted Answer

A)  regulatory forbearance 
B)  policy antagonism 
C)  regulatory ignorance 
D)  policy renewal 
A)  regulatory forbearance 
B)  policy antagonism 
C)  regulatory ignorance 
D)  policy renewal

Question 12

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 13

Deposit insurance is only one type of government safety net. All of the following are types of government support for troubled financial institutions except

Accepted Answer

A)  forgiving tax debt. 
B)  lending from the central bank. 
C)  lending directly from the government's treasury department. 
D)  nationalizing and guaranteeing that all creditors will be repaid their loans in full. 
A)  forgiving tax debt. 
B)  lending from the central bank. 
C)  lending directly from the government's treasury department. 
D)  nationalizing and guaranteeing that all creditors will be repaid their loans in full.

Question 14

The government safety net creates ________ problem because risk-loving entrepreneurs might find banking an attractive industry.

Accepted Answer

A)  an adverse selection 
B)  a moral hazard 
C)  a lemons 
D)  a revenue 
A)  an adverse selection 
B)  a moral hazard 
C)  a lemons 
D)  a revenue

Question 15

The directive of prompt corrective action means that

Accepted Answer

A)  the FDIC will intervene earlier and more vigorously when a bank gets into trouble. 
B)  the banks must take actions quickly to resolve reserve disputes. 
C)  bank failures cannot occur. 
D)  there must be an immediate response to an increase in interest rates. 
A)  the FDIC will intervene earlier and more vigorously when a bank gets into trouble. 
B)  the banks must take actions quickly to resolve reserve disputes. 
C)  bank failures cannot occur. 
D)  there must be an immediate response to an increase in interest rates.

Question 16

"Bureaucratic gambling" refers to

Accepted Answer

A)  the strategy of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of thrift regulators. 
B)  the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s. 
C)  the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve. 
D)  the risk that regulators took in going to Congress to ask for additional funds. 
A)  the strategy of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of thrift regulators. 
B)  the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s. 
C)  the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve. 
D)  the risk that regulators took in going to Congress to ask for additional funds.

Question 17

Under the Basel Accord,assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________.

Accepted Answer

A)  2; adverse selection 
B)  2; credit risk 
C)  4; adverse selection 
D)  4; credit risk 
A)  2; adverse selection 
B)  2; credit risk 
C)  4; adverse selection 
D)  4; credit risk

Question 18

The collapse of the Bank of Credit and Commerce International,BCCI,showed the difficulty of international banking regulation. BCCI operated in more than ________ countries and was supervised by the small country of ________.

Accepted Answer

A)  70, Luxembourg 
B)  100, Monaco 
C)  70, Monaco 
D)  100, Luxembourg 
A)  70, Luxembourg 
B)  100, Monaco 
C)  70, Monaco 
D)  100, Luxembourg

Question 19

Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a

Accepted Answer

A)  last-in, first-out constraint. 
B)  sequential service constraint. 
C)  double-coincidence of wants constraint. 
D)  everyone-shares-equally constraint. 
A)  last-in, first-out constraint. 
B)  sequential service constraint. 
C)  double-coincidence of wants constraint. 
D)  everyone-shares-equally constraint.

Question 20

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.

Exam 11: Economic Analysis of Financial Regulation

As in the United States,an important factor in the banking crises in Latin America was the

Regular bank examinations and restrictions on asset holdings help to indirectly reduce the ________ problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be discouraged from entering the banking industry.

Although the FDIC was created to prevent bank failures,its existence encourages banks to

The bailout of the savings and loan industry was much delayed and,therefore,much more costly to taxpayers because

The leverage ratio is the ratio of a bank's

The Depository Institutions Deregulation and Monetary Control Act of 1980

The Volcker Rule addresses the off-balance-sheet problem involving

During times of financial crisis,mark-to-market accounting

All of the following are common to banking crises in different countries except

The new Consumer Financial Protection Bureau is an independent agency but is funded and housed within

The Japanese banking system went through a cycle of ________ in the 1990s similar to the one that occurred in the U.S.in the 1980s.

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

Deposit insurance is only one type of government safety net. All of the following are types of government support for troubled financial institutions except

The government safety net creates ________ problem because risk-loving entrepreneurs might find banking an attractive industry.

The directive of prompt corrective action means that

"Bureaucratic gambling" refers to

Under the Basel Accord,assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________.

The collapse of the Bank of Credit and Commerce International,BCCI,showed the difficulty of international banking regulation. BCCI operated in more than ________ countries and was supervised by the small country of ________.

Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a

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

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

Under the Basel Accord,assets and off-balance sheet activities were sorted according to categories with each category assigned a different weight to reflect the amount of .

The collapse of the Bank of Credit and Commerce International,BCCI,showed the difficulty of international banking regulation. BCCI operated in more than countries and was supervised by the small country of .