Question 1

China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas.

Accepted Answer

A) state 
B) domestic investor 
C) depositor 
D) domestic corporate 
A) state 
B) domestic investor 
C) depositor 
D) domestic corporate

Question 2

When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them, they were pursuing a policy of ________.

Accepted Answer

A) regulatory forbearance 
B) regulatory kindness 
C) ostrich reasoning 
D) ignorance reasoning 
A) regulatory forbearance 
B) regulatory kindness 
C) ostrich reasoning 
D) ignorance reasoning

Question 3

Bank failures in Canada arose due to historical accident, including ________ and ________.

Accepted Answer

A) sharp increase in interest rates; severe recession 
B) sharp increase in interest rates; a housing boom 
C) sharp decrease in interest rates; severe recession 
D) sharp decrease in interest rates; a housing bubble 
A) sharp increase in interest rates; severe recession 
B) sharp increase in interest rates; a housing boom 
C) sharp decrease in interest rates; severe recession 
D) sharp decrease in interest rates; a housing bubble

Question 4

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 1 was ________.

Accepted Answer

A) 1/36 of 1 percent 
B) 1/18 of 1 percent 
C) 1/9 of 1 percent 
D) 2/9 of 1 percent 
A) 1/36 of 1 percent 
B) 1/18 of 1 percent 
C) 1/9 of 1 percent 
D) 2/9 of 1 percent

Question 5

The Japanese equivalent of the CDIC played a ________ role in that country's banking crisis.

Accepted Answer

A) tiny 
B) huge 
C) important 
D) dominant 
A) tiny 
B) huge 
C) important 
D) dominant

Question 6

CDIC premium revenue is ________.

Accepted Answer

A) the same for all deposit taking institutions 
B) vary from 15 cents to 20 cents per dollar 
C) based on the risk profile of the member institution 
D) capped at 15 cents for "worst" institutions 
A) the same for all deposit taking institutions 
B) vary from 15 cents to 20 cents per dollar 
C) based on the risk profile of the member institution 
D) capped at 15 cents for "worst" institutions

Question 7

A problem with the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.

Accepted Answer

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

Question 8

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 9

When bad drivers line up to purchase collision insurance, automobile insurers are subject to the ________.

Accepted Answer

A) moral hazard problem 
B) adverse selection problem 
C) assigned risk problem 
D) ill queue problem 
A) moral hazard problem 
B) adverse selection problem 
C) assigned risk problem 
D) ill queue problem

Question 10

Acquiring information on a bank's activities in order to determine a bank's risk is difficult for depositors and is another argument for government ________.

Accepted Answer

A) regulation 
B) ownership 
C) recall 
D) forbearance 
A) regulation 
B) ownership 
C) recall 
D) forbearance

Question 11

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________.

Accepted Answer

A) politicians/regulators; taxpayers 
B) taxpayers; politician/regulators 
C) taxpayers; bank managers 
D) bank managers; politicians/regulators 
A) politicians/regulators; taxpayers 
B) taxpayers; politician/regulators 
C) taxpayers; bank managers 
D) bank managers; politicians/regulators

Question 12

The fact that banks operate on a "sequential service constraint" means that ________.

Accepted Answer

A) all depositors share equally in the bank's funds during a crisis 
B) depositors arriving last are just as likely to receive their funds as those arriving first 
C) depositors arriving first have the best chance of withdrawing their funds 
D) banks randomly select the depositors who will receive all of their funds 
A) all depositors share equally in the bank's funds during a crisis 
B) depositors arriving last are just as likely to receive their funds as those arriving first 
C) depositors arriving first have the best chance of withdrawing their funds 
D) banks randomly select the depositors who will receive all of their funds

Question 13

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 14

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 15

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 16

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 17

The current supervisory practice toward risk management ________.

Accepted Answer

A) focuses on the quality of a bank's balance sheet 
B) determines whether capital requirements have been met 
C) evaluates the soundness of a bank's risk-management process 
D) focuses on eliminating all risk 
A) focuses on the quality of a bank's balance sheet 
B) determines whether capital requirements have been met 
C) evaluates the soundness of a bank's risk-management process 
D) focuses on eliminating all risk

Question 18

Overseeing who operates banks and how they are operated is called ________.

Accepted Answer

A) prudential supervision 
B) hazard insurance 
C) regulatory interference 
D) loan loss reserves 
A) prudential supervision 
B) hazard insurance 
C) regulatory interference 
D) loan loss reserves

Question 19

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 20

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

Exam 10: Economic Analysis of Financial Regulation

China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas.

When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them, they were pursuing a policy of ________.

Bank failures in Canada arose due to historical accident, including ________ and ________.

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 1 was ________.

The Japanese equivalent of the CDIC played a ________ role in that country's banking crisis.

CDIC premium revenue is ________.

A problem with the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.

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

When bad drivers line up to purchase collision insurance, automobile insurers are subject to the ________.

Acquiring information on a bank's activities in order to determine a bank's risk is difficult for depositors and is another argument for government ________.

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________.

The fact that banks operate on a "sequential service constraint" means that ________.

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

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

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

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

The current supervisory practice toward risk management ________.

Overseeing who operates banks and how they are operated is called ________.

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

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

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking Industry: Structure and Competition

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

Bank failures in Canada arose due to historical accident, including and .

A problem with the too-big-to-fail policy is that it the incentives for by big banks.

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the , did not have the same incentive to minimize cost to the economy as the principals, the .