Question 1

The fact that banks can be either nationally or state chartered creates:

Accepted Answer

A) situations where some banks go unregulated. 
B) situations where banks operating in more than one state can escape regulation. 
C) regulatory competition. 
D) banks being simultaneously regulated by more than one agency. 
A) situations where some banks go unregulated. 
B) situations where banks operating in more than one state can escape regulation. 
C) regulatory competition. 
D) banks being simultaneously regulated by more than one agency.

Question 2

Regulators and supervisors of banks are challenged by all of the following, except:

Accepted Answer

A) globalization of financial services. 
B) the use of new financial instruments that shift risk without shifting ownership. 
C) technological innovation. 
D) reinforcement by Congress of functional and geographic barriers in banking. 
A) globalization of financial services. 
B) the use of new financial instruments that shift risk without shifting ownership. 
C) technological innovation. 
D) reinforcement by Congress of functional and geographic barriers in banking.

Question 3

In today's world, the goal of financial stability means:

Accepted Answer

A) no institution should fail. 
B) competition should be eliminated. 
C) preventing large-scale financial catastrophes. 
D) creating one mega regulatory agency. 
A) no institution should fail. 
B) competition should be eliminated. 
C) preventing large-scale financial catastrophes. 
D) creating one mega regulatory agency.

Question 4

Explain how bank regulators seem to face a bit of a paradox regarding preventing monopoly power by banks and spurring competition.

Accepted Answer

One of the goals of banking regulators i

Question 5

What is the link between the safety net provided by the government to the financial industry and the relatively heavy regulation of the same industry by the government?

Accepted Answer

The link is that the safety net provided

Question 6

The first test of the Federal Reserve as lender of last resort occurred with the:

Accepted Answer

A) attack on Pearl Harbor by the Japanese. 
B) widespread failures of Savings and Loans in the 1980's. 
C) introduction of flexible exchange rates in the U.S.in 1971. 
D) stock market crash in 1929. 
A) attack on Pearl Harbor by the Japanese. 
B) widespread failures of Savings and Loans in the 1980's. 
C) introduction of flexible exchange rates in the U.S.in 1971. 
D) stock market crash in 1929.

Question 7

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 8

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.

Question 9

During a bank crisis:

Accepted Answer

A) officials at the Federal Reserve find it easy to sort out solvent from insolvent banks. 
B) it is important for regulators to be able to distinguish insolvent from illiquid banks. 
C) it is easy to determine the market prices of bank's assets. 
D) a bank will go to the central bank for a loan before going to other banks. 
A) officials at the Federal Reserve find it easy to sort out solvent from insolvent banks. 
B) it is important for regulators to be able to distinguish insolvent from illiquid banks. 
C) it is easy to determine the market prices of bank's assets. 
D) a bank will go to the central bank for a loan before going to other banks.

Question 10

The financial crisis of 2007-2009 has made which of the following regulatory goals a top priority for government:

Accepted Answer

A) disclosure of accounting information. 
B) minimum capital requirements. 
C) avoidance of systemic risk. 
D) promotion of competition. 
A) disclosure of accounting information. 
B) minimum capital requirements. 
C) avoidance of systemic risk. 
D) promotion of competition.

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

When the Federal Reserve was unable to stem the bank panics of the 1930s, Congress responded by:

Accepted Answer

A) taking over the lender of last resort function and assigning this function to the U.S.Treasury. 
B) ordering the printing of tens of billions of dollars of additional currency. 
C) creating the FDIC and offering deposit insurance. 
D) declaring a bank holiday and closing banks for 30 days. 
A) taking over the lender of last resort function and assigning this function to the U.S.Treasury. 
B) ordering the printing of tens of billions of dollars of additional currency. 
C) creating the FDIC and offering deposit insurance. 
D) declaring a bank holiday and closing banks for 30 days.

Question 13

If the government did not offer the too-big-to-fail safety net:

Accepted Answer

A) large banks would be more disciplined by the potential loss of large corporate accounts. 
B) the moral hazard problem of insuring large banks would increase. 
C) the moral hazard problem of insuring large banks would not be affected. 
D) the FDIC deposit insurance limits would have to be raised. 
A) large banks would be more disciplined by the potential loss of large corporate accounts. 
B) the moral hazard problem of insuring large banks would increase. 
C) the moral hazard problem of insuring large banks would not be affected. 
D) the FDIC deposit insurance limits would have to be raised.

Question 14

Which of the following regulates commercial banks as well as savings banks and savings and loans?

Accepted Answer

A) The Federal Reserve System 
B) Securities and Exchange Commission 
C) The Office of the Comptroller of the Currency 
D) The Internal Revenue Service 
A) The Federal Reserve System 
B) Securities and Exchange Commission 
C) The Office of the Comptroller of the Currency 
D) The Internal Revenue Service

Question 15

What was the primary motivation behind the creation of the 1988 Basel Accord?

Accepted Answer

Globalization, in the sense that foreign

Question 16

A moral hazard situation arises in the lender of last resort function because:

Accepted Answer

A) a central bank finds it difficult to distinguish illiquid from insolvent banks. 
B) a central bank usually will only make a loan to a bank after it becomes insolvent. 
C) a central bank usually undervalues the assets of a bank in a crisis. 
D) the central bank is the first place a bank facing a crisis will turn. 
A) a central bank finds it difficult to distinguish illiquid from insolvent banks. 
B) a central bank usually will only make a loan to a bank after it becomes insolvent. 
C) a central bank usually undervalues the assets of a bank in a crisis. 
D) the central bank is the first place a bank facing a crisis will turn.

Question 17

Since the 1920's, the ratio of assets to capital has almost tripled for commercial banks.Many economists believe this is the direct result of:

Accepted Answer

A) lower quality management in banks. 
B) the increase in branch banking. 
C) allowing banks to offer non-bank services. 
D) government provided deposit insurance. 
A) lower quality management in banks. 
B) the increase in branch banking. 
C) allowing banks to offer non-bank services. 
D) government provided deposit insurance.

Question 18

One of the unique problems that banks face is:

Accepted Answer

A) they hold liquid assets to meet illiquid liabilities. 
B) they hold illiquid assets to meet liquid liabilities. 
C) they hold liquid assets to meet liquid liabilities. 
D) both their assets and their liabilities are illiquid. 
A) they hold liquid assets to meet illiquid liabilities. 
B) they hold illiquid assets to meet liquid liabilities. 
C) they hold liquid assets to meet liquid liabilities. 
D) both their assets and their liabilities are illiquid.

Question 19

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 20

Banking regulations prevent banks from:

Accepted Answer

A) holding more than 10 percent of their assets in common stock of companies. 
B) owning corporate jets. 
C) owning common stocks of corporations. 
D) building big office buildings. 
A) holding more than 10 percent of their assets in common stock of companies. 
B) owning corporate jets. 
C) owning common stocks of corporations. 
D) building big office buildings.

Exam 14: Regulating the Financial System

The fact that banks can be either nationally or state chartered creates:

Regulators and supervisors of banks are challenged by all of the following, except:

In today's world, the goal of financial stability means:

Explain how bank regulators seem to face a bit of a paradox regarding preventing monopoly power by banks and spurring competition.

What is the link between the safety net provided by the government to the financial industry and the relatively heavy regulation of the same industry by the government?

The first test of the Federal Reserve as lender of last resort occurred with the:

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

What matters most during a bank run is:

During a bank crisis:

The financial crisis of 2007-2009 has made which of the following regulatory goals a top priority for government:

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?

When the Federal Reserve was unable to stem the bank panics of the 1930s, Congress responded by:

If the government did not offer the too-big-to-fail safety net:

Which of the following regulates commercial banks as well as savings banks and savings and loans?

What was the primary motivation behind the creation of the 1988 Basel Accord?

A moral hazard situation arises in the lender of last resort function because:

Since the 1920's, the ratio of assets to capital has almost tripled for commercial banks.Many economists believe this is the direct result of:

One of the unique problems that banks face is:

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

Banking regulations prevent banks from:

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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