Question 1

Which of the following is not a goal of the Dodd-Frank Act of 2010?

Accepted Answer

A) To anticipate and prevent financial crises by limiting systemic risk 
B) To end "too big to fail" 
C) To promote competition 
D) To reduce moral hazard 
A) To anticipate and prevent financial crises by limiting systemic risk 
B) To end "too big to fail" 
C) To promote competition 
D) To reduce moral hazard

Question 2

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 3

The government's too-big-to-fail policy applies to:

Accepted Answer

A) certain highly populated states where a bank run impacts a large percent of the total population. 
B) large banks whose failure would start a widespread panic in the financial system. 
C) large corporate payroll accounts held by some banks where many people would lose their income. 
D) banks that have branches in more than two states. 
A) certain highly populated states where a bank run impacts a large percent of the total population. 
B) large banks whose failure would start a widespread panic in the financial system. 
C) large corporate payroll accounts held by some banks where many people would lose their income. 
D) banks that have branches in more than two states.

Question 4

What were the positive effects of the 1988 Basel Accord? What were its shortcomings?

Accepted Answer

The Basel Accord of 1988 was an attempt

Question 5

Which of the following is not a pillar of the latest Basel Accord?

Accepted Answer

A) A revised set of minimum capital requirements 
B) It includes liquidity requirements in addition to capital requirements 
C) It supplements capital requirements based on risk-weighted assets with restrictions on leverage 
D) Uniform international laws for bank regulation 
A) A revised set of minimum capital requirements 
B) It includes liquidity requirements in addition to capital requirements 
C) It supplements capital requirements based on risk-weighted assets with restrictions on leverage 
D) Uniform international laws for bank regulation

Question 6

Why is the financial industry inherently more unstable than most other industries?

Accepted Answer

In most other industries the failure of

Question 7

The CAMELS ratings are:

Accepted Answer

A) made public monthly to the financial markets so people can judge the relative quality of banks. 
B) published once a quarter in banking journals issued by the Federal Reserve. 
C) included in the annual report of publicly owned banks. 
D) not made public. 
A) made public monthly to the financial markets so people can judge the relative quality of banks. 
B) published once a quarter in banking journals issued by the Federal Reserve. 
C) included in the annual report of publicly owned banks. 
D) not made public.

Question 8

The government regulates bank mergers, sometimes denying the proposed merger.Often the reason given for the denial is to protect small investors.What are small investors being protected from?

Accepted Answer

A) with a larger bank the bank is likely to take greater risk and may fail. 
B) in order to pay for the merger, the bank may seek higher returns putting the depositors' funds at greater risk. 
C) mergers can increase the monopoly power of banks and the bank may seek to exploit this power by raising prices and earning unwarranted profits. 
D) bank runs hurt larger banks more than smaller banks. 
A) with a larger bank the bank is likely to take greater risk and may fail. 
B) in order to pay for the merger, the bank may seek higher returns putting the depositors' funds at greater risk. 
C) mergers can increase the monopoly power of banks and the bank may seek to exploit this power by raising prices and earning unwarranted profits. 
D) bank runs hurt larger banks more than smaller banks.

Question 9

The financial system is inherently more unstable than most other industries due to the fact that:

Accepted Answer

A) while in most other industries customers disappear at a faster rate, in banking they disappear slowly so the damage is done before the real problem is identified. 
B) banks deal in paper profits, not in real profits. 
C) a single firm failing in banking can bring down the entire system; this isn't true in most other industries. 
D) there is less competition than in other industries. 
A) while in most other industries customers disappear at a faster rate, in banking they disappear slowly so the damage is done before the real problem is identified. 
B) banks deal in paper profits, not in real profits. 
C) a single firm failing in banking can bring down the entire system; this isn't true in most other industries. 
D) there is less competition than in other industries.

Question 10

The reason that a run on a single bank can turn into a bank panic that threatens the entire financial system is:

Accepted Answer

A) information asymmetries. 
B) moral hazard. 
C) the lack of regulation. 
D) the increased reliance on web-based funds transfers. 
A) information asymmetries. 
B) moral hazard. 
C) the lack of regulation. 
D) the increased reliance on web-based funds transfers.

Question 11

Briefly describe the combination of strategies used by government officials to protect investors and ensure the stability of the financial system.

Accepted Answer

Government officials employ a combinatio

Question 12

Deflation can cause widespread bank crises for all of the following reasons except:

Accepted Answer

A) a decline in the value of borrowers' net worth but not their liabilities. 
B) borrowers' default rates increase. 
C) bank balance sheets deteriorate as the level of economic activity decreases. 
D) information asymmetry problems decrease during deflationary periods. 
A) a decline in the value of borrowers' net worth but not their liabilities. 
B) borrowers' default rates increase. 
C) bank balance sheets deteriorate as the level of economic activity decreases. 
D) information asymmetry problems decrease during deflationary periods.

Question 13

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 14

Following the consolidation that resulted from the 2007-2009 financial crisis in the U.S., the 4 largest commercial banks share of total deposits was:

Accepted Answer

A) 75%. 
B) 50%. 
C) 40%. 
D) 25%. 
A) 75%. 
B) 50%. 
C) 40%. 
D) 25%.

Question 15

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

Accepted Answer

A) just about doubled. 
B) almost tripled. 
C) not changed. 
D) decreased. 
A) just about doubled. 
B) almost tripled. 
C) not changed. 
D) decreased.

Question 16

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 17

Banks are required to disclose certain information.This disclosure is done for all of the following reasons except:

Accepted Answer

A) to enable regulators to more easily assess the financial condition of banks. 
B) to allow financial market participants to penalize banks that carry additional risk. 
C) to allow customers to more easily compare prices for services offered by banks. 
D) create uniform prices for standard bank services. 
A) to enable regulators to more easily assess the financial condition of banks. 
B) to allow financial market participants to penalize banks that carry additional risk. 
C) to allow customers to more easily compare prices for services offered by banks. 
D) create uniform prices for standard bank services.

Question 18

A bank run involves:

Accepted Answer

A) illegal activities on the part of the bank's officers. 
B) a bank being forced into bankruptcy. 
C) a large number of depositors withdrawing their funds during a short time span. 
D) a bank's return on assets being below the acceptable level. 
A) illegal activities on the part of the bank's officers. 
B) a bank being forced into bankruptcy. 
C) a large number of depositors withdrawing their funds during a short time span. 
D) a bank's return on assets being below the acceptable level.

Question 19

Imagine a situation where the deposits at state chartered banks would be insured by a state insurance fund and deposits at nationally chartered banks would be insured by FDIC.How would you expect both depositors and banks would react?

Accepted Answer

Depositors would quickly learn that no s

Question 20

You have savings accounts at two separately FDIC insured banks.At one of the banks your account has a balance of $200,000.At the other bank the account balance is $60,000.If both banks fail, you will receive:

Accepted Answer

A) $250,000. 
B) $60,000. 
C) $260,000. 
D) $200,000. 
A) $250,000. 
B) $60,000. 
C) $260,000. 
D) $200,000.

Exam 14: Regulating the Financial System

Which of the following is not a goal of the Dodd-Frank Act of 2010?

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

The government's too-big-to-fail policy applies to:

What were the positive effects of the 1988 Basel Accord? What were its shortcomings?

Which of the following is not a pillar of the latest Basel Accord?

Why is the financial industry inherently more unstable than most other industries?

The CAMELS ratings are:

The government regulates bank mergers, sometimes denying the proposed merger.Often the reason given for the denial is to protect small investors.What are small investors being protected from?

The financial system is inherently more unstable than most other industries due to the fact that:

The reason that a run on a single bank can turn into a bank panic that threatens the entire financial system is:

Briefly describe the combination of strategies used by government officials to protect investors and ensure the stability of the financial system.

Deflation can cause widespread bank crises for all of the following reasons except:

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

Following the consolidation that resulted from the 2007-2009 financial crisis in the U.S., the 4 largest commercial banks share of total deposits was:

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

Contagion is:

Banks are required to disclose certain information.This disclosure is done for all of the following reasons except:

A bank run involves:

Imagine a situation where the deposits at state chartered banks would be insured by a state insurance fund and deposits at nationally chartered banks would be insured by FDIC.How would you expect both depositors and banks would react?

You have savings accounts at two separately FDIC insured banks.At one of the banks your account has a balance of $200,000.At the other bank the account balance is $60,000.If both banks fail, you will receive:

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

Filters