Question 1

You hold an FDIC insured savings account at your neighborhood bank.Your current balance is $275,000.If the bank fails you will receive:

Accepted Answer

A) $275,000. 
B) $250,000. 
C) $100,000. 
D) $125,000. 
A) $275,000. 
B) $250,000. 
C) $100,000. 
D) $125,000.

Question 2

It is difficult for depositors to know the true health of banks because:

Accepted Answer

A) regulations prohibit banks making their financial statements publicly available. 
B) the financial statements of banks are too difficult for most people to understand. 
C) most of the information on bank loans is private and based on sophisticated models. 
D) banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage. 
A) regulations prohibit banks making their financial statements publicly available. 
B) the financial statements of banks are too difficult for most people to understand. 
C) most of the information on bank loans is private and based on sophisticated models. 
D) banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage.

Question 3

The FDIC used to charge all banks the same rate for insurance on deposits.From what you have learned, what problems did this create for not only the FDIC but for well-run banks?

Accepted Answer

For FDIC the immediate problem is advers

Question 4

Does the lender of last resort function guarantee an end to bank runs? Explain.

Accepted Answer

The Great Depression is evidence to the

Question 5

The purpose of the government's safety net for banks is to do each of the following, except:

Accepted Answer

A) protect the integrity of the financial system. 
B) eliminate all risk that investors face. 
C) stop bank panics. 
D) improve the efficiency of the economy. 
A) protect the integrity of the financial system. 
B) eliminate all risk that investors face. 
C) stop bank panics. 
D) improve the efficiency of the economy.

Question 6

Which of the following statements is most correct?

Accepted Answer

A) the higher the deposit insurance limit the lower the risk of moral hazard. 
B) the higher the deposit insurance limit the greater the risk of moral hazard. 
C) deposit insurance limits do not impact moral hazard, they impact adverse selection. 
D) increasing the deposit insurance limits above $100,000 would increase coverage for over 50 percent of all depositors. 
A) the higher the deposit insurance limit the lower the risk of moral hazard. 
B) the higher the deposit insurance limit the greater the risk of moral hazard. 
C) deposit insurance limits do not impact moral hazard, they impact adverse selection. 
D) increasing the deposit insurance limits above $100,000 would increase coverage for over 50 percent of all depositors.

Question 7

If your stockbroker gives you bad advice and you lose your investment:

Accepted Answer

A) the government will reimburse you similar to reimbursing depositors if a bank fails. 
B) the government will not reimburse you for the loss; you are not protected from bad advice by your stockbroker. 
C) these losses would be covered under FDIC insurance. 
D) your investment would only be covered if the stockbroker was employed by a bank. 
A) the government will reimburse you similar to reimbursing depositors if a bank fails. 
B) the government will not reimburse you for the loss; you are not protected from bad advice by your stockbroker. 
C) these losses would be covered under FDIC insurance. 
D) your investment would only be covered if the stockbroker was employed by a bank.

Question 8

Bank panics have often begun as a result of:

Accepted Answer

A) rumors only. 
B) real economic events only. 
C) both rumors and real economic events. 
D) neither rumors nor economic events. 
A) rumors only. 
B) real economic events only. 
C) both rumors and real economic events. 
D) neither rumors nor economic events.

Question 9

The government's providing of deposit insurance and functioning as the lender of last resort has significantly:

Accepted Answer

A) decreased the incentive for bank managers to take on risk. 
B) increased the amount of regulation of banks required, but has had no effect on bank's incentive to take on risk. 
C) increased the incentive for banks to take on risk, but has had no effect on the amount of regulation of banks required. 
D) increased the amount of regulation of banks required and increased the incentive for banks to take on risk. 
A) decreased the incentive for bank managers to take on risk. 
B) increased the amount of regulation of banks required, but has had no effect on bank's incentive to take on risk. 
C) increased the incentive for banks to take on risk, but has had no effect on the amount of regulation of banks required. 
D) increased the amount of regulation of banks required and increased the incentive for banks to take on risk.

Question 10

One lesson learned from the bank panics of the early 1930's is:

Accepted Answer

A) the lender of last resort function almost guarantees that bank panics are a thing of the past. 
B) the mere existence of a lender of last resort will not keep the financial system from collapsing. 
C) only the U.S.Treasury can be a true lender of last resort. 
D) the financial system will collapse without a lender of last resort. 
A) the lender of last resort function almost guarantees that bank panics are a thing of the past. 
B) the mere existence of a lender of last resort will not keep the financial system from collapsing. 
C) only the U.S.Treasury can be a true lender of last resort. 
D) the financial system will collapse without a lender of last resort.

Question 11

Bank mergers require government approval because banking officials want to make sure that:

Accepted Answer

A) the merger will create a larger bank. 
B) the merger will not create a monopoly. 
C) the merged bank will be more profitable. 
D) the merger will not result in regulatory competition. 
A) the merger will create a larger bank. 
B) the merger will not create a monopoly. 
C) the merged bank will be more profitable. 
D) the merger will not result in regulatory competition.

Question 12

Financial regulators set capital requirements for banks.One characteristic about these requirements is:

Accepted Answer

A) every bank will have to hold the same level. 
B) the riskier the asset holdings of a bank, the more capital it will be required to have. 
C) the more branches a bank has, the more capital it must have. 
D) the amount of capital required is inversely related to the amount of assets the bank owns. 
A) every bank will have to hold the same level. 
B) the riskier the asset holdings of a bank, the more capital it will be required to have. 
C) the more branches a bank has, the more capital it must have. 
D) the amount of capital required is inversely related to the amount of assets the bank owns.

Question 13

Credit Unions are regulated by a combination of agencies which includes:

Accepted Answer

A) state authorities. 
B) The Federal Reserve. 
C) The Federal Deposit Insurance Corporation. 
D) The Office of the Comptroller of the Currency. 
A) state authorities. 
B) The Federal Reserve. 
C) The Federal Deposit Insurance Corporation. 
D) The Office of the Comptroller of the Currency.

Question 14

The CAMELS criteria to evaluate the health of banks by supervisors is not made public.Make a case for one making this information public and a case for keeping it private.

Accepted Answer

The case for making it public would be t

Question 15

Implicit government support for "too big to fail" banks:

Accepted Answer

A) increases the scrutiny of the bank's risk by large corporate depositors. 
B) reduces the risk faced by depositors with accounts less than $250,000. 
C) reduces the risk faced by depositors with accounts exceeding $250,000. 
D) reduces the moral hazard problem of insuring large banks. 
A) increases the scrutiny of the bank's risk by large corporate depositors. 
B) reduces the risk faced by depositors with accounts less than $250,000. 
C) reduces the risk faced by depositors with accounts exceeding $250,000. 
D) reduces the moral hazard problem of insuring large banks.

Question 16

What potential problems are created by regulatory competition?

Accepted Answer

Regulatory competition often allows a fi

Question 17

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

Accepted Answer

The reason for the spread of panic or co

Question 18

The reasons for the government to get involved in the financial system include each of the following, except:

Accepted Answer

A) to protect the bank's monopoly position. 
B) to protect investors. 
C) to ensure the stability of the financial system. 
D) to protect bank customers from monopolistic exploitation. 
A) to protect the bank's monopoly position. 
B) to protect investors. 
C) to ensure the stability of the financial system. 
D) to protect bank customers from monopolistic exploitation.

Question 19

In the ten years after the FDIC limit was increased to $100,000:

Accepted Answer

A) more than four times the number of banks and savings and loans failed than did during the first 46 years of FDIC's existence. 
B) less than one-fourth the number of banks and savings and loans failed than during the first 46 years of FDIC's existence. 
C) the cost to taxpayers of failed institutions in that period was negligible because FDIC was in place. 
D) increasing the deposit insurance limit to $250,000 provided complete coverage for all deposits except those of large corporations. 
A) more than four times the number of banks and savings and loans failed than did during the first 46 years of FDIC's existence. 
B) less than one-fourth the number of banks and savings and loans failed than during the first 46 years of FDIC's existence. 
C) the cost to taxpayers of failed institutions in that period was negligible because FDIC was in place. 
D) increasing the deposit insurance limit to $250,000 provided complete coverage for all deposits except those of large corporations.

Question 20

The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of banks, includes the following, except:

Accepted Answer

A) asset quality. 
B) losses. 
C) management. 
D) earnings. 
A) asset quality. 
B) losses. 
C) management. 
D) earnings.

Exam 14: Regulating the Financial System

You hold an FDIC insured savings account at your neighborhood bank.Your current balance is $275,000.If the bank fails you will receive:

It is difficult for depositors to know the true health of banks because:

The FDIC used to charge all banks the same rate for insurance on deposits.From what you have learned, what problems did this create for not only the FDIC but for well-run banks?

Does the lender of last resort function guarantee an end to bank runs? Explain.

The purpose of the government's safety net for banks is to do each of the following, except:

Which of the following statements is most correct?

If your stockbroker gives you bad advice and you lose your investment:

Bank panics have often begun as a result of:

The government's providing of deposit insurance and functioning as the lender of last resort has significantly:

One lesson learned from the bank panics of the early 1930's is:

Bank mergers require government approval because banking officials want to make sure that:

Financial regulators set capital requirements for banks.One characteristic about these requirements is:

Credit Unions are regulated by a combination of agencies which includes:

The CAMELS criteria to evaluate the health of banks by supervisors is not made public.Make a case for one making this information public and a case for keeping it private.

Implicit government support for "too big to fail" banks:

What potential problems are created by regulatory competition?

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

The reasons for the government to get involved in the financial system include each of the following, except:

In the ten years after the FDIC limit was increased to $100,000:

The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of banks, includes the following, except:

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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