Question 1

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 2

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 3

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

Accepted Answer

In most other industries the failure of

Question 4

Banks can effectively choose their regulators by deciding whether to:

Accepted Answer

A) Be a private or public corporation 
B) Be a member of the Federal Reserve or not 
C) Purchase FDIC insurance or to forego the coverage 
D) Be chartered at the national or state level 
A) Be a private or public corporation 
B) Be a member of the Federal Reserve or not 
C) Purchase FDIC insurance or to forego the coverage 
D) Be chartered at the national or state level

Question 5

Prior to the financial crisis of 2007-2009 banks did all but which of the following to bulk up their profit:

Accepted Answer

A) bought or sponsored hedge funds 
B) traded stocks and bonds for customers 
C) invested their own money in the market 
D) colluded to fix interest rates 
A) bought or sponsored hedge funds 
B) traded stocks and bonds for customers 
C) invested their own money in the market 
D) colluded to fix interest rates

Question 6

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

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 7

Why are banks restricted in the assets that they can own? For example, why do you think banks are prohibited from owning common stock?

Accepted Answer

There are a few reasons for this; one, m

Question 8

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 9

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 10

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 11

Savings banks and savings and loans are regulated by a combination of agencies which includes the:

Accepted Answer

A) Federal Reserve System 
B) Office of the Comptroller of the Currency 
C) Office of Thrift Supervision 
D) Internal Revenue Service 
A) Federal Reserve System 
B) Office of the Comptroller of the Currency 
C) Office of Thrift Supervision 
D) Internal Revenue Service

Question 12

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 13

Empirical evidence points to the fact that financial crises:

Accepted Answer

A) Are newsworthy but have no impact on economic growth 
B) Have a negative impact on economic growth only for the year of the crisis 
C) Have a negative impact on economic growth for years 
D) Can have a positive impact on economic growth as weak borrowers are weeded out 
A) Are newsworthy but have no impact on economic growth 
B) Have a negative impact on economic growth only for the year of the crisis 
C) Have a negative impact on economic growth for years 
D) Can have a positive impact on economic growth as weak borrowers are weeded out

Question 14

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 15

You hold an FDIC insured savings account at your neighborhood bank jointly with your father.Each of you has contributed equally into the account.The current balance in the account is $120,000.If the bank fails each of you will receive:

Accepted Answer

A) $60,000 
B) $50,000 
C) $100,000 
D) $120,000 
A) $60,000 
B) $50,000 
C) $100,000 
D) $120,000

Question 16

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 17

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 18

What are the three pillars of the 1998 Basel Accord?

Accepted Answer

The new Basel Accord is based on three p

Question 19

The supervision of banks includes:

Accepted Answer

A) Requiring bank officers to attend classes on an annual basis 
B) On-site examinations of the bank 
C) Extensive background checks of all bank officers 
D) Requiring banks to file monthly reports on their revenues, expenses and profits 
A) Requiring bank officers to attend classes on an annual basis 
B) On-site examinations of the bank 
C) Extensive background checks of all bank officers 
D) Requiring banks to file monthly reports on their revenues, expenses and profits

Question 20

Savings banks and savings and loans are regulated by a combination of agencies which includes all of the following except:

Accepted Answer

A) The Federal Reserve System 
B) The Office of Thrift Supervision 
C) The Federal Deposit Insurance Corporation 
D) State authorities 
A) The Federal Reserve System 
B) The Office of Thrift Supervision 
C) The Federal Deposit Insurance Corporation 
D) State authorities

Exam 14: Regulating the Financial System

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

Which of the following statements is most correct?

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

Banks can effectively choose their regulators by deciding whether to:

Prior to the financial crisis of 2007-2009 banks did all but which of the following to bulk up their profit:

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

Why are banks restricted in the assets that they can own? For example, why do you think banks are prohibited from owning common stock?

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?

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

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

Savings banks and savings and loans are regulated by a combination of agencies which includes the:

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

Empirical evidence points to the fact that financial crises:

What matters most during a bank run is:

You hold an FDIC insured savings account at your neighborhood bank jointly with your father.Each of you has contributed equally into the account.The current balance in the account is $120,000.If the bank fails each of you will receive:

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

During a bank crisis:

What are the three pillars of the 1998 Basel Accord?

The supervision of banks includes:

Savings banks and savings and loans are regulated by a combination of agencies which includes all of 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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