Question 1

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 2

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 3

The moral hazard problem caused by government safety nets:

Accepted Answer

A) Is greater for larger banks 
B) Is greater for smaller banks 
C) Is pretty constant across banks of all sizes 
D) Only exists for banks with high leverage ratios 
A) Is greater for larger banks 
B) Is greater for smaller banks 
C) Is pretty constant across banks of all sizes 
D) Only exists for banks with high leverage ratios

Question 4

The best way for a government to stop the failure of one bank from turning into a bank panic is to:

Accepted Answer

A) Make sure solvent institutions can meet the withdrawal demands of depositors 
B) Declare a bank holiday until solvent banks can acquire adequate liquidity 
C) Limit the withdrawals of depositors 
D) Provide zero-interest rate loans to all banks regardless of net worth 
A) Make sure solvent institutions can meet the withdrawal demands of depositors 
B) Declare a bank holiday until solvent banks can acquire adequate liquidity 
C) Limit the withdrawals of depositors 
D) Provide zero-interest rate loans to all banks regardless of net worth

Question 5

Why do bank runs usually have people rushing to their bank instead of waiting for the lines to taper off so they do not have to wait so long?

Accepted Answer

Banks promise to satisfy depositors' wit

Question 6

The inter-bank loans that appear on banks' balance sheets represent what proportion of bank capital?

Accepted Answer

A) Nearly ten percent 
B) Almost three-fourths 
C) About one-third 
D) Less than two percent 
A) Nearly ten percent 
B) Almost three-fourths 
C) About one-third 
D) Less than two percent

Question 7

One reason that financial regulations restrict the assets that banks can own is to:

Accepted Answer

A) Combat the moral hazard that government safety nets provide 
B) Limit the growth rate of banks 
C) Prevent banks from being too profitable 
D) Keep banks from spending lavishly on perks for executives 
A) Combat the moral hazard that government safety nets provide 
B) Limit the growth rate of banks 
C) Prevent banks from being too profitable 
D) Keep banks from spending lavishly on perks for executives

Question 8

Discuss the case for a "super-regulator" in the context of what you have learned about "regulatory competition."

Accepted Answer

Regulatory competition describes the cur

Question 9

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 10

Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Accepted Answer

A) Customers will not want to obtain loans from this bank 
B) The rumors will cause people to not want to deposit in this bank 
C) Regulators will scrutinize the bank heavily looking for something wrong 
D) Depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand 
A) Customers will not want to obtain loans from this bank 
B) The rumors will cause people to not want to deposit in this bank 
C) Regulators will scrutinize the bank heavily looking for something wrong 
D) Depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand

Question 11

One negative consequence of regulatory competition is:

Accepted Answer

A) It is expensive 
B) Financial institutions are over regulated at a cost to customers 
C) Financial institutions often seek out the most lenient regulator 
D) It minimizes competition 
A) It is expensive 
B) Financial institutions are over regulated at a cost to customers 
C) Financial institutions often seek out the most lenient regulator 
D) It minimizes competition

Question 12

How have regulators in the US responded to the financial crisis of 2007-2009?

Accepted Answer

By focusing more attention on limiting s

Question 13

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 14

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 15

Which of the following tradeoffs impact the likelihood of a bank's failure?

Accepted Answer

A) The more competitive the banking environment, the more liquid the bank will be 
B) The greater the regulation from government the more likely the bank will fail 
C) The more profitable the bank, the less liquid the bank will be and the more likely it will fail 
D) The larger the bank in asset size the more likely it will fail 
A) The more competitive the banking environment, the more liquid the bank will be 
B) The greater the regulation from government the more likely the bank will fail 
C) The more profitable the bank, the less liquid the bank will be and the more likely it will fail 
D) The larger the bank in asset size the more likely it will fail

Question 16

What potential problems are created by regulatory competition?

Accepted Answer

Regulatory competition often allows a fi

Question 17

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 18

Which of the following statements is most correct?

Accepted Answer

A) Financial regulators do everything possible to encourage competition in banking 
B) Financial regulators work to prevent monopolies but also work to prevent strong competition in banking 
C) Financial regulators discourage competition in banking 
D) Financial regulators prefer banks to have monopoly power in their geographic markets 
A) Financial regulators do everything possible to encourage competition in banking 
B) Financial regulators work to prevent monopolies but also work to prevent strong competition in banking 
C) Financial regulators discourage competition in banking 
D) Financial regulators prefer banks to have monopoly power in their geographic markets

Question 19

When healthy banks fail due to widespread bank panics, those who are likely to be hurt are:

Accepted Answer

A) Government regulators 
B) Households and small businesses 
C) The FDIC 
D) The Federal Reserve 
A) Government regulators 
B) Households and small businesses 
C) The FDIC 
D) The Federal Reserve

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.You find out the banks are going to merge.If you are concerned about the possibility of the new bank failing, you should:

Accepted Answer

A) Do nothing; you are still insured up $250,000 per account 
B) Consider moving $10,000 to another account at the same bank 
C) Consider moving $10,000 to another account at a different bank 
D) Do nothing; as an individual you are only insured up $250,000 no matter where the accounts are 
A) Do nothing; you are still insured up $250,000 per account 
B) Consider moving $10,000 to another account at the same bank 
C) Consider moving $10,000 to another account at a different bank 
D) Do nothing; as an individual you are only insured up $250,000 no matter where the accounts are

Exam 14: Regulating the Financial System

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

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

The moral hazard problem caused by government safety nets:

The best way for a government to stop the failure of one bank from turning into a bank panic is to:

Why do bank runs usually have people rushing to their bank instead of waiting for the lines to taper off so they do not have to wait so long?

The inter-bank loans that appear on banks' balance sheets represent what proportion of bank capital?

One reason that financial regulations restrict the assets that banks can own is to:

Discuss the case for a "super-regulator" in the context of what you have learned about "regulatory competition."

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

Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

One negative consequence of regulatory competition is:

How have regulators in the US responded to the financial crisis of 2007-2009?

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

Contagion is:

Which of the following tradeoffs impact the likelihood of a bank's failure?

What potential problems are created by regulatory competition?

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

Which of the following statements is most correct?

When healthy banks fail due to widespread bank panics, those who are likely to be hurt are:

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.You find out the banks are going to merge.If you are concerned about the possibility of the new bank failing, you should:

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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