Question 1

Why is international financial regulation becoming more important in recent years?

Accepted Answer

Now a days companies are raising capital

Question 2

The result of the too-big-to-fail policy is that ________ banks will take on ________ risks,making bank failures more likely.

Accepted Answer

A)  small; fewer 
B)  small; greater 
C)  large; fewer 
D)  large; greater 
A)  small; fewer 
B)  small; greater 
C)  large; fewer 
D)  large; greater

Question 3

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A)  increased the FDIC's ability to borrow from the Treasury to deal with failed banks. 
B)  reduced the scope of deposit insurance in several ways. 
C)  eliminated governmentally administered deposit insurance. 
D)  did only A and B of the above. 
A)  increased the FDIC's ability to borrow from the Treasury to deal with failed banks. 
B)  reduced the scope of deposit insurance in several ways. 
C)  eliminated governmentally administered deposit insurance. 
D)  did only A and B of the above.

Question 4

Which of the following solutions have been proposed to solve the too-big-to-fail problem?

Accepted Answer

A)  Break up large, systemically important financial institutions. 
B)  Impose higher capital requirements on large, systemically important financial institutions. 
C)  Do nothing, since Dodd-Frank effectively eliminated the problem. 
D)  All of the above have been proposed. 
A)  Break up large, systemically important financial institutions. 
B)  Impose higher capital requirements on large, systemically important financial institutions. 
C)  Do nothing, since Dodd-Frank effectively eliminated the problem. 
D)  All of the above have been proposed.

Question 5

Regular bank examinations and restrictions on asset holdings indirectly help to reduce the ________ problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be discouraged from entering the banking industry.

Accepted Answer

A)  moral hazard 
B)  adverse selection 
C)  ex post shirking 
D)  post-contractual opportunism 
A)  moral hazard 
B)  adverse selection 
C)  ex post shirking 
D)  post-contractual opportunism

Question 6

If the FDIC uses the purchase and assumption method to handle a failed bank,

Accepted Answer

A)  all deposits will suffer losses. 
B)  small deposits will be paid in full but deposits over the insurance limit will not. 
C)  all deposits will be paid in full. 
D)  none of the above will occur. 
A)  all deposits will suffer losses. 
B)  small deposits will be paid in full but deposits over the insurance limit will not. 
C)  all deposits will be paid in full. 
D)  none of the above will occur.

Question 7

What role did the credit-rating agencies play leading up to the start of the financial crisis in 2007?

Accepted Answer

A)  Inaccurate ratings provided by credit-rating agencies helped promote risk taking throughout the financial system. 
B)  The credit-rating agencies were the first to see signs of trouble, and they developed more stringent standards as the housing bubble evolved. 
C)  Solid ratings provided by credit-rating agencies helped limit risk taking throughout the financial system. 
D)  The credit-rating agencies were largely uninvolved with the financial crisis. 
A)  Inaccurate ratings provided by credit-rating agencies helped promote risk taking throughout the financial system. 
B)  The credit-rating agencies were the first to see signs of trouble, and they developed more stringent standards as the housing bubble evolved. 
C)  Solid ratings provided by credit-rating agencies helped limit risk taking throughout the financial system. 
D)  The credit-rating agencies were largely uninvolved with the financial crisis.

Question 8

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A)  reduced the scope of deposit insurance in several ways. 
B)  limited the FDIC's ability to use the "too-big-to-fail" policy. 
C)  requires the FDIC to intervene earlier when a bank gets into trouble. 
D)  did all of the above. 
A)  reduced the scope of deposit insurance in several ways. 
B)  limited the FDIC's ability to use the "too-big-to-fail" policy. 
C)  requires the FDIC to intervene earlier when a bank gets into trouble. 
D)  did all of the above.

Question 9

When one party to a transaction has incentives to engage in activities detrimental to the other party,there exists a problem of

Accepted Answer

A)  moral hazard. 
B)  split incentives. 
C)  ex ante shirking. 
D)  precontractual opportunism. 
A)  moral hazard. 
B)  split incentives. 
C)  ex ante shirking. 
D)  precontractual opportunism.

Question 10

The increased integration of financial markets across countries and the need to make the playing field equal for banks from different countries led to the Basel Accord agreement to

Accepted Answer

A)  standardize bank capital requirements internationally. 
B)  reduce, across the board, bank capital requirements in all countries. 
C)  sever the link between risk and capital requirements. 
D)  do all of the above. 
A)  standardize bank capital requirements internationally. 
B)  reduce, across the board, bank capital requirements in all countries. 
C)  sever the link between risk and capital requirements. 
D)  do all of the above.

Question 11

During the boom years of the 1920s,bank failures were quite

Accepted Answer

A)  uncommon, averaging less than 30 per year. 
B)  uncommon, averaging less than 100 per year. 
C)  common, averaging about 600 per year. 
D)  common, averaging about 2,000 per year. 
A)  uncommon, averaging less than 30 per year. 
B)  uncommon, averaging less than 100 per year. 
C)  common, averaging about 600 per year. 
D)  common, averaging about 2,000 per year.

Question 12

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A)  instructed the FDIC to come up with risk-based deposit insurance premiums. 
B)  expanded the FDIC's ability to use the "too-big-to-fail" policy. 
C)  instructed the FDIC to wait longer before intervening when a bank gets into trouble. 
D)  did all of the above. 
A)  instructed the FDIC to come up with risk-based deposit insurance premiums. 
B)  expanded the FDIC's ability to use the "too-big-to-fail" policy. 
C)  instructed the FDIC to wait longer before intervening when a bank gets into trouble. 
D)  did all of the above.

Question 13

How have bank capital requirements changed since the banking crisis of the 1980s? Explain.

Accepted Answer

Bank capital requirements have undergone

Question 14

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is that the FDIC

Accepted Answer

A)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "payoff" method. 
B)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method. 
C)  is less likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures. 
D)  does both A and B of the above. 
E)  does both B and C of the above. 
A)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "payoff" method. 
B)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method. 
C)  is less likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures. 
D)  does both A and B of the above. 
E)  does both B and C of the above.

Question 15

Discuss the advantages and problems of using market-value accounting for bank capital requirements.

Accepted Answer

The Advantages of using market-value acc

Question 16

An SIV,or structured investment vehicle,is an off-balance-sheet entity that shields a sponsoring institution from risk.What happened to some of these SIVs when they ran into financial problems?

Accepted Answer

A)  The SIV sued the sponsoring institution to pay, in full, all liabilities of the SIV. 
B)  The SIV still remained off-balance-sheet, but investors did sue sponsoring institutions. 
C)  Nothing! The SIV status as off-balance-sheet remained, a nice example of a financial structure that worked during the financial crisis. 
D)  Troubled SIVs became an asset of the sponsoring institution - the off-balance-sheet status was meaningless. 
A)  The SIV sued the sponsoring institution to pay, in full, all liabilities of the SIV. 
B)  The SIV still remained off-balance-sheet, but investors did sue sponsoring institutions. 
C)  Nothing! The SIV status as off-balance-sheet remained, a nice example of a financial structure that worked during the financial crisis. 
D)  Troubled SIVs became an asset of the sponsoring institution - the off-balance-sheet status was meaningless.

Question 17

Moral hazard is an important consequence of insurance arrangements because the existence of insurance

Accepted Answer

A)  provides increased incentives for risk taking. 
B)  impedes efficient risk taking. 
C)  causes the private cost of the insured activity to increase. 
D)  does both A and B of the above. 
E)  does both B and C of the above. 
A)  provides increased incentives for risk taking. 
B)  impedes efficient risk taking. 
C)  causes the private cost of the insured activity to increase. 
D)  does both A and B of the above. 
E)  does both B and C of the above.

Question 18

Although the FDIC was created to prevent bank failures,its existence encourages banks to

Accepted Answer

A)  take too much risk. 
B)  hold too much capital. 
C)  open too many branches. 
D)  buy too much stock. 
A)  take too much risk. 
B)  hold too much capital. 
C)  open too many branches. 
D)  buy too much stock.

Question 19

What do we learn about the causes of banking crises by comparing crises throughout the world to those that have occurred in the United States?

Accepted Answer

Systemic banking crises can be very dama

Question 20

When regulators engage in macroprudential regulation,they focus on ________.

Accepted Answer

A)  the safety and soundness of the entire financial institution 
B)  the credit standards of all loans held by the financial institution 
C)  the safety and soundness of the financial system in aggregate 
D)  the safety and soundness of each liability of the financial institution 
A)  the safety and soundness of the entire financial institution 
B)  the credit standards of all loans held by the financial institution 
C)  the safety and soundness of the financial system in aggregate 
D)  the safety and soundness of each liability of the financial institution

Exam 18: Financial Regulation

Why is international financial regulation becoming more important in recent years?

The result of the too-big-to-fail policy is that ________ banks will take on ________ risks,making bank failures more likely.

The Federal Deposit Insurance Corporation Improvement Act of 1991

Which of the following solutions have been proposed to solve the too-big-to-fail problem?

Regular bank examinations and restrictions on asset holdings indirectly help to reduce the ________ problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be discouraged from entering the banking industry.

If the FDIC uses the purchase and assumption method to handle a failed bank,

What role did the credit-rating agencies play leading up to the start of the financial crisis in 2007?

The Federal Deposit Insurance Corporation Improvement Act of 1991

When one party to a transaction has incentives to engage in activities detrimental to the other party,there exists a problem of

The increased integration of financial markets across countries and the need to make the playing field equal for banks from different countries led to the Basel Accord agreement to

During the boom years of the 1920s,bank failures were quite

The Federal Deposit Insurance Corporation Improvement Act of 1991

How have bank capital requirements changed since the banking crisis of the 1980s? Explain.

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is that the FDIC

Discuss the advantages and problems of using market-value accounting for bank capital requirements.

An SIV,or structured investment vehicle,is an off-balance-sheet entity that shields a sponsoring institution from risk.What happened to some of these SIVs when they ran into financial problems?

Moral hazard is an important consequence of insurance arrangements because the existence of insurance

Although the FDIC was created to prevent bank failures,its existence encourages banks to

What do we learn about the causes of banking crises by comparing crises throughout the world to those that have occurred in the United States?

When regulators engage in macroprudential regulation,they focus on ________.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

The result of the too-big-to-fail policy is that banks will take on risks,making bank failures more likely.