Question 1

The existence of deposit insurance can increase the likelihood that depositors will need deposit protection, as banks with deposit insurance

Accepted Answer

A) are likely to take on greater risks than they otherwise would. 
B) are likely to be too conservative, reducing the probability of turning a profit. 
C) are likely to regard deposits as an unattractive source of funds due to depositors' demands for safety. 
D) are placed at a competitive disadvantage in acquiring funds. 
A) are likely to take on greater risks than they otherwise would. 
B) are likely to be too conservative, reducing the probability of turning a profit. 
C) are likely to regard deposits as an unattractive source of funds due to depositors' demands for safety. 
D) are placed at a competitive disadvantage in acquiring funds.

Question 2

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

Accepted Answer

A) increase; encouraged 
B) increase; discouraged 
C) reduce; encouraged 
D) reduce; discouraged 
A) increase; encouraged 
B) increase; discouraged 
C) reduce; encouraged 
D) reduce; discouraged

Question 3

The chartering process is especially designed to deal with the ________ problem, and regular bank examinations help to reduce the ________ problem.

Accepted Answer

A) adverse selection; adverse selection 
B) adverse selection; moral hazard 
C) moral hazard; adverse selection 
D) moral hazard; moral hazard 
A) adverse selection; adverse selection 
B) adverse selection; moral hazard 
C) moral hazard; adverse selection 
D) moral hazard; moral hazard

Question 4

The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.

Accepted Answer

A) True 
 B)False

Question 5

World Bank research on the effects of deposit insurance concludes that

Accepted Answer

A) adoption of deposit insurance will promote stability and efficiency in the banking systems of emerging-market economies. 
B) adoption of explicit government deposit insurance is associated with a higher incidence of banking crises. 
C) adoption of deposit insurance has the greatest benefits in countries that have weaker institutional environments. 
D) none of the above are true. 
A) adoption of deposit insurance will promote stability and efficiency in the banking systems of emerging-market economies. 
B) adoption of explicit government deposit insurance is associated with a higher incidence of banking crises. 
C) adoption of deposit insurance has the greatest benefits in countries that have weaker institutional environments. 
D) none of the above are true.

Question 6

As a way of stemming the decline in the number of savings and loans and mutual savings banks, the Garn-St. Germain Act of 1982 allowed

Accepted Answer

A) money market certificates. 
B) money market mutual funds. 
C) money market deposit accounts. 
D) negotiable order of withdrawal accounts. 
A) money market certificates. 
B) money market mutual funds. 
C) money market deposit accounts. 
D) negotiable order of withdrawal accounts.

Question 7

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 8

A better capitalized bank has more to lose when it fails and is less likely to take less risk.

Accepted Answer

A) True 
 B)False

Question 9

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A) approved NOW accounts nationwide. 
B) restricted the use of ATS accounts. 
C) imposed interest rate ceilings on bank loans. 
D) did all of the above. 
A) approved NOW accounts nationwide. 
B) restricted the use of ATS accounts. 
C) imposed interest rate ceilings on bank loans. 
D) did all of the above.

Question 10

Discuss some of the problems of Basel 2 that the 2007-2009 financial crisis revealed.

Accepted Answer

The 2007-2009 financial crisis revealed

Question 11

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate, or APR, on loans.

Accepted Answer

A) True 
 B)False

Question 12

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 13

An impact of the Garn-St. Germain Act of 1982 has been to

Accepted Answer

A) put savings and loans at a competitive disadvantage. 
B) make the banking system more competitive. 
C) give money market mutual funds a competitive advantage. 
D) do both A and B of the above. 
E) do both A and C of the above. 
A) put savings and loans at a competitive disadvantage. 
B) make the banking system more competitive. 
C) give money market mutual funds a competitive advantage. 
D) do both A and B of the above. 
E) do both A and C of the above.

The existence of deposit insurance can increase the likelihood that depositors will need deposit protection, as banks with deposit insurance

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

The chartering process is especially designed to deal with the problem, and regular bank examinations help to reduce the problem.

The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.

World Bank research on the effects of deposit insurance concludes that

As a way of stemming the decline in the number of savings and loans and mutual savings banks, the Garn-St. Germain Act of 1982 allowed

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

A better capitalized bank has more to lose when it fails and is less likely to take less risk.

The Depository Institutions Deregulation and Monetary Control Act of 1980

Discuss some of the problems of Basel 2 that the 2007-2009 financial crisis revealed.

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate, or APR, on loans.

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

An impact of the Garn-St. Germain Act of 1982 has been to

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

Exam 18: Financial Regulation

The existence of deposit insurance can increase the likelihood that depositors will need deposit protection, as banks with deposit insurance

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

The chartering process is especially designed to deal with the ________ problem, and regular bank examinations help to reduce the ________ problem.

The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.

World Bank research on the effects of deposit insurance concludes that

As a way of stemming the decline in the number of savings and loans and mutual savings banks, the Garn-St. Germain Act of 1982 allowed

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

A better capitalized bank has more to lose when it fails and is less likely to take less risk.

The Depository Institutions Deregulation and Monetary Control Act of 1980

Discuss some of the problems of Basel 2 that the 2007-2009 financial crisis revealed.

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate, or APR, on loans.

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

An impact of the Garn-St. Germain Act of 1982 has been to

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

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

The chartering process is especially designed to deal with the problem, and regular bank examinations help to reduce the problem.