Question 1

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 investorsE) A) and D)
F) C) and D)

Question 2

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 assetsE) All of the above
F) None of the above

Question 3

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 4

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 authoritiesE) All of the above
F) B) and D)

Question 5

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 6

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

Accepted Answer

In most other industries the failure of ...

Question 7

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 resortE) All of the above
F) C) and D)

Question 8

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 exploitationE) A) and B)
F) B) and C)

Question 9

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 profitsE) C) and D)
F) B) and C)

Question 10

What are the three pillars of the 1998 Basel Accord?

Accepted Answer

The new Basel Accord is based on three p...

Question 11

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)  $120,000E) C) and D)
F) A) and C)

Question 12

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 ServiceE) A) and B)
F) A) and C)

Question 13

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 ratesE) None of the above
F) A) and B)

Question 14

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 banksE) A) and C)
F) C) and D)

Question 15

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 16

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 depositorsE) B) and D)
F) None of the above

Question 17

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)  $125,000E) A) and B)
F) None of the above

Question 18

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 outE) None of the above
F) A) and D)

Question 19

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 banksE) B) and D)
F) All of the above

Question 20

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 levelE) A) and D)
F) None of the above

Exam 14: Regulating the Financial System

What matters most during a bank run is:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

During a bank crisis:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedIn most other industries the failure of ...View AnswerShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Empirical evidence points to the fact that financial crises:

Correct AnswerverifiedShow Answer

The supervision of banks includes:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedGovernment officials employ a combinatio...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are the three pillars of the 1998 Basel Accord?

Correct AnswerverifiedThe new Basel Accord is based on three p...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThere are a few reasons for this; one, m...View AnswerShow Answer

Banks can effectively choose their regulators by deciding whether to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedDepositors would quickly learn that no s...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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In most other industries the failure of ...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Government officials employ a combinatio...
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Correct Answer
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Correct Answer
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Correct Answer
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The new Basel Accord is based on three p...
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Correct Answer
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Correct Answer
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There are a few reasons for this; one, m...
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Correct Answer
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Correct Answer
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Correct Answer
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Depositors would quickly learn that no s...
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Correct Answer
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Correct Answer
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