Question 1

Many economists believe the system of deposit insurance increases the moral hazard problem. Explain.

Accepted Answer

Because banks are insured, they may begi...

Question 2

The most liquid form of assets on a bank's balance sheet are:

Accepted Answer

A)  checking deposits.
B)  reserves.
C)  loans.
D)  federal funds.E) A) and C)
F) B) and C)

Question 3

A bank's net worth is also called its:

Accepted Answer

A)  revenue.
B)  capital.
C)  loans.
D)  deposits.E) All of the above
F) B) and D)

Question 4

As a result of the subprime lending crisis, what happened to Fannie Mae and Freddie Mac?

Accepted Answer

A)  They were privatized.
B)  They were put into conservatorship.
C)  They were sold to a foreign central bank.
D)  The Fed seized their assets and auctioned them off.E) B) and C)
F) All of the above

Question 5

Banks face considerable risk.

Accepted Answer

A)  insolvency
B)  interest rate
C)  credit
D)  insolvency, interest rate, and creditE) None of the above
F) B) and C)

Question 6

If a rise in short-term interest rates increases the interest a bank pays more than the interest a bank earns, then bank:

Accepted Answer

A)  profits increase.
B)  profits decrease.
C)  assets increase.
D)  assets decrease.E) A) and C)
F) None of the above

Question 7

Because shutting it down , bank regulators are tempted to place an insolvent bank in forbearance.

Accepted Answer

A)  is costly to depositors who may lose a portion of their deposits
B)  is embarrassing to bank examiners
C)  means lost jobs
D)  All of the Answer s are correct.E) A) and D)
F) None of the above

Question 8

To find a bank's return on its assets, we:

Accepted Answer

A)  divide its profits by its capital.
B)  divide its profits by its total assets.
C)  subtract its total expenses from its total income.
D)  divide its total expenses by its total income.E) B) and C)
F) None of the above

Question 9

A credit union is different from a savings institution because it:

Accepted Answer

A)  restricts membership to a common group of people.
B)  restricts the maximum balance a depositor must have.
C)  only makes mortgage loans.
D)  will not accept checking deposits.E) C) and D)
F) B) and C)

Question 10

Which of the following states has no payday lenders?

Accepted Answer

A)  Washington
B)  Oklahoma
C)  New Mexico
D)  GeorgiaE) All of the above
F) A) and D)

Question 11

Requiring collateral reduces the probability of default by making high-risk borrowers less likely to apply for a loan, which reduces:

Accepted Answer

A)  adverse selection.
B)  moral hazard.
C)  interest rate risk.
D)  bank panics.E) B) and D)
F) B) and C)

Question 12

An institution that is owned by its depositors is called a:

Accepted Answer

A)  community bank.
B)  commercial bank.
C)  credit union.
D)  finance company.E) A) and B)
F) A) and C)

Question 13

Finance companies only ; they do not .

Accepted Answer

A)  issue bonds; accept savings
B)  accept checking deposits; make loans
C)  make loans; accept deposits
D)  underwrite pension funds; exchange foreign currencyE) B) and D)
F) None of the above

Question 14

Because the return on equity quantifies how much , bank managers endeavor to maximize ROE, much like other businesses try to produce high returns for their .

Accepted Answer

A)  banks earns after taxes; board of directors
B)  a bank profits; owners
C)  banks earn per dollar its stockholders own; stockholders
D)  banks earn on loans; workersE) None of the above
F) A) and D)

Question 15

One measure of interest rate risk is the:

Accepted Answer

A)  interest rate volatility.
B)  rate-sensitivity gap.
C)  federal funds rate.
D)  unemployment rate.E) B) and C)
F) A) and D)

Question 16

Companies that make small loans to people who need cash urgently are called:

Accepted Answer

A)  ATMs.
B)  credit unions.
C)  payday lenders.
D)  community banks.E) B) and D)
F) All of the above

Question 17

Which of the following is the correct equation for a bank's return on assets?

Accepted Answer

A)  ROA = profits - assets
B)  ROA = profits/capital
C)  ROA = profits/assets
D)  ROA = total income - total expenseE) B) and C)
F) A) and D)

Question 18

On a bank's balance sheet, which of the following are assets?

Accepted Answer

A)  checking deposits
B)  certificates of deposit
C)  savings deposits
D)  None of the Answer s is correct.E) B) and C)
F) A) and B)

Question 19

Subprime lenders include:

Accepted Answer

A)  commercial banks.
B)  pawn shops.
C)  credit unions.
D)  All of the Answer s are correct.E) A) and D)
F) All of the above

Question 20

If depositors lose faith in a bank, the severity of bank runs can be compounded by the:

Accepted Answer

A)  first-come, first-served nature of bank withdrawals.
B)  policy that large depositors can withdraw their deposits before smaller depositors can.
C)  existence of deposit insurance.
D)  large amounts of bank reserves.E) A) and B)
F) A) and C)

Exam 18: Banking

Subprime lenders include:

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On a bank's balance sheet, which of the following are assets?

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Because shutting it down , bank regulators are tempted to place an insolvent bank in forbearance.

Correct AnswerverifiedShow Answer

The most liquid form of assets on a bank's balance sheet are:

Correct AnswerverifiedShow Answer

Because the return on equity quantifies how much , bank managers endeavor to maximize ROE, much like other businesses try to produce high returns for their .

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Which of the following states has no payday lenders?

Correct AnswerverifiedShow Answer

Companies that make small loans to people who need cash urgently are called:

Correct AnswerverifiedShow Answer

A bank's net worth is also called its:

Correct AnswerverifiedShow Answer

As a result of the subprime lending crisis, what happened to Fannie Mae and Freddie Mac?

Correct AnswerverifiedShow Answer

If depositors lose faith in a bank, the severity of bank runs can be compounded by the:

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Finance companies only ; they do not .

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A credit union is different from a savings institution because it:

Correct AnswerverifiedShow Answer

An institution that is owned by its depositors is called a:

Correct AnswerverifiedShow Answer

Many economists believe the system of deposit insurance increases the moral hazard problem. Explain.

Correct AnswerverifiedBecause banks are insured, they may begi...View AnswerShow Answer

One measure of interest rate risk is the:

Correct AnswerverifiedShow Answer

Requiring collateral reduces the probability of default by making high-risk borrowers less likely to apply for a loan, which reduces:

Correct AnswerverifiedShow Answer

Which of the following is the correct equation for a bank's return on assets?

Correct AnswerverifiedShow Answer

If a rise in short-term interest rates increases the interest a bank pays more than the interest a bank earns, then bank:

Correct AnswerverifiedShow Answer

Banks face considerable risk.

Correct AnswerverifiedShow Answer

To find a bank's return on its assets, we:

Correct AnswerverifiedShow Answer

Correct Answer
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Because banks are insured, they may begi...
View Answer

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