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Banking
Q:
To prevent the moral hazard problem, health and life insurance companies may write policiesA)for which premiums increase dramatically once the policyholder is discovered to have contracted an illness.B)containing provisions which either reduce or eliminate benefits to persons who contract pre-specified illnesses.C)limiting the amount the companies will pay in the event that claims are submitted by policyholders.D)with all of the above provisions.E)with only A and B of the above provisions.
Q:
In the case of an insurance policy, _________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; _________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.A)moral hazard; insurance market discriminationB)moral hazard; insurance segregationC)moral hazard; adverse selectionD)adverse selection; moral hazard
Q:
Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem ofA)fraudulent claims.B)moral hazard.C)adverse selection.D)pecuniary purchases.
Q:
In the case of an insurance policy, _________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff.A)moral hazardB)opportunismC)adverse selectionD)shirking
Q:
To prevent adverse selection, health and life insurance companies may do all the following exceptA)charge higher premiums to people with certain pre-existing health conditions.B)require potential policyholders to submit medical records.C)refuse to sell policies to people with certain pre-existing health conditions.D)charge the same premiums to all policyholders.
Q:
When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem ofA)fraudulent claims.B)moral hazard.C)adverse selection.D)pecuniary purchases.
Q:
The problem of _________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.A)asymmetric informationB)moral hazardC)adverse selectionD)fraudulent behavior
Q:
Mutual funds are regulated under four federal laws designed to protect investors.
Q:
The certainty equivalent for risk-averse people who buy insurance is theA)maximum loss they may sustain.B)expected loss they may sustain.C)insurance premium they pay.D)profit the insurance company earns.
Q:
The earliest form of insurance was _________ insurance.A)lifeB)healthC)automobileD)property and casualty
Q:
The primary purpose of loads is to provide compensation for sales brokers.
Q:
Whether a fund is organized as a closed- or an open-end fund, is will have the same basic organizational structure.
Q:
One factor explaining the rapid growth in mutual funds is that they are financial intermediaries that are not regulated by the federal government.
Q:
SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.
Q:
A deferred load is a fee charged when shares in a mutual fund are redeemed.
Q:
Money market mutual funds originated when the brokerage firm Merrill Lynch offered its customers an account from which funds could be taken to purchase securities and into which funds could be deposited when securities were sold.
Q:
A mutual fund's board of directors picks the securities that will be held and makes buy and sell decisions.
Q:
The net asset value of a mutual fund is the average market price of the stocks, bonds, and other assets the fund owns.
Q:
Open-end mutual funds are more common than closed-end funds.
Q:
Once a bank has been chartered, it is required to file periodic call reports that reveal the bank's assets and liabilities, income, ownership, and other details.
Q:
Retirement funds account for two-thirds of all mutual fund assets.
Q:
To be classified as a well-capitalized bank, a bank's leverage ratio must exceed 8 percent.
Q:
The failure of one bank can hasten the failure of others in what is referred to as a contagion effect.
Q:
Because asymmetric information problems in the banking industry are a fact of life throughout the world, bank regulation in other countries is similar to that in the United States.
Q:
To understand banking regulation in the United States, it is helpful to understand the concepts of asymmetric information, adverse selection, and moral hazard.
Q:
World Bank research on the effects of deposit insurance concludes thatA)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.
Q:
What accounts for the problems facing China's four largest banks?A)Large loans to inefficient state-owned enterprisesB)Closing of unprofitable branches and laying off unproductive employeesC)Selling shares in the bank overseas to raise capitalD)All of the above
Q:
Which of the following is least likely to accompany financial consolidation and the development of large complex banking organizations?A)More financial institutions will be considered too big to fail.B)The government safety net will be extended to include nonbanking activities.C)Moral hazard problems will become less important.D)Banks will have greater incentives and opportunities to take on more risk.
Q:
The Federal Deposit Insurance Corporation Improvement Act of 1991A)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.
Q:
The Federal Deposit Insurance Corporation Improvement Act of 1991A)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.
Q:
The Federal Deposit Insurance Corporation Improvement Act of 1991A)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.
Q:
The Federal Deposit Insurance Corporation Improvement Act of 1991A)reduced the scope of deposit insurance in several ways.B)eliminated restrictions on nationwide banking.C)allowed well-capitalized banks to do some securities underwriting.D)did only A and B of the above.E)did only A and C of the above.
Q:
Moral hazard and adverse selection problems increased in prominence in the 1980sA)as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk.B)following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking.C)following a decrease in federal deposit insurance from $100,000 to $40,000.D)all of the above.E)only A and B of the above.
Q:
Moral hazard and adverse selection problems increased in prominence in the 1980sA)as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk.B)following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking.C)following an increase in federal deposit insurance from $40,000 to $100,000.D)all of the above.E)only A and B of the above.
Q:
An impact of the Garn-St. Germain Act of 1982 has been toA)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.
Q:
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 allowedA)money market certificates.B)money market mutual funds.C)money market deposit accounts.D)negotiable order of withdrawal accounts.
Q:
The Depository Institutions Deregulation and Monetary Control Act of 1980A)approved NOW accounts nationwide.B)imposed uniform reserve requirements.C)mandated the phase out of interest rate ceilings on deposits.D)did all of the above.E)did only A and B of the above.
Q:
The Depository Institutions Deregulation and Monetary Control Act of 1980A)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.
Q:
The legislation that separated commercial banking from the securities industry is known as theA)National Bank Act.B)Federal Reserve Act.C)Glass-Steagall Act.D)McFadden Act.
Q:
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.A)increase; encouragedB)increase; discouragedC)reduce; encouragedD)reduce; discouraged
Q:
The common bond membership requirement makes it difficult for _________ to diversify their loans.A)savings and loan associationsB)credit unionsC)banksD)mutual savings banks
Q:
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.A)moral hazardB)adverse selectionC)ex post shirkingD)post-contractual opportunism
Q:
Credit unions are characterized byA)mutual ownership.B)common bond membership.C)nonprofit, tax-exempt status.D)all of the above.E)none of the above.
Q:
The chartering process is especially designed to deal with the _________ problem, and restrictions on asset holdings help to reduce the _________ problem.A)adverse selection; adverse selectionB)adverse selection; moral hazardC)moral hazard; adverse selectionD)moral hazard; moral hazard
Q:
Since the early 1990s, the net income of savings and loan associations hasA)risen.B)fallen slightly.C)fallen sharply.D)held steady.
Q:
The main source of funds at savings and loan associations isA)borrowing in the money market.B)borrowing in the capital market.C)deposits.D)equity capital.
Q:
Since the early 1990s, the number of savings and loan associations has _________ and the average size (in assets) has _________.A)risen; declinedB)declined; risenC)risen; risenD)declined; declined
Q:
(I) S&Ls' net worth ratio is about the same as that of commercial banks. (II) Goodwill accounts for a majority of S&Ls' capital.A)(I) is true, (II) false.B)(I) is false, (II) true.C)Both are true.D)Both are false.
Q:
The largest asset held by S&Ls isA)consumer loans.B)securities.C)mortgage loans.D)consumer savings.
Q:
Since 1993, the number of savings and loan associations hasA)held steady.B)risen sharply.C)risen slightly.D)declined substantially.
Q:
To replenish the reserves of the Savings Association Insurance Fund, insurance premiums for S&Ls were increase from _________ cents per $100 of deposits to _________ cents and can rise as high as 32.5 cents.A)5; 5B)5; 5C)8; 0D)0; 8
Q:
The major provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 includedA)transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department.B)expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.C)establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.D)all of the above.E)only A and B of the above.
Q:
The major provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 includedA)reducing the regulatory responsibilities of the FDIC.B)establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.C)directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.D)all of the above.E)only A and B of the above.
Q:
The major provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 includedA)expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.B)stablishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.C)directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.D)all of the above.E)only A and B of the above.
Q:
The major provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 includedA)abolishing the Federal Home Loan Bank Board and the FSLIC.B)transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department.C)establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.D)all of the above.E)only A and B of the above.
Q:
The major provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 includedA)abolishing the Federal Home Loan Bank Board and the FSLIC.B)transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department.C)expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.D)all of the above.E)only A and B of the above.
Q:
The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by theA)Competitive Equality in Banking Act of 1987.B)Financial Institutions Reform, Recovery and Enforcement Act of 1989.C)Office of Thrift Supervision.D)Office of the Comptroller of the Currency.
Q:
Prior to August 1989, the agency that regulated the nation's savings and loan associations was theA)Federal Home Loan Bank Board.B)Office of Thrift Supervision.C)Resolution Trust Corporation.D)Comptroller of the Currency.
Q:
The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers becauseA)regulators initially attempted to downplay the seriousness of problems within the thrift industry.B)politicians who received generous campaign contributions from the savings and loan industry hoped that the problems in the industry would ease over time.C)Congress did not wait long enough for many of the problems in the thrift industry to correct themselves.D)all of the above.E)only A and B of the above.
Q:
The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers becauseA)of regulators' initial attempts to downplay the seriousness of problems within the thrift industry.B)politicians who received generous campaign contributions from the savings and loan industry, like regulators, hoped that the problems in the industry would ease over time.C)Congress encouraged, and thrift regulators acceded to, a policy of regulatory forbearance.D)all of the above.E)only A and B of the above.
Q:
Examiners from the Federal Home Loan Bank Board of San Francisco recommended that Lincoln Savings and Loan be seized when they discovered thatA)officials at the thrift had attempted to mislead them.B)it had exceeded the 10 percent limit on equity investments by $600 million.C)its owner, Charles Keating, had been convicted of embezzlement ten years before he purchased the thrift.D)all of the above.E)both A and B of the above.
Q:
Charles KeatingA)was allowed to acquire Lincoln Savings and Loan of Irvine, California, even though he had been accused of fraud by the SEC only four and a half years earlier.B)fired Lincoln's conservative lending officers and internal auditors, even though he had promised regulators he would keep them.C)enlisted the help of five senators to delay the seizure of Lincoln's assets.D)did all of the above.
Q:
That taxpayers were poorly served by thrift regulators in the 1980s is now quite clear. This poor performance cannot be explained byA)regulators' desire to escape blame for poor performance, leading to a perverse strategy of "regulatory gambling."B)regulators' incentives to accede to pressures imposed by politicians, who sought to keep regulators from imposing tough regulations on institutions that were major campaign contributors.C)Congress's dogged determination to protect taxpayers from the unsound banking practices of managers at many of the nation's savings and loans.D)any of the above.
Q:
"Bureaucratic gambling" refers toA)the belief of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of the regulators.B)the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s.C)the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve.D)none of the above.
Q:
That taxpayers were poorly served by thrift regulators in the 1980s is now quite clear. This poor performance is explained byA)regulators' desire to escape blame for poor performance, leading to a perverse strategy of "regulatory gambling."B)regulators' incentives to accede to pressures imposed by politicians, who sought to keep regulators from imposing tough regulations on institutions that were major campaign contributors.C)Congress's unwillingness to appropriate sufficient funds to permit regulators to examine the many thrift institutions that needed monitoring.D)all of the above.E)only A and B of the above.
Q:
That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained byA)Congress's unwillingness to allocate the necessary funds to thrift regulators.B)regulators' reluctance to find the specific problem thrifts that they knew existed.C)prohibitions against onerous regulatory restrictions against S&Ls as mandated in the Competitive Equality in Banking Act.D)all of the above.E)only A and B of the above.
Q:
The political economy of the S&L crisis shows that the principal-agent problem occurs in politics. In this instance, the agent-regulators did not act to protect the principal-taxpayers becauseA)regulators wanted to escape blame, hoping the situation would improve before others discovered the problem.B)regulators responded to pressure to pursue regulatory forbearance from politicians who had accepted campaign donations from owners of S&Ls.C)Congress was unwilling to allocate the necessary funds regulators needed to close insolvent S&Ls.D)all of the above.E)only A and B of the above.
Q:
An analysis of the political economy of the savings and loan crisis helps one to understandA)why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifts.B)why thrift regulators were quick to inform Congress of the problems that existed in the thrift industry.C)why thrift regulators willingly acceded to pressures placed upon them by members of Congress.D)all of the above.
Q:
An analysis of the political economy of the savings and loan crisis helps one to understandA)why politicians hampered the efforts of thrift regulators, cutting regulatory appropriations and encouraging regulatory forbearance.B)why thrift regulators were reluctant to admit that any problem even existed in the thrift industry.C)why thrift regulators willingly acceded to pressures placed upon them by members of Congress.D)all of the above.E)only A and B of the above.
Q:
The major provisions of the Competitive Equality in Banking Act of 1987 includedA)abolishing the Federal Home Loan Bank Board and the FSLIC.B)transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department.C)establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.D)all of the above.E)none of the above.
Q:
The major provisions of the Competitive Equality in Banking Act of 1987 includedA)expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.B)establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.C)directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.D)all of the above.E)only A and B of the above.
Q:
The Competitive Equality in Banking Act of 1987A)provided insufficient funds to the FSLIC to close down insolvent S&Ls.B)actually directed S&L regulators to continue to pursue regulatory forbearance, further delaying the closing of insolvent S&Ls.C)created a new agency, the Resolution Trust Corporation, to manage insolvent thrifts.D)did all of the above.E)did only A and B of the above.
Q:
The Competitive Equality in Banking Act of 1987A)discouraged regulators from pursuing regulatory forbearance.B)directed regulators to close "zombie S&Ls" as quickly as administratively possible.C)encouraged regulators to continue their policy of regulatory forbearance.D)did both A and B of the above.
Q:
According to the text, the Competitive Equality in Banking Act of 1987A)turned the thrift industry around by providing the necessary funds to close the "zombie S&Ls."B)lowered the cost of bailing out the S&Ls by quickly closing "zombie S&Ls" before they could cause other thrifts to fail.C)failed to provide the funds necessary to close ailing S&Ls, and actually encouraged regulators to continue to pursue regulatory forbearance.D)did both A and B of the above.
Q:
Examples of the huge risks that "zombie S&Ls" undertook includeA)building shopping centers in the desert.B)buying manufacturing plants to convert manure to methane.C)purchasing billions of dollars of junk bonds.D)all of the above.E)only A and B of the above.
Q:
"Zombie S&Ls"A)paid above market interest rates to attract deposits to fuel their lending boom.B)offered loans at below market interest rates to expand their lending.C)drove down the profitability of solvent S&Ls, threatening to turn them into "zombies" too.D)did all of the above.E)did only A and B of the above.
Q:
Which of the following are reasons that explain why regulators pursued a policy of regulatory forbearance toward thrifts in the early 1980s?A)Regulators knew that the FSLIC did not have sufficient funds to close insolvent S&Ls and pay off their depositors.B)Regulators were probably too close to the people they were supposed to be regulating to close down thrifts and put them out of business.C)Regulators preferred to sweep the problems that thrifts were suffering under the rug in the hope that they would go away as the economy improved.D)All of the above explain regulatory forbearance.E)Only A and B of the above explain regulatory forbearance.
Q:
The policy of regulatory forbearanceA)meant delaying the closing of "zombie S&Ls" as their losses mounted during the 1980s.B)benefited "zombie S&Ls" at the expense of healthy S&Ls, as healthy institutions lost deposits to insolvent institutions.C)had the advantage of benefiting healthy S&Ls by giving them the opportunity to attract deposits that began to leave the "zombie S&Ls."D)both A and B of the above.E)both A and C of the above.
Q:
The policy of regulatory forbearanceA)meant delaying the closing of "zombie S&Ls" as their losses mounted during the 1980s.B)benefited "zombie S&Ls" at the expense of healthy S&Ls, as healthy institutions lost deposits to insolvent institutions.C)contributed to declining profitability in the S&L industry and an increase in the number of "zombie S&Ls."D)all of the above.E)only A and B of the above.
Q:
Which of the following reasons explain why federal regulators adopted a policy of regulatory forbearance toward insolvent financial institutions in the early 1980s?A)The FSLIC lacked sufficient funds to cover insured deposits in the insolvent S&Ls.B)The regulators were reluctant to close the firms that justified their regulatory existence.C)The Federal Home Loan Bank Board and the FSLIC were reluctant to admit that they were in over their heads with problems.D)All of the above.E)Only A and B of the above.