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Banking
Q:
If First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits toA)increase by $15 million.B)increase by $1.5 million.C)decline by $15 million.D)decline by $1.5 million.
Q:
If First State Bank has a gap equal to a positive $20 million, then a 5 percentage point drop in interest rates will cause profits toA)increase by $10 million.B)increase by $1.0 million.C)decline by $10 million.D)decline by $1.0 million.
Q:
First National Bank Table 24.2Refer to Table 24.2. Assuming that the average duration of the bank's assets is four years, while the average duration of its liabilities is three years, a rise in interest rates from 5 percent to 10 percent will cause the net worth of First National to _________ by _________ of the total original asset value.A)decline; 5%B)decline; 3%C)decline; 2%D)increase; 5%
Q:
First National Bank Table 24.2Referring to Table 24.2, if interest rates rise by 5 percentage points, then bank profits (measured using gap analysis) willA)decline by $0.5 million.B)decline by $1.5 million.C)decline by $2.5 million.D)increase by $2.0 million.
Q:
First National Bank Table 24.2Referring to Table 24.2, First National Bank has a gap of _________.A)-10B)10C)20D)0
Q:
First National Bank Table 24.1Refer to Table 24.1. Assuming that the average duration of its assets is five years, while the average duration of its liabilities is three years, a rise in interest rates from 5% to 10% will cause the net worth of First National to _________ by _________ of the total original asset value.A)increase; 11%B)decline; 11%C)increase; 10%D)decline; 5%
Q:
First National Bank Table 24.1Referring to Table 24.1, if interest rates rise by 5 percentage points, then bank profits (measured using gap analysis) willA)decline by $0.5 million.B)decline by $1.5 million.C)decline by $2.5 million.D)increase by $1.5 million.
Q:
First National Bank Table 24.1Referring to Table 24.1, First National Bank has a gap of _________.A)-30B)+30C)60D)0
Q:
The difference between rate-sensitive liabilities and rate-sensitive assets is known as theA)duration.B)interest-sensitivity index.C)interest-rate risk index.D)gap.
Q:
Banks face the problem of _________ in loan markets because bad credit risks are the ones most likely to seek bank loans.A)adverse selectionB)moral hazardC)moral suasionD)intentional fraud
Q:
Within the broad universe of private equity sectors, the two most common are venture funds and capital buyouts.
Q:
In a typical private equity buyout, a partnership is formed and private equity investors are contacted to pledge participation.
Q:
An additional perk of a private equity firm is that the profits for both CEOs and the partners are taxed at the 15% capital gains rather than the 35% rate they would suffer if the income was received as income.
Q:
Investors in venture capital firms expect to profit quickly from their investment.
Q:
Venture capital firms reduce risk by investing in only a few companies which can be carefully monitored and nurtured.
Q:
An investment pool is formed to manipulate the market for a stock by spreading false rumors about the health of the firm.
Q:
The Securities Acts Amendment of 1975 abolished fixed commissions.
Q:
Junk bonds are high-risk, high-return equity securities that were used primarily to finance takeover attempts.
Q:
One disadvantage of the private placement of securities issues is the high cost of registering the issue.
Q:
Investment bankers perform a number of tasks required to sell securities to the public, among them pricing the security, preparing the filings required by the SEC, arranging for the security to be rated, and marketing the security through their contacts with brokerage houses.
Q:
Insurance management tools that give policyholders incentives to avoid accidents insured against includeA)deductibles.B)risk-based premiums.C)coinsurance.D)all of the above.
Q:
To prevent the moral hazard problem, health and life insurance companies may write policiesA)that increase benefits dramatically once the policyholder is discovered to have contracted an illness so that the patient can recover sooner.B)containing provisions which either reduce or eliminate benefits to persons who contract pre-specified illnesses.C)boosting the amount the companies will pay health providers in the event that claims are submitted by policyholders.D)with only A and B of the above provisions.
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:
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:
Mutual funds are regulated under four federal laws designed to protect investors.
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:
Retirement funds account for two-thirds of all mutual fund assets.
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:
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)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:
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:
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:
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:
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:
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:
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:
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)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)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)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.