Q&A Hero

Q: Which policy measure increases the punishment for white-collar crime and obstruction of official investigations? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure increased the SEC budget to supervise securities markets? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which of the following is not a part of the Sarbanes-Oxley Act of 2002? A. the establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality B. increased penalties for white-collar crime and obstruction of official investigations C. requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate D. requires investment banks to make public their analysts' recommendations

Q: Explain how the market can reduce the incentive for credit-rating firms to take advantage of conflicts of interest.

Q: Reputational rents refer to A. the profit earned by a firm when it captures economies of scope. B. the costs associated with building credibility of a firm. C. the profit earned solely based on the credibility of a firm. D. the costs associated with the firm's achievement of economies of scale.

Q: If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike price of 110, and at the expiration date the price is 114, your ________ is ________. A. profit; $4000 B. loss; $4000 C. profit; $3000 D. loss; $3000

Q: Evidence suggests that the market ________ take into account the credibility of analyst's recommendations of IPOs that were underwritten at the analyst's investment bank because the performance of these recommendations was about 50% ________ compared to recommendations made by other analysts at different investment banks. A. does; better B. does; worse C. does not; better D. does not; worse

Q: If you buy a put option on treasury futures at 110, and at expiration the market price is 115, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: If you buy a put option on Treasury futures at 115, and at expiration the market price is 110, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: If you buy a call option on Treasury futures at 110, and at expiration the market price is 115, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: If you buy a call option on Treasury futures at 115, and at expiration the market price is 110, the ________ will ________ exercised. A. call; be B. put; be C. call; not be D. put; not be

Q: An option allowing the owner to sell an asset at a future date is a A. put option. B. call option. C. futures contract. D. forward contract.

Q: A put option gives the seller the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: A put option gives the owner the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: An option that gives the owner the right to sell a financial instrument at the exercise price within a specified period of time is a A. call option. B. put option. C. American option. D. European option.

Q: An option allowing the holder to buy an asset in the future is a A. put option. B. call option. C. swap. D. forward contract.

Q: To say that the forward market lacks liquidity means that A. forward contracts usually result in losses. B. forward contracts cannot be turned into cash. C. it may be difficult to make the transaction. D. forward contracts cannot be sold for cash.

Q: A call option gives the seller the A. right to sell the underlying security. B. obligation to sell the underlying security. C. right to buy the underlying security. D. obligation to buy the underlying security.

Q: A contract that requires the investor to sell securities on a future date is called a A. short contract. B. long contract. C. hedge. D. micro hedge.

Q: A short contract requires that the investor A. sell securities in the future. B. buy securities in the future. C. hedge in the future. D. close out his position in the future.

Q: A person who agrees to buy an asset at a future date is going A. long. B. short. C. back. D. ahead.

Q: A long contract requires that the investor A. sell securities in the future. B. buy securities in the future. C. hedge in the future. D. close out his position in the future.

Q: A contract that requires the investor to buy securities on a future date is called a A. short contract. B. long contract. C. hedge. D. cross.

Q: Hedging risk for a long position is accomplished by A. taking another long position. B. taking a short position. C. taking additional long and short positions in equal amounts. D. taking a neutral position.

Q: Hedging risk for a short position is accomplished by A. taking a long position. B. taking another short position. C. taking additional long and short positions in equal amounts. D. taking a neutral position.

Q: By hedging a portfolio, a bank manager A. reduces interest-rate risk. B. increases reinvestment risk. C. increases exchange-rate risk. D. increases the probability of gains.

Q: Which of the following is not a financial derivative? A) stock B) futures C) options D) forward contracts

Q: The payoffs for financial derivatives are linked to A. securities that will be issued in the future. B. the volatility of interest rates. C. previously issued securities. D. government regulations specifying allowable rates of return.

Q: Both ________ and ________ were financial innovations that occurred because of interest rate volatility. A. adjustable-rate mortgages; commercial paper B. adjustable-rate mortgages; financial derivatives C. sweep accounts; financial derivatives D. sweep accounts; commercial paper

Q: Financial instruments whose payoffs are linked to previously issued securities are called A. grandfathered bonds. B. financial derivatives. C. hedge securities. D. reversible bonds.

Q: An instrument developed to help investors and institutions hedge interest-rate risk is A. a debit card. B. a credit card. C. a financial derivative. D. a junk bond.

Q: The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is A. a put option. B. a call option. C. a futures contract. D. a mortgage-backed security.

Q: Adjustable rate mortgages A. reduce the interest-rate risk for financial institutions. B. benefit homeowners when interest rates rise. C. generally have higher initial interest rates than conventional fixed-rate mortgages. D. allow borrowers to avoid paying interest on portions of their mortgage loans.

Q: Adjustable rate mortgages A. protect households against higher mortgage payments when interest rates rise. B. keep financial institutions' earnings high even when interest rates are falling. C. benefit homeowners when interest rates are falling. D. generally have higher initial interest rates than on conventional fixed-rate mortgages.

Q: Rising interest-rate risk A. increased the cost of financial innovation. B. increased the demand for financial innovation. C. reduced the cost of financial innovation. D. reduced the demand for financial innovation.

Q: Uncertainty about interest-rate movements and returns is called A. market potential. B. interest-rate irregularities. C. interest-rate risk. D. financial creativity.

Q: In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________ percent. A. 5; 15 B. 4; 5 C. 4; 18 D. 5; 10

Q: The most significant change in the economic environment that changed the demand for financial products in recent years has been A. the aging of the baby-boomer generation. B. the dramatic increase in the volatility of interest rates. C. the dramatic increase in competition from foreign banks. D. the deregulation of financial institutions.

Q: Financial innovations occur because of financial institutions search for A. profits. B. fame. C. stability. D. recognition.

Q: ________ is the process of researching and developing profitable new products and services by financial institutions. A. Financial engineering B. Financial manipulation C. Customer manipulation D. Customer engineering

Q: State banking authorities have sole jurisdiction over state banks A. without FDIC insurance. B. that are not members of the Federal Reserve System. C. operating as bank holding companies. D. chartered in the 21st century.

Q: State banks that are not members of the Federal Reserve System are most likely to be examined by the A. Federal Reserve System. B. FDIC. C. FHLBS. D. Comptroller of the Currency.

Q: Which bank regulatory agency has the sole regulatory authority over bank holding companies? A. the FDIC B. the Comptroller of the Currency C. the FHLBS D. the Federal Reserve System

Q: Which of the following statements concerning bank regulation in the United States is TRUE? A. The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. B. The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System. C. The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. D. The state banking authorities have sole regulatory responsibility for all state banks.

Q: The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the A. National Bank Act of 1863. B. Federal Reserve Act of 1913. C. Glass-Steagall Act. D. McFadden Act.

Q: The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from A. issuing equity to finance bank expansion. B. engaging in underwriting and dealing of corporate securities. C. selling new issues of government securities. D. purchasing any debt securities.

Q: With the creation of the Federal Deposit Insurance Corporation A. member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while non-member commercial banks were required to buy deposit insurance. B. member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance. C. both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. D. both member and non-member banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.

Q: With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while non-member commercial banks ________ to buy deposit insurance. A. could choose; were required B. could choose; were given the option C. were required, could choose D. were required; were required

Q: Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has been A. the creation of the FDIC. B. rapid economic growth since 1941. C. the employment of new procedures by the Federal Reserve. D. better bank management.

Q: The Federal Reserve Act of 1913 required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system. A. state; national B. state; municipal C. national; state D. national; municipal

Q: The Federal Reserve Act of 1913 required that A. state banks be subject to the same regulations as national banks. B. national banks establish branches in the cities containing Federal Reserve banks. C. national banks join the Federal Reserve System. D. state banks could not join the Federal Reserve System.

Q: The U.S. banking system is considered to be a dual system because A. banks offer both checking and savings accounts. B. it actually includes both banks and thrift institutions. C. it is regulated by both state and federal governments. D. it was established before the Civil War, requiring separate regulatory bodies for the North and South.

Q: Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side. A. federal government; municipalities B. state governments; municipalities C. federal government; states D. municipalities; states

Q: The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a A. bilateral regulatory system. B. tiered regulatory system. C. two-tiered regulatory system. D. dual banking system.

Q: Which regulatory body charters national banks? A. the Federal Reserve B. the FDIC C. the Comptroller of the Currency D. the U.S. Treasury

Q: The National Bank Act of 1863, and subsequent amendments to it A. created a banking system of state-chartered banks. B. established the Office of the Comptroller of the Currency. C. broadened the regulatory powers of the Federal Reserve. D. created insurance on deposit accounts.

Q: Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, state banks were able to stay in business by A. issuing credit cards. B. ignoring the regulations. C. acquiring funds through deposits. D. branching into other states.

Q: Prior to 1863, all commercial banks in the United States A. were chartered by the U.S. Treasury Department. B. were chartered by the banking commission of the state in which they operated. C. were regulated by the Federal Reserve. D. were regulated by the central bank.

Q: Before 1863 A. federally-chartered banks had regulatory advantages not granted to state-chartered banks. B. the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War. C. banks acquired funds by issuing banknotes. D. banks were required to maintain 100% of their deposits as reserves.

Q: The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of A. the National Bank Charter Amendments of 1918. B. the Garn-St. Germain Act of 1982. C. the National Bank Act of 1863. D. Federal Reserve Act of 1913.

Q: The Resolution Trust Corporation was created by the FIRREA in order to A. manage and resolve insolvent S&Ls. B. build up trust in government regulation. C. regulate the S&L industry. D. purchase large amounts of government debt.

Q: To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________. A. National Bank Act of 1863; Office of the Comptroller of the Currency B. Federal Reserve Act of 1863; Office of the Comptroller of the Currency C. National Bank Act of 1863; Office of Thrift Supervision D. Federal Reserve Act of 1863; Office of Thrift Supervision

Q: The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the A. Competitive Equality 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: Taxpayers were served poorly by thrift regulators in the 1980s. This poor performance cannot be explained by A. regulators' desire to escape blame for poor performance, leading to a perverse strategy of "bureaucratic 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. politicians strong incentives to act in their own interests rather than the interests of the taxpayers.

Q: An analysis of the political economy of the savings and loan crisis helps one to understand A. why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifts. B. why thrift regulators were so 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. why politicians listened so closely to the taxpayers they represented. E.

Q: The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because A. of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. B. politicians listened to the taxpayers rather than the S&L lobbyists. C. Congress did not wait long enough for many of the problems in the thrift industry to correct themselves. D. regulators could not be fired, therefore, they didn't care if they did a good job or not.

Q: That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by A. 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. slower growth in lending meant that less regulation was needed. D. Congress's unwillingness to listen to campaign contributors.

Q: "Bureaucratic gambling" refers to A. the strategy of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of thrift 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. the risk that regulators took in going to Congress to ask for additional funds.

Q: The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________. A. politicians/regulators; taxpayers B. taxpayers; politician/regulators C. taxpayers; bank managers D. bank managers; politicians/regulators

Q: The major provisions of the Competitive Equality Banking Act of 1987 include A. expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system. B. the establishment of 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. prompt corrective action when a bank gets in trouble.

Q: Reasons regulators chose to follow regulatory forbearance rather than to close the insolvent S&Ls include all of the following EXCEPT A. they had insufficient funds to close all of the insolvent S&Ls. B. they were friends with the S&L owners. C. they hoped the problem would go away. D. they did not have the authority to close the insolvent S&Ls.

Q: Regulatory forbearance A. meant delaying the closing of "zombie S&Ls" as their losses mounted during the 1980s. B. had the advantage of benefiting healthy S&Ls at the expense of "zombie S&Ls," as insolvent institutions lost deposits to health institutions. C. had the advantage of permitting many insolvent S&Ls the opportunity to return to profitability, saving the FSLIC billions of dollars. D. increased adverse selection dramatically.

Q: Savings and loan regulators allowed S&Ls to include in their capital calculations a high value for intangible capital called A. goodwill. B. salvation. C. kindness. D. retribution.

Q: The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency. A. regulatory forbearance; moral hazard B. regulatory forbearance; adverse hazard C. regulatory agnosticism; moral hazard D. regulatory agnosticism; adverse hazard

Q: When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them, they were pursuing a policy of A. regulatory forbearance. B. regulatory kindness. C. ostrich reasoning. D. ignorance reasoning.

Q: In the early stages of the 1980s banking crisis, financial institutions were especially harmed by A. declining interest rates from late 1979 until 1981. B. the severe recession in 1981-82. C. the disinflation from mid 1980 to early 1983. D. the increase in energy prices in the early 80s.

Q: One of the problems experienced by the savings and loan industry during the 1980s was A. managers lack of expertise to manage risk in new lines of business. B. heavy regulations in the new areas open to S&Ls. C. slow growth in lending. D. close monitoring by the FSLIC.

Q: Prior to the 1980s, S&Ls and mutual savings banks were restricted almost entirely to A. commercial real estate loans. B. home mortgages. C. education loans. D. vacation loans.

Q: The Depository Institutions Deregulation and Monetary Control Act of 1980 A. separated investment banks and commercial banks. B. restricted the use of ATS accounts. C. imposed restrictive usury ceilings on large agricultural loans. D. increased deposit insurance from $40,000 to $100,000.