finance multiple choice good for you aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
Trang 11) Of the following sources of external finance for American nonfinancial businesses, the least important is.
B) stocks.
2) Of the following sources of external finance for American nonfinancial businesses, the most important is
D) nonbank loans.
3) Of the sources of external funds for nonfinancial businesses in the United States, bonds account for approximately
of the total
C) 30%
4) Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately
of the total
A) 10%
5) With regard to external sources of financing for nonfinancial businesses in the United States, which of the following are
accurate statements?
A) Marketable securities account for a larger share of external business financing in the United States than in most other
countries
B) Since 1970, less than 5% of newly issued corporate bonds and commercial paper have been sold directly to American
households
E) Only A and B of the above.
6) With regard to external sources of financing for nonfinancial businesses in the United States, which of the following are
accurate statements?
D) All of the above.
7) (I) In the United States, nonbank loans are the most important source of external funds for nonfinancial businesses
(II) In Germany and Japan, issuing stocks and bonds is the most important source of external for nonfinancial businesses
A) (I) is true, (II) false.
8) Which of the following is not one of the eight basic facts about financial structure?
D) New security issues is the most important source of external funds to finance businesses.
9) Which of the following is not one of the eight basic facts about financial structure?
B) Issuing marketable securities is the primary way businesses finance their operations.
10) Because information is scarce,
E) only B and C of the above are true.
11) Which of the following best explains the recent decline in the role of financial intermediaries?
C) Improvements in information technology
12) (I) The total cost of carrying out a transaction in financial markets increases proportionally with the size of the
transaction
(II) Financial intermediaries facilitate diversification when an investor has only a small sum to invest
B) (I) is false; (II) true.
13) If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries,
then financial intermediaries face the problem of
B) adverse selection.
14) If borrowers take on big risks after obtaining a loan, then lenders face the problem of
C) moral hazard.
15) Because of the lemons problem in the used car market, the average quality of the used cars offered for sale will be
, which gives rise to the problem of
B) low; adverse selection
16) In the used car market, asymmetric information leads to the lemons problem because the price that buyers are willing to
pay will
C) reflect the average quality of used cars in the market.
17) The problem created by asymmetric information before the transaction occurs is called , while the problem
created after the transaction occurs is called
A) adverse selection; moral hazard
18) A borrower who takes out a loan usually has better information about the potential returns and risks of the investment
projects he plans to undertake than the lender does This inequality of information is called
B) asymmetric information.
19) Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment
activities.
20) Moral hazard is a problem associated with debt and equity contracts arising from
E) only A and B of the above.
21) Because of the adverse selection problem,
D) all of the above.
22) The problem occurs when people who do not pay for information take advantage of the information that other
people have paid for
A) free-rider
23) Because of the adverse selection problem,
C) lenders are reluctant to make loans that are not secured by collateral.
24) The problem of adverse selection helps to explain
D) all of the above.
25) The problem of adverse selection helps to explain
A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from
securities markets.
26) When an accounting firm conducts an independent audit, the accounting firms certify that
A) the firm is adhering to standard accounting principles and disclosing accurate information about sales, assets,
and earnings.
27) The concept of adverse selection helps to explain
C) why financial markets are among the most heavily regulated sectors of the economy.
28) That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries
B) are able to prevent potential competitors from free-riding off the information that they provide.
29) That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries
D) do all of the above.
30) A key finding of the economic analysis of financial structure is that
A) the existence of the free-rider problem for traded securities helps to explain why banks play a predominant role
in financing the activities of businesses.
31) In the United States, the government agency requiring that firms, which sell securities in public markets, adhere to
standard accounting principles and disclose information about their sales, assets, and earnings is the
C) Securities and Exchange Commission.
32) An audit certifies that
C) a firm abides by standard accounting principles.
33) The authors' analysis of adverse selection indicates that financial intermediaries in general, and banks in particular
(because they hold a large fraction of nontraded loans),
E) only A and B of the above.
34) The authors' analysis of adverse selection indicates that financial intermediaries
A) overcome free-rider problems by holding nontraded loans.
35) The pecking order hypothesis predicts that the a corporation is, the more likely it will be to
C) larger and more well known; issue securities
36) Financial intermediaries (banks in particular) have the ability to avoid the free-rider problem as long as they primarily
A) make private loans.
37) Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called
C) collateral.
38) Collateral is
D) all of the above.
39) The majority of household debt in the United States consists of
C) collateralized loans.
40) Commercial and farm mortgages, in which property is pledged as collateral, account for
A) one-quarter of borrowing by nonfinancial businesses.
41) Because of the moral hazard problem,
E) only A and B of the above.
42) Moral hazard in equity contracts is known as the problem because the manager of the firm has fewer
incentives to maximize profits than the stockholders might ideally prefer
A) principal-agent
43) Because managers ( ) have less incentive to maximize profits than the stockholders-owners ( ) do,
stockholders find it costly to monitor managers; thus, stockholders are reluctant to purchase equities
D) agents; principals
44) The principal-agent problem
B) would not arise if the owners of the firm had complete information about the activities of the managers.
45) Solutions to the moral hazard problem include
E) only A and B of the above.
46) One financial intermediary in our financial structure that helps to reduce the moral hazard arising from the
principal-agent problem is the
A) venture capital firm.
47) A venture capital firm protects its equity investment from moral hazard through which of the following means?
D) It does both A and B of the above.
48) Debt contracts
D) all of the above.
49) Equity contracts account for a small fraction of external funds raised by American businesses because
E) both A and B of the above.
50) A debt contract is said to be incentive compatible if
A) the borrower's net worth reduces the probability of moral hazard.
51) A debt contract is more likely to be incentive compatible if
A) a restrictive covenant.
53) A debt contract that specifies that the company can only use the funds to finance certain activities
B) contains a restrictive covenant.
54) Which of the following are accurate statements concerning the role that restrictive covenants play in reducing moral hazard in financial markets?
D) All of the above.
55) Although restrictive covenants can potentially reduce moral hazard, a problem with restrictive covenants is that
E) only A and B of the above.
56) Governments in developing countries sometimes adopt policies that retard the efficient operation of their financial systems These actions include policies that
D) do all of the above.
57) Economies of scale
B) can be used to an advantage by reducing transaction cost.
58) Liquidity services are services that
A) make it easier for customers to conduct transactions.
59) Adverse selection
B) can be solved by eliminating asymmetrical information.
60) The free-rider problem
D) all of the above.
61) Bad firms
B) will slant the information they are required to transmit to the public.
62) A bank
D) all of the above.
63) Net worth
B) is the difference between assets and liabilities.
64) Economies of scope refer to cost savings that arise when the
C) number of different activities undertaken increases.
65) The problem with monitoring as a tool to solve the problem is that it can be expensive in terms of time and money, as reflected in the name economists give it,costly state verification
A) principal-agent
66) A financial institution can achieve cost savings by engaging in multiple activities These are called economies of
A) scope.
67) A financial institution can achieve cost savings in its credit card operations if it increases the number of cardholders This is an example of economies of
B) scale.
68) Which combination of activities within a single financial institution is least likely to lead to conflicts of interest?
D) Consumer lending and business lending
69) Conflicts of interest pose a problem because they
D) do all of the above.
70) An advantage of providing multiple financial services within one financial institution is that it
C) both A and B of the above.
71) A conflict of interest occurs when
D) people expected to provide reliable information to the public have incentives not to do so.
72) A conflict of interest between providing impartial research about companies issuing securities and selling those same securities arises in
A) investment banking.
73) If potential revenues from underwriting greatly exceed brokerage commissions, there is incentive for investment bank analysts to report information about firms issuing securities
B) stronger; favorable
74) Spinning is the practice of
A) investment banks allowing executives of potential client companies to buy underpriced initial public offerings of
other companies' securities
75) Investment banks are guilty of conflict of interest when they
D) all of the above
76) Investment banks serve two client groups,
C) issuers of securities and investors in those securities.
77) Auditors attempt to reduce information asymmetry between a firm's managers and its
B) owners.
78) Conflicts of interest in the Arthur Andersen accounting firm intensified when became the firm's largest source
of profits and large clients pressured office managers to give favorable audits
A) consulting; regional
79) The potential conflict of interest when a single accounting firm provides both auditing and consulting services is that the firm can
C) provide unjustifiably favorable audit reviews for firms that are large clients for its consulting services.
80) The conflict of interest in credit-rating agencies arises because pay to have securities rated and, as a result, the agencies' ratings may be biased
B) security issuers; upward
81) During the 2007-2009 financial crisis, housing prices began to fall and subprime mortgages began to default Which of the following statements is true about the rating of subprime mortgage products?
C) Many AAA-rated subprime products had to be downgraded over and over again until they reached junk status.
82) Since firms issuing new securities pay to have these securities rated, the credit-rating agencies have incentive to to attract more business
A) give favorable ratings
83) The Sarbanes-Oxley Act of 2002 dealt with conflicts of interest in
B) accounting firms.
84) The Global Legal Settlement of 2002 dealt with conflicts of interest in
B) investment banks.
85) Which of the following provisions of legislation to deal with conflicts of interest does not increase the flow of information
in financial markets?
D) Increasing resources available to the Securities and Exchange Commission to supervise financial markets
86) The Global Legal Settlement includes what key element?
D) All of the above.
87) China is in an early state of development, with a per capita income that is still less than , one-fifth of the per capita income in the United States
B) $10,000
Chap 8:
1) Financial crises
D) are all of the above.
2) Financial crises
E) none of the above.
3) In an advanced economy, a financial crisis can begin in several ways, including
D) all of the above.
4) What is a credit boom?
B) Essentially a lending spree on the part of banks and other financial institutions
5) The process of deleveraging refers to
A) cutbacks in lending by financial institutions.
6) When asset prices fall following a boom,
C) both A and B are correct.
7) During the 1800s, many U.S financial crises were precipitated by an increase in , often originating in London
A) interest rates
8) Stage Two of a financial crisis in an advanced economy usually involves a crisis
C) banking
9) Stage Three of a financial crisis in an advanced economy features
B) debt deflation.
10) Debt deflation refers to
D) a decline in net worth as price levels fall while debt burden remains unchanged.
11) Factors that lead to worsening conditions in financial markets include
D) all of the above.
12) Factors that lead to worsening conditions in financial markets include
C) bank panics.
13) Most financial crises in the United States have begun with
E) only A and B of the above.
14) In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by firms' and households' interest payments, thereby their cash flow
B) increasing; decreasing
15) Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as
D) a result of all of the above.
16) Stock market declines preceded a full-blown financial crisis
C) in the United States in 1929.
17) Which of the following factors led up to the Greece debt crisis in 2009-2010?
E) only B and C of the above
18) What is a collateralized debt obligation?
A) A tranche of an SPV that has been setup based on default risk
19) Which of the following led to the U.S financial crisis of 2007-2009?
E) only A and B of the above
20) Approximately how large was the U.S subprime mortgage market in 2007?
D) $1 trillion
21) When we refer to the shadow banking system, what are we talking about?
Trang 2D) all of the above.
Chap 9:
1) Americans' fear of centralized power and their distrust of moneyed interests explain why the U.S did not have a central
bank until the
D) 20th century.
2) Bank panics in 1819, 1837, 1857, 1873, 1884, 1893, and 1907 convinced many that
C) a central bank was needed to prevent future financial panics.
3) The unusual structure of the Federal Reserve System is perhaps best explained by
E) only A and B of the above.
4) The traditional American distrust of moneyed interests and the fear of centralized power help to explain
D) all of the above.
5) The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the
American public finally became convinced that
D) a central bank was needed to prevent future panics.
6) Nationwide financial panics in 1873, 1884, 1893, and 1907 might have been avoided had
B) the Second Bank of the United States not been abolished in 1836 by President Andrew Jackson.
7) The many regional Federal Reserve banks resulted from a compromise between parties favoring
B) a private central bank and those favoring a government institution.
8) Which of the following is an element of the Federal Reserve System?
E) Only A and B of the above
9) Which of the following is an element of the Federal Reserve System?
D) All of the above
10) Which of the following is not an entity of the Federal Reserve System?
B) The FDIC
11) Which of the following functions are not performed by any of the twelve regional Federal Reserve banks?
C) Setting interest rates payable on time deposits
12) Which Federal Reserve Bank president always has a vote in the Federal Open Market Committee?
B) New York
13) Each Fed bank president attends FOMC meetings; although only Fed bank presidents vote on policy, all
provide input
D) five; twelve
14) The Fed bank, with about 25 percent of the system's assets, is the most important of the Federal Reserve
banks
D) New York
15) Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited to
C) six percent annually.
16) All are required to be members of the Fed
B) nationally chartered banks
17) Which of the following banks are required to be members of the Federal Reserve System?
D) None of the above
18) Of all commercial banks, about percent belong to the Federal Reserve System
C) 33
19) Banks subject to reserve requirements set by the Federal Reserve System include
E) all banks whether or not they are members of the Federal Reserve System.
20) The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from
its
A) concern over declining Fed membership.
21) Which of the following are duties of the Board of Governors of the Federal Reserve System?
A) Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash.
22) Which of the following are not duties of the Board of Governors of the Federal Reserve System?
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
23) The chairman of the Board of Governors of the Federal Reserve System exercises a high degree of control over the
board
E) because of only A and B of the above.
C) appointed by the president of the United States and confirmed by the Senate as members resign.
25) Each member of the seven-member Board of Governors is appointed by the president and confirmed by the Senate to
serve
C) 14-year terms.
26) The Board of Governors
D) does all of the above.
27) Although neither nor the is officially set by the Federal Open Market Committee, decisions
concerning these policy tools are effectively made by the committee
C) reserve requirements; discount rate
28) Although the Federal Open Market Committee does not have formal authority to set and the , it
does possess the authority in practice
C) reserve requirements; discount rate
29) Which of the following are true statements?
D) All of the above are true statements see chart on p.185
30) The Federal Open Market Committee consists of
C) the seven members of the Board of Governors and five presidents of the regional Fed banks.
31) The Federal Reserve entity that determines monetary policy strategy is the
B) Federal Open Market Committee.
32) Which of the following are true statements?
E) Only A and B of the above are true statements see chart on p.185
33) The designers of the Federal Reserve Act meant to create a central bank characterized by its
A) system of checks and balances and decentralization of power.
34) The power within the Federal Reserve was effectively transferred to the Board of Governors by
A) the banking legislation of the Great Depression.
35) Factors that provide the Federal Reserve with a high degree of independence include
E) only A and B of the above.
36) Federal Reserve independence is thought to
C) introduce longer-run considerations to monetary policymaking.
37) Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to
C) propose legislation that would force the Fed to submit budget requests to Congress, as must other government
agencies.
38) Although it enjoys a high degree of autonomy, the Fed is still subject to the influence of Congress because
A) Congress can pass legislation that would restrict the Fed's independence.
39) According to the textbook authors, the Fed is
D) both A and C of the above.
40) According to the textbook authors,
D) both A and B of the above.
41) The oldest central bank, founded in 1694, is the
A) Bank of England.
42) The newest central bank, which began operations in January 1999, is the
A) European Central Bank.
43) Which of the following central banks has the greatest degree of independence?
B) European Central Bank
44) A trend in recent years is that more and more governments
A) have been granting greater independence to their central banks.
45) The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize
B) its own welfare.
46) The theory of bureaucratic behavior suggests that the Federal Reserve will
D) do all of the above.
47) According to the theory of bureaucratic behavior, the objective of bureaucracy is
A) to maximize its own welfare, meaning that it seeks additional power and prestige.
48) According to the theory of bureaucratic behavior,
D) all of the above describe bureaucratic behavior.
49) The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed
E) only A and B of the above.
50) The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed
B) is secretive about the conduct of future monetary policy.
51) The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political
pressures would impart
A) an inflationary bias to monetary policy.
52) Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political
process can
D) cause both A and C of the above to occur.
53) The case for Federal Reserve independence includes the idea that
D) all of the above.
54) The case for Federal Reserve independence includes the idea that
D) only A and B of the above.
55) The case for Federal Reserve independence does not include the idea that
C) policy is always performed better by an elite group such as the Fed.
56) The case for Federal Reserve independence does not include the idea that
B) the principal-agent problem is perhaps worse for the Fed than for congressmen since the former does not answer
to the voters on election day
57) Advocates of Fed independence fear that subjecting the Fed to direct presidential or congressional control would
D) do all of the above.
E) do only A and B of the above.
59) Supporters of the current system of Fed independence believe that a less autonomous Fed would
D) do only B and C of the above.
60) Critics of the current system of Fed independence contend that
A) the current system is undemocratic.
61) Critics of Fed independence argue
A) that it is undemocratic to have monetary policy controlled by an elite group responsible to no one.
62) Critics of Fed independence argue
D) all of the above.
63) Instrument independence means the central bank is free from
A) political pressure regarding how it uses the tools of monetary policy.
64) Suppose legislation requiring the Fed to keep the inflation rate between 1.5% and 2.5% per year is passed by Congress This law restricts the Fed's
B) goal independence.
65) Cross-country evidence suggests that an increase in central bank independence results in a inflation rate and unemployment
B) lower; no worse
66) The Board of Governors of the Federal Reserve System
A) appoint three directors to each Federal Reserve Bank.
67) The Federal Advisory Council has member(s) from each district
A) one
68) The three largest Federal Reserve banks in terms of assets are those of New York, Chicago, and
D) San Francisco.
69) The directors of a district bank are classified into three categories: A, B, and C The three B directors are
B) prominent leaders from industry, labor, agriculture, or the consumer sector
70) The 12 Federal Reserve banks are involved in monetary policy in which of the following ways?
D) all of the above.
71) The of the Board of Governors is the spokesperson for the Fed
A) chairman
72) Currently, there are countries that are members of the European Monetary Union
B) 17
Chap 10:
1) Assets on the Fed's balance sheet include
C) government securities and discount loans.
2) The monetary base consists of
A) currency in circulation and reserves.
3) An open market purchase of securities by the Fed will
D) have no effect on assets of the nonbank public but increase assets of the Fed.
4) An open market sale of securities by the Fed will
A) decrease liabilities of the Fed and not affect assets of the banking system.
5) If the Federal Reserve wants to expand reserves in the banking system, it will
A) purchase government securities.
6) If the Federal Reserve wants to lower the monetary base and the money supply, it will
C) sell government securities.
7) A discount loan by the Fed to a bank causes a(n) in reserves in the banking system and a(n) in the monetary base
D) increase; increase
8) When a bank repays a discount loan to the Fed, there is a(n) in reserves in the banking system and a(n) in the monetary base
B) decrease; decrease
9) The federal funds rate is
C) the interest rate on loans of reserves from one bank to another.
10) The discount rate is
A) the interest rate on loans from the Fed to a bank.
11) Holding everything else constant, if the federal funds rate rises, then the demand for
B) excess reserves falls because they have a higher cost.
12) Holding everything else constant, if the federal funds rate falls, then the demand for
B) excess reserves rises because they have a lower cost.
13) Bank reserves can be categorized as
D) all of the above.
14) An open market purchase
A) shifts the supply curve for reserves to the right and causes the federal funds rate to fall.
15) The supply curve for reserves is when the federal funds rate is below the discount rate and when the federal funds rate is above the discount rate
C) vertical; horizontal
16) The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed
C) does an open market sale.
17) The demand curve for reserves shifts to the left and the federal funds rate falls when the Fed
D) decreases reserves requirements.
18) Under usual circumstances, an increase in the discount rate causes
C) no change in the federal funds rate most changes in the discount rate have no effect on the fed funds rate.
19) If the Fed increases reserve requirements, the demand for reserves and the equilibrium federal funds rate
D) increases; rises p 211
20) The actual execution of open market operations is done at
B) the Federal Reserve Bank of New York.
21) During 2007 as the global financial crisis started, the Fed implemented several new lending programs to increase liquidity, including
E) A, B, and C, are all correct.
22) During QE1, the Fed purchased
A) $1.25 trillion in mortgage-backed securities
23) During QE2, the Fed purchased
B) $600 billion in long-term Treasury securities
24) During QE3, the Fed purchased
C) $40 billion in mortgage-backed securities and $45 billion in long-term Treasuries (to start)
25) The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of
C) New York.
26) An open market transaction intended to change the level of bank reserves is a
C) dynamic operation.
27) If the Federal Reserve wants to drain reserves from the banking system, it will
C) sell government securities.
28) The Federal Reserve will engage in an outright purchase if it wants to reserves in the banking system
A) increase; permanently
29) If the Fed wants to temporarily drain reserves from the banking system, it will engage in
B) a matched sale-purchase transaction.
30) The Federal Reserve will engage in a matched sale-purchase transaction when it wants to reserves in the banking system
C) decrease; temporarily
31) Discount loans to banks experiencing severe liquidity problems are called
B) secondary credit.
32) Discount loans to healthy banks, who may borrow as much as they wish from the Fed, are called
A) primary credit.
33) Disadvantages of using reserve requirements to control the money supply include
A) their overly-powerful impact on the money supply.
34) The Fed is reluctant to use reserve requirements to control the money supply because
D) of all of the above.
35) When the Federal Reserve was created, its most important role was intended to be
B) a lender of last resort.
36) At its inception, the Federal Reserve was intended to be
C) a lender of last resort.
37) Price stability is desirable because
A) inflation creates uncertainty, making it difficult to plan for the future.
38) The Federal Reserve desires interest rate stability because
D) both A and B of the above.
39) When workers voluntarily quit a job or decline a job offer so they can search for a better one, the resulting unemployment is called
B) frictional unemployment.
40) When there is a mismatch between job requirements and the skills of available workers, the resulting unemployment is called
A) structural unemployment.
41) The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor Economists call this level of unemployment the
C) natural rate of unemployment.
42) Although the goals of high employment and economic growth are closely related, policies can be specifically aimed at encouraging economic growth by
C) both A and B of the above.
Trang 3encouraging economic growth by
A) encouraging firms to invest and people to save.
44) The Fed's monetary policy strategy can be described as follows:
B) The Fed uses its policy tools to adjust operating targets that directly impact its intermediate targets in a way that
allows the Fed to achieve its goals
45) If the Fed's strategy for conducting monetary policy is thought of as a game plan that proceeds in stages, then the
game plan can be summarized as follows:
A) The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then
the operating targets consistent with its intermediate targets Finally, it adjusts its policy tools to effect the desired
targets and goals.
46) An advantage of an intermediate targeting strategy is that it provides the Fed with
A) more timely information regarding the effect of monetary policy.
47) Which of the following is not a requirement in selecting an intermediate target?
C) Flexibility
48) Which of the following is a potential operating target for the Fed?
A) The monetary base
49) Which of the following is a potential operating target for the Fed?
D) All of the above
50) Which of the following is not an operating target?
D) Discount rate
51) When it comes to choosing an operating target, both the rate and aggregates are easily
controllable using the Fed's policy tools
B) federal funds; reserve
52) If the desired intermediate target is an interest rate, then the preferred operating target will be a(n) variable
like the
B) interest rate; federal funds rate
53) If the desired intermediate target is a monetary aggregate, then the preferred operating target will be a(n)
variable like the
C) reserve aggregate; monetary base
54) If the Fed uses nonborrowed reserves, a reserve aggregate, as a target, fluctuations in the reserves demand curve will
cause to fluctuate
B) the federal funds interest rate
55) If the Fed uses nonborrowed reserves, a reserve aggregate, as a target, an increase in the demand for reserves will
result in a(n) in
C) increase; the federal funds interest rate
56) If the Fed uses the federal funds rate as an interest rate target, fluctuations in the reserves demand curve will cause
to fluctuate
A) nonborrowed reserves
57) If the Fed uses the federal funds rate as an interest rate target, an increase in the demand for reserves will result in a(n)
in
A) increase; nonborrowed reserves
58) Under inflation targeting, a central bank must pursue policies that
C) keep the inflation rate within a specific target range.
59) The first country to mandate that its central bank adopt inflation targeting was
D) New Zealand.
60) Banks' holding of deposits in accounts with the Fed, plus currency that is physically held in banks are called
D) reserves.
61) An open market leads to a(n) of reserves and deposits in the banking system and hence to a(n)
of the monetary base and the money supply
D) purchase; expansion; expansion
62) Regulations making it obligatory for depository institutions to keep a certain fraction of their deposits in accounts with
the Fed are
D) reserve requirements.
63) Which type of open market operation is intended to change the level of reserves?
C) Dynamic open market operations
64) The type of open market operation intended to offset movements in other factors that affect reserves and the monetary
base is
B) the defensive open market operations.
65) What goals are continually mentioned by central bank officials when discussing the objectives of monetary policy?
C) Interest-rate stability
66) Which of the following statements is correct, concerning price stability as a monetary goal?
D) Both A and B are correct.
67) Which of the following statements is correct, concerning price stability as a monetary goal?
C) Neither A nor B is true.
68) The Bank of England, as well as the ECB, put price stability first among all goals This is known as a
A) hierarchical mandate
69) The Fed puts price stability along with maximum employment as its primary goals This is known as a
B) dual mandate
70) Hierarchical mandates can cause a problem that Mervyn King, Governor of the Bank of England, refers to as an
"inflation nutter," that can lead to large
B) output fluctuations
71) Inflation targeting involves
A) a public announcement of medium-term numerical targets for inflation.
72) During the 2007-2009 financial crisis, what actions did the Fed take to limit the scope of the crisis?
D) all of the above.
73) Which of the following statements is true regarding the Fed's procedures for operating the discount window?
A) The Fed's operating procedures and paying interest on reserves contains the federal funds rate between the
interest rate paid on reserves and the discount rate.
74) Which of the following statements is true?
A) Credit-driven asset bubbles are particularly dangerous When asset prices fall, the deleveraging of credit
markets reduces economic activity.
75) If the Fed wants to "prick" an asset-pricing bubble driven by a credit boom, what is the primary tool for accomplishing
this?
A) Raising interest rates
76) In response to an asset-price bubble, macroprudential regulation appears to be the right tool What is macroprudential
regulation?
C) Regulatory policy to affect what is happening in credit markets in the aggregate
77) As of June 2013, the consolidated balance sheet of the Federal Reserve System included about in assets
A) $3.5 trillion
Chap 17:
1/If you are a banker and expect interest rates to rise in the future, would you want to make short-term or long term loans
short-term-can reprise loans, let loans mature and make the loans at higher prices
If a bank is falling short of meeting its capital requirements by $1 million, what three things can it do to rectify the situation?
issue new stock
cut dividends
increase assest
which of the following are reported as liabilities on a bank's balance sheet?
reserves
check-able deposits
loans
deposits with other banks
check-able deposits
Bank loans from the federal reserve are called and represent a of funds
discount loans; source
which of the following are reported as assets on bank's balance sheet?
discount loans from the Fed
loans
borrowings
only A and B of the above
loans
the most important category of assets on a bank's balance sheet is
loans
which of the following bank assets are the least liquid
reserves?
mortgage loans
cash items in process of collection
deposits with other banks
mortgage loans
which of the following bank assets are most liquid?
consumer loans
reserves
cash items in process of collection
U.S government securities
reserves
total assets=
total liabilities + capital
liabilities
uses checkable deposits
accounts that allow the owner to write checks to third parties nontransaction deposits
primary source of bank liabilities and are accounts from which the depositor cannot write checks borrowings
funds from the fed, other banks and corporations bank capital
the source of funds supplied by the bank owners reserves
funds held in account with the Fed required reserves
what is required by law under current required reserves ratios excess reserves
reserves beyond the required reserves ratio cash items in process of collection
funds from other bank not yet transferred deposits at other banks
small banks deposits at large banks Assets
cash items in process of collection reserves
required reserves excess reserves securities loans other assets secondary reserves
short-term treasury debt asset transformation
when a bank takes your savings deposits and uses the funds to make, say, a mortgage loan
4 primary concerns of banks
liquidity management asset management liability management managing capital adequacy asset management
the attempt to earn the highest possible return on assets while minimizing the risk liabilities management
managing the source of funds, from deposits, to CD's, to other debt too much capital
sell stock increase dividends increase asset growth
to little capital
issue stock decrease dividends slow asset growth off balance sheet activities
loan sales fee income trade activities Chap 18:
1) During the boom years of the 1920s, bank failures were quite
C) common, averaging about 600 per year.
2) When one party to a transaction has incentives to engage in activities detrimental to the other party, there exists a problem of
A) moral hazard.
3) Moral hazard is an important consequence of insurance arrangements because the existence of insurance
E) does both B and C of the above
A) provides increased incentives for risk taking
4) The existence of deposit insurance can increase the likelihood that depositors will need deposit protection, as banks with deposit insurance
A) are likely to take on greater risks than they otherwise would.
5) Although the FDIC was created to prevent bank failures, its existence encourages banks to
A) take too much risk.
6) When bad drivers line up to purchase collision insurance, automobile insurers are subject to the
B) adverse selection problem.
7) Deposit insurance
D) does all of the above.
8) The possibility that the failure of one bank can hasten the failure of other banks is called the
C) contagion effect.
9) If the FDIC decides that a bank is too big to fail, it will use the method, effectively ensuring that depositors will suffer losses
D) purchase and assumption; no
10) If the FDIC uses the purchase and assumption method to handle a failed bank,
C) all deposits will be paid in full.
11) One problem of the too-big-to-fail policy is that it the incentives for by big banks
B) increases; moral hazard by big banks
12) The result of the too-big-to-fail policy is that banks will take on risks, making bank failures more likely
D) large; greater
13) The too-big-to-fail policy
D) does only A and C of the above.
14) Which of the following solutions have been proposed to solve the too-big-to-fail problem?
D) All of the above have been proposed.
15) Some view that Dodd-Frank eliminated the too-big-to-fail problem How did it achieve this?
A) By making it harder for the Federal Reserve to bail out financial institutions
16) The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is that the FDIC
B) guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method.
17) The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is that the FDIC
E) does both B and C of the above.
18) Regulators attempt to reduce the riskiness of banks' asset portfolios by
E) doing only A and B of the above.
19) One way for bank regulators to assure depositors that a bank is not taking on too much risk is to require the bank to
A) diversify its loan portfolio.
20) Banks do not want to hold too much capital because
E) only A and B of the above.
21) When regulators engage in microprudential regulation, they focus on
A) the safety and soundness of individual financial institutions
22) When regulators engage in macroprudential regulation, they focus on
C) the safety and soundness of the financial system in aggregate
23) The increased integration of financial markets across countries and the need to make the playing field equal for banks from different countries led to the Basel Accord agreement to
24) Under the Basel plan,
C) both of the above occur.
25) Of the following assets, the one which has the highest capital requirement under the Basel Accord is
C) commercial paper.
26) Which of the following is not true regarding the Basel 2 proposal to reform the original 1988 Basel Accord?
D) It has been well received by banks and national regulatory agencies.
27) Ways in which bank regulations reduce the adverse selection and moral hazard problems in banking include
D) all of the above.
28) The chartering process is especially designed to deal with the problem, and regular bank examinations help
to reduce the problem
B) adverse selection; moral hazard
29) The chartering process is especially designed to deal with the problem, and restrictions on asset holdings help to reduce the problem
B) adverse selection; moral hazard
30) 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
B) adverse selection
31) 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
D) reduce; discouraged
32) The legislation that separated commercial banking from the securities industry is known as the
C) Glass-Steagall Act
Trang 4A) approved NOW accounts nationwide.
34) The Depository Institutions Deregulation and Monetary Control Act of 1980
D) did all of the above.
35) 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 allowed
C) money market deposit accounts.
36) An impact of the Garn-St Germain Act of 1982 has been to
B) make the banking system more competitive.
37) Moral hazard and adverse selection problems increased in prominence in the 1980s
D) because of all of the above.
38) Moral hazard and adverse selection problems increased in prominence in the 1980s
E) because of only A and B of the above.
39) The Federal Deposit Insurance Corporation Improvement Act of 1991
D) did only A and B of the above.
40) The Federal Deposit Insurance Corporation Improvement Act of 1991
E) did only A and C of the above.
41) The Federal Deposit Insurance Corporation Improvement Act of 1991
D) did all of the above.
42) The Federal Deposit Insurance Corporation Improvement Act of 1991
A) instructed the FDIC to come up with risk-based deposit insurance premiums.
43) What is the primary argument for not giving depositors greater incentive to monitor financial institutions?
C) Both A and B are correct.
44) Which of the following is least likely to accompany financial consolidation and the development of large, complex
banking organizations?
C) Moral hazard problems will become less important.
45) What accounts for the problems facing China's four largest banks?
A) Large loans to inefficient, state-owned enterprises
46) World Bank research on the effects of deposit insurance concludes that
B) adoption of explicit government deposit insurance is associated with a higher incidence of banking crises.
47) Just prior to the global financial crisis, mortgage loans known as NINJA loans were issued to borrowers What is a
NINJA loan?
C) A loan issued to borrowers with no income, employment, nor assets to speak of.
48) Which of the following categories is not part of the Dodd-Frank legislation of 2010?
A) capital requirements
49) In an effort to control the use of derivatives by financial institutions, the Dodd-Frank legislation of 2010 requires
A) standardized derivatives products
50) An SIV, or structured investment vehicle, is an off-balance-sheet entity that shields a sponsoring institution from risk
What happened to some of these SIVs when they ran into financial problems?
D) Troubled SIVs became an asset of the sponsoring institution — the off-balance-sheet status was meaningless.
51) What role did the credit-rating agencies play leading up to the start of the financial crisis in 2007?
A) Inaccurate ratings provided by credit-rating agencies helped promote risk taking throughout the
Chap 19:
1) The modern commercial banking system began in America when the
B) Bank of North America was chartered in Philadelphia in 1782.
2) A major controversy involving the U.S banking industry in its early years was
B) whether the federal government or the states should charter banks.
3) The government institution that has responsibility for the amount of money and credit supplied in the economy as a
whole is the
A) central bank.
4) Because of the abuses by state banks and the clear need for a central bank to help the federal government raise funds
during the War of 1812, Congress created the
C) Second Bank of the United States in 1816.
5) The Second Bank of the United States was denied a new charter by
A) President Andrew Jackson.
6) Before 1863,
C) banks acquired funds by issuing banknotes.
7) Before 1863,
D) none of the above occurred.
8) Although federal banking legislation in the 1860s attempted to eliminate state-chartered banks by imposing a prohibitive
tax on banknotes, these banks have been able to stay in business by
C) issuing deposits.
9) The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the
passage of
C) the National Bank Act of 1863.
10) To eliminate the abuses of the state-chartered banks, the created a new banking system of federally
chartered banks, supervised by the
A) National Banking Act of 1863; Office of the Comptroller of the Currency
11) The National Banking Act of 1863, and subsequent amendments to it,
E) did only A and B of the above.
12) 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
D) dual banking system.
13) Today the United States has a dual banking system in which banks supervised by the and by the
operate side by side
C) federal government; states
14) The Federal Reserve Act of 1913 required that
C) national banks join the Federal Reserve System.
15) The Federal Reserve Act required all banks to become members of the Federal Reserve System, while
banks could choose to become members of the system
C) national; state
16) With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System
to purchase FDIC insurance for their depositors, while nonmember commercial banks to buy deposit
insurance
C) were required; could choose
17) With the creation of the Federal Deposit Insurance Corporation,
B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while
nonmember commercial banks could choose to buy deposit insurance
18) Investment banking activities of the commercial banks were blamed for many bank failures This led to
D) the passage of the Glass-Steagall Act of 1933.
19) The Glass-Steagall Act prohibited commercial banks from
B) engaging in underwriting of and dealing in corporate securities.
20) Which bank regulatory agency has the sole regulatory authority over bank holding companies?
D) The Federal Reserve System
21) State banks that are not members of the Federal Reserve System are most likely to be examined by the
B) Federal Deposit Insurance Corporation.
22) Which regulatory body charters national banks?
C) The Comptroller of the Currency
23) Which of the following statements concerning bank regulation in the United States is true?
D) All of the above are true.
24) Which of the following statements concerning bank regulation in the United States are true?
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are
members of the Federal Reserve System.
25) Which of the following are important factors in determining the degree and timing of financial innovation?
D) All of the above
26) New computer technology has
C) reduced the cost of financial innovation.
27) Rising interest-rate risk the financial innovation
B) increased; demand for
28) Large fluctuations in interest rates lead to
D) all of the above.
29) In the 1950s, the interest rate on month Treasury bills fluctuated between 1.0% and 3.5% In the 1980s, the
three-month Treasury bill rate ranged from 5% to over 15% From this, one could predict that in the 1980s interest-rate risk was
and the demand for financial innovation was
B) greater; greater
30) The most significant change in the economic environment that changed the demand for financial products since 1970
has been
B) the dramatic increase in the volatility of interest rates.
31) Adjustable-rate mortgages
E) do none of the above
32) Adjustable-rate mortgages
D) do only A and B of the above.
33) The most important source of the changes in supply conditions that stimulate financial innovation has been the
C) improvement in information technology.
34) Examples of financial services that became practical realities as the result of new computer technology include
E) only A and B of the above.
35) Credit cards date back to
A) prior to World War II.
36) A firm issuing credit cards earns income from
E) only A and B of the above.
B) the rising profitability of credit card operations.
38) A smart card is a form of
A) stored-value card.
39) Which of the following is not a financial innovation stimulated by information technology?
C) Adjustable-rate mortgage
40) Which of the following is an example of a financial innovation introduced to avoid regulations?
D) Sweep account
41) "Stripping" a Treasury bond
A) means selling each of its future payments as a separate zero-coupon bond.
42) So-called fallen angels differ from junk bonds in that
C) junk bonds refer to newly issued bonds with low credit ratings.
43) So-called fallen angels differ from junk bonds in that
A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds which have had their credit ratings fall below Baa.
44) High-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as
D) junk bonds
45) In 1977, pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status
A) Michael Milken
46) The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as
C) securitization
47) The driving force behind the securitization of mortgages and automobile loans has been
C) the improvement in computer technology.
48) The bundling of mortgages into a saleable security (usually for large institutional investors) is called
E) securitization
49) In the usual GNMA pass-through security, the has direct ownership of a pro-rata share of the portfolio of mortgage loans
B) buyer
50) Bank managers look on reserve requirements as a
A) tax on deposits.
51) Checking accounts that earn interest (such as NOW accounts) were not available until
B) 1972
52) Burdensome regulations, along with inflation and rising interest rates, help to explain
A) the rapid pace of financial innovations in banking in the 1960s and 1970s.
53) The Federal Reserve's Regulation Q
A) set maximum interest rates banks could pay on deposits.
54) When disintermediation occurs, the banking system deposits and bank lending
D) loses; decreases (p.459)
55) Which of the following is not a reason for the disappointing revenue growth and profits of Internet-only banks?
A) High cost per transaction
56) It now appears that the predominant delivery system for banking services in the future will be
C) traditional banks supplemented with online services.
57) The growing use and proliferation of ATMs has been stimulated by
D) all of the above.
58) Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around percent of total credit advanced to near percent by 2012
B) 40; 22
59) Thrift institutions' importance as a source of funds for borrowers
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today.
60) Since the late 1970s, thrift institutions' importance as a source of funds for borrowers has shrunk markedly, from above percent of total credit advanced to below percent today
D) 20; 10
61) Bank failures and mergers have caused the number of commercial banks in the U.S to decline from around
in the 1970s to below today
B) 15,000; 8,000
62) The traditional financial intermediation role of banking has been to make -term loans and to fund them with -term deposits
B) long; short
63) The process in which people seeking higher interest rates take their money out of financial institutions is called
C) disintermediation
64) One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over percent of banks' source of funds to percent today
B) 60; 5
65) The most important developments that have reduced banks' cost advantages in the past twenty years include
E) only A and B of the above.
66) The most important developments that have reduced banks' cost advantages in the past twenty years include
B) the competition from money market mutual funds.
67) The most important developments that have reduced banks' income advantages in the past twenty years include
D) all of the above.
68) The most important developments that have reduced banks' income advantages in the past twenty years include
E) only A and B of the above.
69) One factor contributing to the decline in income advantages that banks once had is the increased competition from the commercial paper market, which has grown in size to over percent of commercial and industrial bank loans today
B) 30
70) Rising market interest rates in the 1960s and the 1970s, combined with regulated deposit rate ceilings,
D) did all of the above.
71) The presence of so many commercial banks in the United States is most likely the result of
C) regulations that restrict the ability of banks to open branches.
72) The McFadden Act of 1927
A) effectively prohibited banks from branching across state lines.
73) The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branching regulations of the state in which they reside is the
A) McFadden Act.
74) Which of the following is an advantage of forming a bank holding company?
C) Both A and B of the above.
75) Which of the following are true statements concerning bank holding companies?
E) Only A and B of the above are true.
76) As a result of shared electronic banking facilities,
A) barriers to branching have become less burdensome.
77) The McFadden Act's prohibition against interstate branching
D) did all of the above.
78) A bank with a large credit-card customer base can market other financial products to these customers at a low cost This is an example of
B) economies of scope.
79) As a result of restrictive banking regulations, the United States
C) has too many banks when compared to other industrialized countries.
80) Which of the following is not expected to result from bank consolidation in the U.S.?
A) The disappearance of small community banks.
81) The legislation that separated investment banking from commercial banking was the
C) Glass-Steagall Act.
82) The prohibition against banks underwriting corporate securities and engaging in brokerage, real estate, and insurance activities was repealed by the
A) Gramm-Leach-Bliley Financial Services Modernization Act.
83) The Riegle-Neal Act of 1994
D) overturned prohibitions on interstate banking and branching.
84) In recent years, commercial banks have been allowed to
D) do all of the above.
85) In a banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity
A) universal
86) In a banking system, commercial banks engage in securities underwriting, but separate subsidiaries conduct the different activities Also, banking and insurance are not typically undertaken together in this system
B) British-style universal
87) A major difference between the United States and Japanese banking systems is that
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot.
88) Major differences between the United States and Japanese banking systems include:
E) both B and C of the above.
89) Which of the following is a reason for the rapid expansion of international banking?
D) All of the above
90) Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks has been
A) reduced
91) A special subsidiary of a U.S bank that is engaged in international banking is called
C) an Edge Act corporation.
Trang 5A) dollar-denominated deposits held in banks outside the United States.