Exam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1 Depositors lack of information about the quality of bank assets can lead to 1 A bank booms B sequencing C bank panics D asset transformation 2 Although the FDIC was created to prevent bank failures its existence encourages banks to 2 A take too much risk B hold too much capital C buy too much stock D open too many branches 3 The existence of deposit insurance can increase the likelihood that depositors will need deposit protection as banks with deposit insurance 3 A are likely to take on greater risks than they otherwise would B are placed at a competitive disadvantage in acquiring funds C are likely to be too conservative reducing the probability of turning a profit D are likely to regard deposits as an unattractive source of funds due to depositors demands for safety 4 If the FDIC decides that a bank is too big to fail it will use the method effectively ensuring that depositors will suffer losses 4 A payoff large B purchase and assumption no C payoff no D purchase and assumption large 5 A problem with the too big to fail policy is that it the incentives for by big banks 5 A increases moral hazard B increases adverse selection C decreases adverse selection D decreases moral hazard 6 Which investment bank filed for bankruptcy on September 15 2008 making it the largest bankruptcy filing in U S history 6 A Bear Stearns B Lehman Brothers C Merrill Lynch D Goldman Sachs 7 The growth of the subprime mortgage market led to 7 A a decrease in home ownership as investors chose other assets over housing B decreased demand for houses as the less credit worthy borrowers could not obtain residential mortgages C increased demand for houses and helped fuel the boom in housing prices D a decline in the housing industry because of higher default risk 8 Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan This created a 8 A decline in mortgage applications B call to deregulate the industry C severe adverse selection problem D decrease in the demand for houses 9 is a process of bundling together smaller loans like mortgages into standard debt securities 9 A Distribution B Debt deflation C Securitization D Origination 10 When financial intermediaries deleverage firms cannot fund investment opportunities resulting in 10 A a call for government regulation B an increased opportunity for growth C a contraction of economic activity D an economic boom 1 C 2 A 3 A 4 B 5 A 6 B 7 C 8 C 9 C 10 C
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