Monetary Economics (ECS3701) Examination Questions and Answers 2023

when one part to a transaction knows more than another, the situation is one of - -asymmetric information -when people or firms that are worse than average risks are most likely to enter a contract that is offered to everyone, the problem is called - -adverse selection -a bank offers credit cards with a 25% interest rate, when its competitors' cards have just a 15% interest rate. despite the high rate, the bank finds itself losing money because many of its customers fail to repay the balances on their cards. the bank's losses are most likely to have occurred because of - -adverse selection -a legally enforced part of a loan contract that requires the borrower to act in a certain way or to use the borrowed funds for a particular purpose is known as - -a covenant -which of the following is the main reason behind the financial crisis of 2008 - -banks in the U.S. made subprime mortgage loans -accounting rules require that a bank's ______ equals its ______ - -liabilities; assets minus equity capital -the market in which banks with excess reserves lend them to banks that desire additional reserves risk known as the _____ market - -federal funds -a bank's net interest spread equals - -the average interest rate on the bank's assets minus the average interest rate on its liabilites -when a bank run spreads from one bank to another, it is said to be - -contagion -the law that allowed banks to engage in investment banking was the - -Gramm-Leach-Bliley Act -the government provides deposit insurance through the - -FDIC -which of the following is true of the Dodd-Frank Wall Street Reform and Consumer Protection Act - -under the Dodd-Frank Act banking regulators increased the capital and liquidity requirements for banks and other financial institutions -the United States has a dual banking system, which means that a bank - -may choose whether to be chartered by federal government authorities or by a state government -in the CAMELS rating system, which is used to assess the health of the banks, the letter A stands for - -asset quality