ECO 4223 Money & Banking Exam 2 Chapters 5,
6, 13, 14, 15 Latest Update 2025-2026 Exam 100
Questions with 100% Verified Correct Answers
Guaranteed A+
3 imperial fact of Yield Curve - CORRECT ANSWER: 1) Interest rate on Bond move
together. (If one is going up, they are all going up)
2) If Short-Term Interest rate are low (Normal Yield Curve).
If Short-Term Interest rate are High (Inverted Yield Curve)
3) Yield Curve slope upward 90% of the time (Normal Yield Curve)
3 Theories that explain the 3 Facts. - CORRECT ANSWER: 1) Expectation Theory
2) Segmented Market Theory
3) Liquidity Premium Theory
Adverse Selection - CORRECT ANSWER: Those who are MOST EAGER to make a
deal is less desirable. (The person that needs the loan the most is the most risky
borrower)
Adverse selection affects: - CORRECT ANSWER: Both Bonds & Stocks
Asymmetric Information - CORRECT ANSWER: Information possessed by one party in
a financial transaction but not by the other party.
Bank 2) Collateral & Net Worth - CORRECT ANSWER: A valuable asset that is pledged
to ensure loan payments.
, 1) Reduce the loss if default
2) Reduce the risk of default
Bank 3) Covenant & Monitoring - CORRECT ANSWER: Restriction on the borrower to
reduce default risk such as requiring a Compensating balance.
Bank 4) Interest Rate - CORRECT ANSWER: Safer borrower pay less Interest rate.
Bank may also chose to Credit Rationing.
Bank Charter - CORRECT ANSWER: An operating license issued to a bank by the
federal government or a state government; required for a commercial bank to do
business.
Bank Mergers - CORRECT ANSWER: Reduce the numbers of banks and increase the
average size of bank.
Banks 1) Screening Borrowers - CORRECT ANSWER: Used to reduce Adverse
Selection. The free-rider problem is reduced because the Bank is the only one
benefiting from the information. The Bank also has the benefit of economy of scale.
Board of Director (F.E.D) - CORRECT ANSWER: Each bank has 9 members that serve
on its board. 6 elected by the banks and 3 elected by the Board of Governor.
Board of Governors - CORRECT ANSWER: Appointed by the President of the U.S.A
and confirmed by Congress, It is a seven-member committee that controls the Federal
Reserve System. Also called the Federal Reserve Board, or the Fed.
Bond Rating Agency - CORRECT ANSWER: Agencies that assess the "credit
worthiness" of an organization (Default Risk). The two major rating agencies are
Moody's and Standard & Poor.
6, 13, 14, 15 Latest Update 2025-2026 Exam 100
Questions with 100% Verified Correct Answers
Guaranteed A+
3 imperial fact of Yield Curve - CORRECT ANSWER: 1) Interest rate on Bond move
together. (If one is going up, they are all going up)
2) If Short-Term Interest rate are low (Normal Yield Curve).
If Short-Term Interest rate are High (Inverted Yield Curve)
3) Yield Curve slope upward 90% of the time (Normal Yield Curve)
3 Theories that explain the 3 Facts. - CORRECT ANSWER: 1) Expectation Theory
2) Segmented Market Theory
3) Liquidity Premium Theory
Adverse Selection - CORRECT ANSWER: Those who are MOST EAGER to make a
deal is less desirable. (The person that needs the loan the most is the most risky
borrower)
Adverse selection affects: - CORRECT ANSWER: Both Bonds & Stocks
Asymmetric Information - CORRECT ANSWER: Information possessed by one party in
a financial transaction but not by the other party.
Bank 2) Collateral & Net Worth - CORRECT ANSWER: A valuable asset that is pledged
to ensure loan payments.
, 1) Reduce the loss if default
2) Reduce the risk of default
Bank 3) Covenant & Monitoring - CORRECT ANSWER: Restriction on the borrower to
reduce default risk such as requiring a Compensating balance.
Bank 4) Interest Rate - CORRECT ANSWER: Safer borrower pay less Interest rate.
Bank may also chose to Credit Rationing.
Bank Charter - CORRECT ANSWER: An operating license issued to a bank by the
federal government or a state government; required for a commercial bank to do
business.
Bank Mergers - CORRECT ANSWER: Reduce the numbers of banks and increase the
average size of bank.
Banks 1) Screening Borrowers - CORRECT ANSWER: Used to reduce Adverse
Selection. The free-rider problem is reduced because the Bank is the only one
benefiting from the information. The Bank also has the benefit of economy of scale.
Board of Director (F.E.D) - CORRECT ANSWER: Each bank has 9 members that serve
on its board. 6 elected by the banks and 3 elected by the Board of Governor.
Board of Governors - CORRECT ANSWER: Appointed by the President of the U.S.A
and confirmed by Congress, It is a seven-member committee that controls the Federal
Reserve System. Also called the Federal Reserve Board, or the Fed.
Bond Rating Agency - CORRECT ANSWER: Agencies that assess the "credit
worthiness" of an organization (Default Risk). The two major rating agencies are
Moody's and Standard & Poor.
