FIN 3100 Money and Banking Midterm 31 Questions & Answers

Question 1 In Akerlof's "lemons" model, all cars are priced based on the: Select one: a. quality of the best cars b. average quality of all cars Correct c. quality of the worst cars d. market preferences about car quality Question 2Incorrect0.00 points out of 1.00Not flaggedFlag question Question text When buyers have less information than sellers do about the quality of the product, a situation of ______ exists. Select one: a. asymmetric information 135 b. moral hazard c. seller greed Incorrect d. None of the answers are correct. Question 3Incorrect0.00 points out of 1.00Not flaggedFlag question Question text The main problem with moral hazard in the bond market is that: Select one: a. firms take excessive risks with their borrowed funds b. only risky firms will issue bonds 191 c. a firm's managers may waste money on bonuses Incorrect d. moral hazard is not a problem in the bond market Question 4Correct1.00 points out of 1.00Not flaggedFlag question Question text A Ponzi scheme is characterized by: I. an investment whose growth is financed by high returns on its investment. II. an investment whose growth is financed by new clients who give money III. an investment that relies on receiving funds from nonprofit institutions. Select one: a. I only b. II only Correct c. III only d. I, II, and III Question 5Incorrect0.00 points out of 1.00Not flaggedFlag question Question text To reduce adverse selection when selecting a stock or bond to buy, individual savers should examine a firm's: I. past earnings II. future projects III. managers Select one: a. I only pg 135 b. II only Incorrect c. III only d. I, II, and III Question 6Correct1.00 points out of 1.00Not flaggedFlag question Question text Critics of he Sarbanes-Oxley Act argue that: Select one: a. it is not far-reaching enough b. it increases bureaucracy and costs Correct c. it doesn't have enough "teeth" d. its penalties for noncompliance are too small Question 7Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Transaction costs are defined as: Select one: a. the cost of transporting goods and services for exchange b. the costs in time and money of exchange 215 c. the time spent determining a market price d. effort required to produce a good or service Incorrect Question 8Correct1.00 points out of 1.00Not flaggedFlag question Question text Money-center banks finance their lending primarily through: Select one: a. borrowing from other banks Correct b. taking deposits c. borrowing from the Federal Reserve System d. All of the answers are correct. Question 9Incorrect0.00 points out of 1.00Not flaggedFlag question Question text An institution that is owned by its depositors is called a: Select one: a. savings and loan b. commercial bank Incorrect c. credit union pg 224 d. pension fund Question 10Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Which of the following describes the services offered by the First Bank of the United States? Select one: a. was the lender of last resort b. issued a national currency c. lent money to the federal government Incorrect d. All of the answers are correct. Question 11Incorrect0.00 points out of 1.00Not flaggedFlag question Question text When banks made loans, they traditionally _______; in recent years, they have __________ the loan. Select one: a. sold the loan to another financial institution; deposited Incorrect b. kept the loans on their own books; securitized 126 c. lent money at very low rates; set high-interest rates on d. took deposits; originated Question 12Incorrect0.00 points out of 1.00Not flaggedFlag question Question text As a result of the subprime lending crisis, what happened to Frannie Mae and Freddie Mac? Select one: a. They were privatized. b. They were put into conservative ship. 236 c. They were sold to a foreign central bank. Incorrect d. The Fed seized their assets and auctioned them off. Question 13Incorrect0.00 points out of 1.00Not flaggedFlag question Question text The key factor that kept subprime foreclosures down in the early 2000s was: Select one: a. low interest rates Incorrect b. rising housing prices c. the Fed cutting short-term interest rates d. All of the answers are correct 240 Question 14Correct1.00 points out of 1.00Not flaggedFlag question Question text A bank's reserves are equal to: Select one: a. deposits at the Fed b. vault cash c. vault cash plus deposits at the Fed Correct d. saving deposits plus checkable deposits. Question 15Correct1.00 points out of 1.00Not flaggedFlag question Question text When a bank issues a letter of credit, it does all of the following except: Select one: a. allow companies to obtain higher ratings from credit rating agencies. b. provide insurance against default. c. issue commercial paper Correct d. guarantee payment on a security Question 16Correct1.00 points out of 1.00Not flaggedFlag question Question text Consider a bank with the following income statement: $100 in loans with an interest rate of 5%; $50 in security holdings, paying 10%; non-interest income of $10; $100 in savings account that have an interest rate of 2.5%; and other expenses of $15. How much profit does this bank make? Select one: a. -$5 b. $2.50 Correct c. $35 d. $20 Question 17Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Congress passed the Credit Card Accountability and Responsibility and Disclosure Act in order to: Select one: a. restrict the fees imposed on credit card users 268 b. require credit card users to reduce the use of their credit cards c. require the banks to provide credit cards to students and other customers with a low income Incorrect d. prevent banks from imposing a fee when transferring a balance from another credit card Question 18Correct1.00 points out of 1.00Not flaggedFlag question Question text When a bank ____ a loan, it removes it from its balance sheet. Select one: a. cashes in b. buys c. writes off Correct d. converts Question 19Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Holding capital constant, an increase in assets, _________ the equity ratio and ______ the bank's risk of insovlency. Select one: a. increases; decreases 186 b. increases; increases c. decreases; decreases Incorrect d. decreases; increases Question 20Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Poor information about a bank's balance sheet can lead to: Select one: a. high interest rates 255 b. a bank run c. high inflation rates Incorrect d. a bank takeover Question 21Incorrect0.00 points out of 1.00Not flaggedFlag question Question text One explanation of a bank run is: Select one: a. adaptive expectations b. self-fulfilling expectations 287 c. poor bank management Incorrect d. that rising oil prices mean depositors require more cash Question 22Incorrect0.00 points out of 1.00Not flaggedFlag question Question text The largest bank failure rate occurred during the: Select one: a. early 1930's 291 b. late 1970's Incorrect c. early 1890's d. mid-2000's Question 23Correct1.00 points out of 1.00Not flaggedFlag question Question text The name of the government agency that insures commercial bank deposits is the: Select one: a. Federal Savings and Loan Insurance Corporation b. Federal Deposit Insurance Corporation Correct c. Federal Reserve System d. Office of the Comptroller Question 24Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Because of the large flow of money into and out of a bank, and because it is very difficult for depositors to monitor bank managers, there are considerable opportunities for: Select one: a. finding low interest rates b. buying high and selling low Incorrect c. fraud and embezzlement 307 d. hedging risk Question 25Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Because of the ______________, Microsoft cannot merge with Bank of America. Select one: a. Sarbanes-Oxley Act b. Sherman Antitrust Act c. Glass-Steagall Act Incorrect d. Bank Holding Company Act 302 Question 26Incorrect0.00 points out of 1.00Not flaggedFlag question Question text If bank regulators give a bank a(n) _______ score of ________ or higher, the bank is required to reduce risk and improve its score. Select one: a. CAMELS; 3 pg 308 b. CAMELS; 4 c. MONEY; 3 Incorrect d. ACME; 2 Question 27Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Members of the Board of Governors of the Federal Reserve are ____________ and serve for ________ years. Select one: a. elected by Federal Reserve bank presidents; 6 b. elected by the U.S. Senate; 4 Incorrect c. Appointed by the President; 14 292 d. Appointed by the Speaker of the House; 12 Question 28Incorrect0.00 points out of 1.00Not flaggedFlag question Question text If M stands for Money, C is Currency, D is checking deposits, and R is reserves, we can write the monetary base, B, as: Select one: a. B=M+D Incorrect b. B=C+R 317 c. B=M/D d. B=M+R Question 29Incorrect0.00 points out of 1.00Not flaggedFlag question Question text The instrument the Fed uses most often to change the monetary base is: Select one: a. printing money 326 b. discount loans c. open-market operations d. Term Auction Facility Loans Incorrect Question 30Incorrect0.00 points out of 1.00Not flaggedFlag question Question text Suppose that while out trying out your new money finder, you find $1000 buried in the park; you deposit the money and the bank holds it in reserve. What happens? Select one: a. only the money supply rises b. the monetary base and money supply rise c. the monetary base rises Incorrect d. ther is no change in the monetary base or money supply Question 31Correct1.00 points out of 1.00Not flaggedFlag question Question text Suppose that the monetary base increases by $400 billion. If the money multiplier equals 2.75, the money supply: Select one: a. remains unchanged b. decreases by $400 billion c. increases by $1,100 billion Correct d. increases by $400 billion Question 32Correct1.00 points out of 1.00Not flaggedFlag question Question text In the liquidity preference theory of money, the Fed can increase the nominal interest rate by: Select one: a. increasing the money supply b. increasing money demand c. reducing the money supply Correct d. reducing the money demand Question 33Incorrect0.00 points out of 1.00Not flaggedFlag question Question text The reason most economists believe the Fed targets ________ is because constant shifts in money demand cause ___________. Select one: a. interest rates; the money supply to fluctuate b. interest rates; interest rates to fluctuate c. the money supply; the purchasing power of money to fall d. money demand; interest rates to fluctuate Incorrect