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Management

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Submitted By beennuked
Words 26867
Pages 108
* Question 1
0 out of 10 points | | | 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. | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. II only | | C. III only | | D. I, II, and III | | | | | * Question 2
0 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | [None Given] | Answers: | A. the persistent increase in the cost of stocks. | | B. the fact that banks provide liquidity to depositors. | | C. the fact that banks increase transaction costs for savers. | | D. the fact that banks increase transaction costs for investors. | | | | | * Question 3
0 out of 10 points | | | The free-rider problem arises: | | | | | Selected Answer: | [None Given] | Answers: | A. when people benefit from a good without paying for it. | | B. only when markets are perfectly competitive. | | C. if labor unions are strong. | | D. when a country is expanding. | | | | | * Question 4
0 out of 10 points | | | A project pays $125 with a probability of 0.75 or pays $90. What is the expected value of this project? | | | | | Selected Answer: | [None Given] | Answers: | A. $116.25 | | B. $93.75 | | C. $98.75 | | D. $161.25 | | | | | * Question 5
0 out of 10 points | | | In a home mortgage, the house serves as: | | | | | Selected Answer: | [None Given] | Answers: | A. bank capital. | | B. a bank's real asset. | | C. a down payment. | | D. collateral. | | | | | * Question 6
0 out of 10 points | | | According to the adverse selection problem in securities markets, as good-quality securities are retrieved from the market, the price of the remaining securities _____ and buyers realize that the probability of buying a low-quality security _____. | | | | | Selected Answer: | [None Given] | Answers: | A. increases; increases | | B. decreases; increases | | C. decreases; decreases | | D. increases; decreases | | | | | * Question 7
0 out of 10 points | | | Banks mitigate moral hazard by: | | | | | Selected Answer: | [None Given] | Answers: | A. requiring borrowers to open a checking account. | | B. requiring borrowers to have collateral. | | C. charging high interest rates. | | D. screening potential borrowers. | | | | | * Question 8
0 out of 10 points | | | 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. | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. II only | | C. I, II, and III | | D. III only | | | | | * Question 9
0 out of 10 points | | | Which of the following is most likely to suffer from the “lemons” problem? | | | | | Selected Answer: | [None Given] | Answers: | A. using bonds to finance oil exploration in Uzbekistan | | B. using bonds to finance oil exploration in Saudi Arabia | | C. using bonds to finance improvements to a new drug | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | To reduce information asymmetries in financial market, we can use: | | | | | Selected Answer: | [None Given] | Answers: | A. boards of directors. | | B. bond-rating agencies. | | C. investment banks. | | D. All of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | When conflicts of interest arise in the bond-rating industry, | | | | | Selected Answer: | [None Given] | Answers: | A. the quality of securities traded in securities markets increases. | | B. bond-rating firms issue low ratings to bad-quality securities. | | C. savers can potentially lose a lot of money. | | D. savers benefit from these conflicts of interest. | | | | | * Question 2
0 out of 10 points | | | Banks can offer small firms smaller transaction costs because of: | | | | | Selected Answer: | [None Given] | Answers: | A. constant returns to scale. | | B. higher rates of return. | | C. lower default risk. | | D. economies of scale. | | | | | * Question 3
0 out of 10 points | | | The most important type of private equity firm are: | | | | | Selected Answer: | [None Given] | Answers: | A. venture capital and takeover firms. | | B. takeover firms. | | C. investment banks. | | D. venture capital firms. | | | | | * Question 4
0 out of 10 points | | | Which of the following statements about a Ponzi scheme is true? | | | | | Selected Answer: | [None Given] | Answers: | A. The schemer sends clients false statements showing that their wealth is increasing. | | B. The fund manager wisely uses savers' funds. | | C. The scheme's growth is in fact financed by the schemer's contributions. | | D. The schemer's last name is always Ponzi. | | | | | * Question 5
0 out of 10 points | | | Which of the following statements about insider trading is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Insider trading is a legal activity. | | B. Insider trading is prohibited by the SEC. | | C. Insider trading reduces asymmetric information problems. | | D. Insider trading encourages the flow of funds from savers to investors. | | | | | * Question 6
0 out of 10 points | | | Firms that overissue new stocks could be accused of selling: | | | | | Selected Answer: | [None Given] | Answers: | A. a mutual fund. | | B. a derivative. | | C. a “lemon.” | | D. “junk.” | | | | | * Question 7
0 out of 10 points | | | A firm's board of directors are elected by its ________ and are charged with reducing ________. | | | | | Selected Answer: | [None Given] | Answers: | A. chief financial officer; fraud | | B. shareholders; moral hazard | | C. employees; production costs | | D. chief operating officer; adverse selection | | | | | * Question 8
0 out of 10 points | | | Normally, the bond market is less susceptible to adverse selection than the stock market, except: | | | | | Selected Answer: | [None Given] | Answers: | A. when the risk of bond default is high. | | B. when moral hazard is high. | | C. when asymmetric information is an issue. | | D. when the stock market is in a bubble. | | | | | * Question 9
0 out of 10 points | | | To reduce moral hazard after buying a stock or bond, individual savers should:
I. monitor the firm's projects.
II. visit the firm's offices.
III. monitor the firm's expenditures. | | | | | Selected Answer: | [None Given] | Answers: | A. I | | B. II | | C. III | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | The “lemons” problem arises in: | | | | | Selected Answer: | [None Given] | Answers: | A. high-default-risk bond markets. | | B. an initial public offering. | | C. used car market. | | D. All of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | Methods to reduce information asymmetries include using: | | | | | Selected Answer: | [None Given] | Answers: | A. information-gathering firms. | | B. boards of directors of publicly traded companies. | | C. private equity firms. | | D. All of these are methods. | | | | | * Question 2
0 out of 10 points | | | Because a large part of Enron's managers' pay was ________, there was an incentive to ________. | | | | | Selected Answer: | [None Given] | Answers: | A. in kind; to produce a lot of output | | B. in dividend payments; lower profit expectations | | C. in stock options; lie about losses | | D. cash; not pay taxes | | | | | * Question 3
0 out of 10 points | | | Which of the following statements about banks and transactions costs is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Banks increase transaction costs by exploiting economies of scale. | | B. Small savers resort to banks because of the benefit of liquidity and the low cost of acquiring assets. | | C. Small investors usually raise funds by issuing bonds or stock to get funds. | | D. Banks usually increase transaction costs for small investors. | | | | | * Question 4
0 out of 10 points | | | Placing officers of a ________ firm on the board of directors of a new firm can reduce the problem of ________. | | | | | Selected Answer: | [None Given] | Answers: | A. venture capital; moral hazard | | B. banking; free riding | | C. takeover; adverse selection | | D. security exchange; adverse selection | | | | | * Question 5
0 out of 10 points | | | The adverse selection problem arises because: | | | | | Selected Answer: | [None Given] | Answers: | A. of symmetric information. | | B. of asymmetric information. | | C. bond prices are volatile. | | D. stock prices are volatile. | | | | | * Question 6
0 out of 10 points | | | The ________ strengthens the requirements for information disclosure by corporations. | | | | | Selected Answer: | [None Given] | Answers: | A. Sarbanes-Oxley Act | | B. Napoleonic Code | | C. Sherman Act | | D. Akerlof Act | | | | | * Question 7
0 out of 10 points | | | When the government rescues companies that are on the brink of failure, investors may become ____ concerned about ____ than if the government let these companies fail. | | | | | Selected Answer: | [None Given] | Answers: | A. more; adverse selection | | B. less; moral hazard | | C. more; moral hazard | | D. less; adverse selection | | | | | * Question 8
0 out of 10 points | | | Security issuers have more elements to assess the quality of a security than the potential buyer of such a security. This creates a problem in securities markets known as: | | | | | Selected Answer: | [None Given] | Answers: | A. moral hazard. | | B. principal agent. | | C. free-rider problem. | | D. adverse selection. | | | | | * Question 9
0 out of 10 points | | | A board of directors that takes directions from a firm's managers is called a ________ board. | | | | | Selected Answer: | [None Given] | Answers: | A. marionette | | B. fraudulent | | C. puppet | | D. captive | | | | | * Question 10
0 out of 10 points | | | When seatbelts became mandatory by law, the number of accidents increased; this is likely due to: | | | | | Selected Answer: | [None Given] | Answers: | A. moral hazard. | | B. poorer road quality. | | C. adverse selection. | | D. more young drivers on the road. | | | | | * Question 1
0 out of 10 points | | | Which of the following are information-gathering firms in financial markets? | | | | | Selected Answer: | [None Given] | Answers: | A. insurance companies | | B. private equity firms | | C. commercial banks | | D. None of the answers are correct. | | | | | * Question 2
0 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | [None Given] | Answers: | A. the fact that banks provide liquidity to depositors. | | B. the fact that banks increase transaction costs for investors. | | C. the fact that banks increase transaction costs for savers. | | D. the persistent increase in the cost of stocks. | | | | | * Question 3
0 out of 10 points | | | When a small firm borrows from a commercial bank instead of an investment bank, it reduces its: | | | | | Selected Answer: | [None Given] | Answers: | A. collateral. | | B. default risk. | | C. interest rate. | | D. transaction costs. | | | | | * Question 4
0 out of 10 points | | | Boards of directors are meant to reduce information asymmetries by controlling managers. Which of the following statements about boards of directors is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Boards of directors do not have enough power to monitor managers. | | B. Members of the board of directors do not receive fees for their services. | | C. Boards of directors are not always effective in solving information asymmetries. | | D. Boards of directors effectively solve asymmetric information problems. | | | | | * Question 5
0 out of 10 points | | | Suppose you have $100 and are deciding to invest in a project. Suppose that asymmetric information is not a problem. You are choosing between project A, which has a one-fifth probability of producing $250 revenue and a four-fifths probability of producing $150 revenue and project B, which has a one-third probability of producing $600 and a two-thirds probability that it produces nothing. Alternatively, you could invest your $100 in a CD and earn 20 percent after a year. Assuming that you want to maximize your return, which strategy would you prefer, and how much do you expect to take home from your investment? | | | | | Selected Answer: | [None Given] | Answers: | A. Project A; $170 | | B. Project B; $200 | | C. the CD; $120 | | D. There is not enough information to answer the question. | | | | | * Question 6
0 out of 10 points | | | Which of the following are examples of home loan covenants?
I. fire insurance
II. flood insurance
III. car insurance | | | | | Selected Answer: | [None Given] | Answers: | A. II only | | B. I only | | C. III only | | D. I and II | | | | | * Question 7
0 out of 10 points | | | _______ firms buy an entire company, make it profitable, and then resell it after a few years. | | | | | Selected Answer: | [None Given] | Answers: | A. Predatory | | B. Speculative | | C. Takeover | | D. Venture capital | | | | | * Question 8
0 out of 10 points | | | Transaction costs are lowest for: | | | | | Selected Answer: | [None Given] | Answers: | A. microloans. | | B. a line of credit. | | C. mortgage loans. | | D. loans to long-time bank customers. | | | | | * Question 9
0 out of 10 points | | | When the action of an invidual affects another party who cannot observe the action, it is called: | | | | | Selected Answer: | [None Given] | Answers: | A. the principal–agent problem. | | B. moral hazard. | | C. adverse selection. | | D. adaptive expectations. | | | | | * Question 10
0 out of 10 points | | | Banks mitigate adverse selection by: | | | | | Selected Answer: | [None Given] | Answers: | A. charging high interest rates. | | B. requiring borrowers to open a checking account. | | C. requiring borrowers to have collateral. | | D. screening potential borrowers. | | | | | * Question 1
0 out of 10 points | | | ________ occurs when one party in a transaction has more information than the other. | | | | | Selected Answer: | [None Given] | Answers: | A. Irrational exuberance | | B. Cognitive dissonance | | C. Contagion | | D. Asymmetric information | | | | | * Question 2
0 out of 10 points | | | A private equity firm is a financial institution that: | | | | | Selected Answer: | [None Given] | Answers: | A. owns large shares in private companies. | | B. operates like a commercial bank. | | C. conducts open-market operations. | | D. is used to trade stocks and bonds. | | | | | * Question 3
0 out of 10 points | | | Banks mitigate adverse selection by: | | | | | Selected Answer: | [None Given] | Answers: | A. requiring borrowers to open a checking account. | | B. requiring borrowers to have collateral. | | C. charging high interest rates. | | D. screening potential borrowers. | | | | | * Question 4
0 out of 10 points | | | Banks' methods to reduce asymmetric information problems include: | | | | | Selected Answer: | [None Given] | Answers: | A. information gathering. | | B. including restrictive covenants in loan contracts. | | C. requiring collateral before making a loan. | | D. All of the methods are used. | | | | | * Question 5
0 out of 10 points | | | In a home mortgage, the house serves as: | | | | | Selected Answer: | [None Given] | Answers: | A. a bank's real asset. | | B. a down payment. | | C. bank capital. | | D. collateral. | | | | | * Question 6
0 out of 10 points | | | When conflicts of interest arise in the bond-rating industry, | | | | | Selected Answer: | [None Given] | Answers: | A. savers benefit from these conflicts of interest. | | B. bond-rating firms issue low ratings to bad-quality securities. | | C. savers can potentially lose a lot of money. | | D. the quality of securities traded in securities markets increases. | | | | | * Question 7
0 out of 10 points | | | Which of the following statements about banks and transactions costs is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Banks usually increase transaction costs for small investors. | | B. Small investors usually raise funds by issuing bonds or stock to get funds. | | C. Banks increase transaction costs by exploiting economies of scale. | | D. Small savers resort to banks because of the benefit of liquidity and the low cost of acquiring assets. | | | | | * Question 8
0 out of 10 points | | | SEC efforts are mainly aimed at: | | | | | Selected Answer: | [None Given] | Answers: | A. protecting corporations from a decrease in the price of their securities. | | B. reducing insider trading and increasing the flow of information in financial markets. | | C. reducing insider trading. | | D. increasing the flow of information in financial markets. | | | | | * Question 9
0 out of 10 points | | | The main ratings agencies, Moody's, Standard & Poor's, and Fitch, receive fees from companies for: | | | | | Selected Answer: | [None Given] | Answers: | A. rating corporate bonds. | | B. rating sovereign debt. | | C. giving good ratings to their financial outlook. | | D. rating corporate stock. | | | | | * Question 10
0 out of 10 points | | | According to a study by economists at Harvard and the University of Chicago, stock market activity is highest with ________ legal systems. | | | | | Selected Answer: | [None Given] | Answers: | A. French | | B. Russian | | C. English | | D. German | | | | | * Question 1
0 out of 10 points | | | Firms that overissue new stocks could be accused of selling: | | | | | Selected Answer: | [None Given] | Answers: | A. a mutual fund. | | B. “junk.” | | C. a “lemon.” | | D. a derivative. | | | | | * Question 2
0 out of 10 points | | | The interest rate offered by banks to their highest quality borrowers is called the: | | | | | Selected Answer: | [None Given] | Answers: | A. discount rate. | | B. federal funds rate. | | C. prime rate. | | D. None of the answers are correct. | | | | | * Question 3
0 out of 10 points | | | The moral hazard problem in stock markets, in which ______ fear that managers will misuse their funds, makes it _____ for firms to raise funds by selling stocks. | | | | | Selected Answer: | [None Given] | Answers: | A. principals; harder | | B. agents; easier | | C. principals; easier | | D. agents; harder | | | | | * Question 4
0 out of 10 points | | | When firms issue _____ with ______, the adverse selection problem is not always a problem. | | | | | Selected Answer: | [None Given] | Answers: | A. bonds; high default risk | | B. stock; high expected earnings | | C. stock; low expected earnings | | D. bonds; very low default risk | | | | | * Question 5
0 out of 10 points | | | In November 2009, the SEC announced charges in a case involving Raj Rajaratnam, the manager of the Galleon hedge fund. The SEC alleges that Rajaratnam: | | | | | Selected Answer: | [None Given] | Answers: | A. violated corporate ethics rules. | | B. conspired to defraud investors. | | C. profited from information that was not publicly available. | | D. was engaged in a Ponzi scheme. | | | | | * Question 6
0 out of 10 points | | | The adverse selection problem arises because: | | | | | Selected Answer: | [None Given] | Answers: | A. of symmetric information. | | B. stock prices are volatile. | | C. bond prices are volatile. | | D. of asymmetric information. | | | | | * Question 7
0 out of 10 points | | | Which of the following include traditional mortgage loan conditions? | | | | | Selected Answer: | [None Given] | Answers: | A. The borrower makes only one payment when the loan matures. | | B. The mortgage loan covers 50 percent of the price of a house. | | C. The borrower makes a constant monthly payment for 15 or 30 years. | | D. The home is never used as collateral for the loan. | | | | | * Question 8
0 out of 10 points | | | _______ firms buy an entire company, make it profitable, and then resell it after a few years. | | | | | Selected Answer: | [None Given] | Answers: | A. Takeover | | B. Venture capital | | C. Speculative | | D. Predatory | | | | | * Question 9
0 out of 10 points | | | Banks are careful at screening potential borrowers because they are: | | | | | Selected Answer: | [None Given] | Answers: | A. the sole recipient of the benefits of loans. | | B. under the scrutiny of the Federal Government. | | C. lending savers' deposits. | | D. concerned about bank runs. | | | | | * Question 10
0 out of 10 points | | | When the action of an invidual affects another party who cannot observe the action, it is called: | | | | | Selected Answer: | [None Given] | Answers: | A. adverse selection. | | B. adaptive expectations. | | C. moral hazard. | | D. the principal–agent problem. | | | | | * Question 1
0 out of 10 points | | | Suppose that the two firms each have more information about their financial status than you and that two firms are trying to raise funds to invest in a project. Investors don't know which firm is risky and which firm is safe. The firm can issue a $100 bond that promises to pay 25 percent in a year. Suppose there are two firms that are trying to raise funds to pay for a project. Firm A's project is safe and is guaranteed to produce $130 in revenue. Firm B's project is risky and has a two-thirds probability of producing $180 a year, and a one-third chance it produces nothing. How much must the investor receive to buy one of the bonds, and which firm will receive financing? | | | | | Selected Answer: | [None Given] | Answers: | A. $130; Firm A | | B. $150; Firm B | | C. $150; neither firm will receive financing. | | D. There is not enough information to answer the question. | | | | | * Question 2
0 out of 10 points | | | Applying the principal–agent terminology to financial markets, firms are the ____ and savers are the _____. | | | | | Selected Answer: | [None Given] | Answers: | A. lemons; free riders | | B. principals; agents | | C. free riders; lemons | | D. agents; principals | | | | | * Question 3
0 out of 10 points | | | Ineffective boards of directors can be replaced by: | | | | | Selected Answer: | [None Given] | Answers: | A. shareholder elections. | | B. shareholder revolts. | | C. shareholder elections and revolts. | | D. private equity firms. | | | | | * Question 4
0 out of 10 points | | | The rating agencies argue that their opinions are: | | | | | Selected Answer: | [None Given] | Answers: | A. protected by the First Amendment. | | B. designed to be used only by sophisticated investors. | | C. divided into accurate risk categories, e.g., triple A. | | D. priced fairly in the market. | | | | | * Question 5
0 out of 10 points | | | Banks mitigate adverse selection by: | | | | | Selected Answer: | [None Given] | Answers: | A. requiring borrowers to open a checking account. | | B. charging high interest rates. | | C. requiring borrowers to have collateral. | | D. screening potential borrowers. | | | | | * Question 6
0 out of 10 points | | | Moral hazard affects the car insurance market because: | | | | | Selected Answer: | [None Given] | Answers: | A. all car drivers choose to drive carelessly. | | B. insured drivers choose to behave in the best interests of the insurance company. | | C. the insurance company cannot enforce a promise to drive carefully. | | D. insured drivers decide to drive even more carefully after buying car insurance. | | | | | * Question 7
0 out of 10 points | | | Which of the following statements about a Ponzi scheme is true? | | | | | Selected Answer: | [None Given] | Answers: | A. The scheme's growth is in fact financed by the schemer's contributions. | | B. The fund manager wisely uses savers' funds. | | C. The schemer sends clients false statements showing that their wealth is increasing. | | D. The schemer's last name is always Ponzi. | | | | | * Question 8
0 out of 10 points | | | Banks' strategies to reduce default risk when making loans include: | | | | | Selected Answer: | [None Given] | Answers: | A. requiring the borrower to pledge an asset as collateral. | | B. charging high real interest rates to secure a high return. | | C. making sure the borrower's net worth is negative. | | D. making sure the borrower is unemployed. | | | | | * Question 9
0 out of 10 points | | | Which of the following statements about banks and transactions costs is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Banks usually increase transaction costs for small investors. | | B. Small savers resort to banks because of the benefit of liquidity and the low cost of acquiring assets. | | C. Small investors usually raise funds by issuing bonds or stock to get funds. | | D. Banks increase transaction costs by exploiting economies of scale. | | | | | * Question 10
0 out of 10 points | | | Security issuers have more elements to assess the quality of a security than the potential buyer of such a security. This creates a problem in securities markets known as: | | | | | Selected Answer: | [None Given] | Answers: | A. adverse selection. | | B. principal agent. | | C. free-rider problem. | | D. moral hazard. | | | | | * Question 1
0 out of 10 points | | | Suppose you take out a loan to buy a small plane for your aerial sightseeing company and you pledge the plane as collateral. When the bank requires that the plane cannot be used in acrobatic competitions, it is effectively including a ______ in the loan contract. | | | | | Selected Answer: | [None Given] | Answers: | A. positive collateral | | B. negative collateral | | C. positive covenant | | D. negative covenant | | | | | * Question 2
0 out of 10 points | | | The firms Moody's and Standard & Poor's are examples of a(n): | | | | | Selected Answer: | [None Given] | Answers: | A. financial market. | | B. umbrella corporation. | | C. investment bank. | | D. bond-rating agency. | | | | | * Question 3
0 out of 10 points | | | To minimize the problem of ________ before purchasing a stock, you should ________. | | | | | Selected Answer: | [None Given] | Answers: | A. adverse selection; gather information about the firm whose stock you are interested in | | B. moral hazard; gather information | | C. moral hazard; monitor the firm | | D. irrational exuberance; put all your money in savings | | | | | * Question 4
0 out of 10 points | | | To minimize moral hazard, many banks require: | | | | | Selected Answer: | [None Given] | Answers: | A. collateral. | | B. covenants in a loan contract. | | C. compensating balances. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | You have $100 and are thinking about how you might go about saving it. You pick up the Wall Street Journal and see the following information:
A project that pays $125 with a probability of 0.75, or it pays $75.
A project that pays $200 with a probability of 0.25, or it pays $50.
Alternatively, you could put the $100 in a CD account and earn $110 at the end of the year. Which strategy would be most advantageous to you? And, if you put it into action, how much would you take home? | | | | | Selected Answer: | [None Given] | Answers: | A. project A; $112.50 | | B. the CD; $110 | | C. project B; $162.50 | | D. There is not enough information provided to answer the question. | | | | | * Question 6
0 out of 10 points | | | Normally, the bond market is less susceptible to adverse selection than the stock market, except: | | | | | Selected Answer: | [None Given] | Answers: | A. when the risk of bond default is high. | | B. when moral hazard is high. | | C. when the stock market is in a bubble. | | D. when asymmetric information is an issue. | | | | | * Question 7
0 out of 10 points | | | ________ firms reduce ________ by gathering information on new firms. | | | | | Selected Answer: | [None Given] | Answers: | A. Security exchange monitoring; bad management | | B. Venture capital; adverse selection | | C. Takeover; moral hazard | | D. Commercial banking; free-riding | | | | | * Question 8
0 out of 10 points | | | According to a study by economists at Harvard and the University of Chicago, stock market activity is highest with ________ legal systems. | | | | | Selected Answer: | [None Given] | Answers: | A. Russian | | B. German | | C. French | | D. English | | | | | * Question 9
0 out of 10 points | | | Which of the following statements about banks and transactions costs is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Small savers resort to banks because of the benefit of liquidity and the low cost of acquiring assets. | | B. Banks increase transaction costs by exploiting economies of scale. | | C. Small investors usually raise funds by issuing bonds or stock to get funds. | | D. Banks usually increase transaction costs for small investors. | | | | | * Question 10
0 out of 10 points | | | In direct finance, | | | | | Selected Answer: | [None Given] | Answers: | A. savers buy securities from investors in financial markets. | | B. investors borrow directly from banks. | | C. savers buy securities from banks. | | D. savers buy securities directly from investors. | | | | | * Question 1
0 out of 10 points | | | To minimize moral hazard, many banks require: | | | | | Selected Answer: | [None Given] | Answers: | A. collateral. | | B. covenants in a loan contract. | | C. compensating balances. | | D. All of the answers are correct. | | | | | * Question 2
0 out of 10 points | | | Banks mitigate moral hazard by: | | | | | Selected Answer: | [None Given] | Answers: | A. requiring borrowers to open a checking account. | | B. requiring borrowers to have collateral. | | C. charging high interest rates. | | D. screening potential borrowers. | | | | | * Question 3
0 out of 10 points | | | Which of the following statements about the Sarbanes-Oxley Act is true? | | | | | Selected Answer: | [None Given] | Answers: | A. It increased the incentives for conflicts of interests in the investment banking industry. | | B. It allows corporations to conduct their own audits. | | C. It is clear to all individuals that it is the best way to reduce asymmetric information problems. | | D. It established the Accounting Oversight Board, to monitor the performance of corporations' auditors.' | | | | | * Question 4
0 out of 10 points | | | When firms issue _____ with ______, the adverse selection problem is not always a problem. | | | | | Selected Answer: | [None Given] | Answers: | A. stock; high expected earnings | | B. stock; low expected earnings | | C. bonds; very low default risk | | D. bonds; high default risk | | | | | * Question 5
0 out of 10 points | | | The firms Moody's and Standard & Poor's are examples of a(n): | | | | | Selected Answer: | [None Given] | Answers: | A. umbrella corporation. | | B. investment bank. | | C. bond-rating agency. | | D. financial market. | | | | | * Question 6
0 out of 10 points | | | Which of the following statements about insider trading is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Insider trading is prohibited by the SEC. | | B. Insider trading encourages the flow of funds from savers to investors. | | C. Insider trading is a legal activity. | | D. Insider trading reduces asymmetric information problems. | | | | | * Question 7
0 out of 10 points | | | In November 2009, the SEC announced charges in a case involving Raj Rajaratnam, the manager of the Galleon hedge fund. The SEC alleges that Rajaratnam: | | | | | Selected Answer: | [None Given] | Answers: | A. was engaged in a Ponzi scheme. | | B. profited from information that was not publicly available. | | C. conspired to defraud investors. | | D. violated corporate ethics rules. | | | | | * Question 8
0 out of 10 points | | | When conflicts of interest arise in the bond-rating industry, | | | | | Selected Answer: | [None Given] | Answers: | A. savers benefit from these conflicts of interest. | | B. savers can potentially lose a lot of money. | | C. the quality of securities traded in securities markets increases. | | D. bond-rating firms issue low ratings to bad-quality securities. | | | | | * Question 9
0 out of 10 points | | | Suppose a company is deciding whether to invest in a project. It is choosing between project A, which produces a certain $250 revenue with certainty, and project B, which has a one-third probability of producing $900 and a two-thirds probability that it produces nothing. What is the expected value of project B? | | | | | Selected Answer: | [None Given] | Answers: | A. zero | | B. 300 | | C. 250 | | D. 900 | | | | | * Question 10
0 out of 10 points | | | To economists, the main problem with ________ is that individuals engage in ____ behavior. | | | | | Selected Answer: | [None Given] | Answers: | A. moral hazard; harmful | | B. adverse selection; risky | | C. asymmetric information; careful | | D. principal–agent; selfish | | | | | * Question 1
0 out of 10 points | | | To economists, the main problem with ________ is that individuals engage in ____ behavior. | | | | | Selected Answer: | [None Given] | Answers: | A. principal–agent; selfish | | B. moral hazard; harmful | | C. asymmetric information; careful | | D. adverse selection; risky | | | | | * Question 2
0 out of 10 points | | | 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. | | | | | Selected Answer: | [None Given] | Answers: | A. III only | | B. II only | | C. I only | | D. I, II, and III | | | | | * Question 3
0 out of 10 points | | | When applying the “lemons” problem to stocks, buyers know that stocks are ________ and this pushes stock prices ________. | | | | | Selected Answer: | [None Given] | Answers: | A. overvalued; up | | B. overvalued; down | | C. undervalued; up | | D. in equilibrium; zero | | | | | * Question 4
0 out of 10 points | | | The free-rider problem arises: | | | | | Selected Answer: | [None Given] | Answers: | A. when people benefit from a good without paying for it. | | B. when a country is expanding. | | C. only when markets are perfectly competitive. | | D. if labor unions are strong. | | | | | * Question 5
0 out of 10 points | | | The main ratings agencies, Moody's, Standard & Poor's, and Fitch, receive fees from companies for: | | | | | Selected Answer: | [None Given] | Answers: | A. rating sovereign debt. | | B. rating corporate bonds. | | C. giving good ratings to their financial outlook. | | D. rating corporate stock. | | | | | * Question 6
0 out of 10 points | | | ________ firms reduce ________ by gathering information on new firms. | | | | | Selected Answer: | [None Given] | Answers: | A. Commercial banking; free-riding | | B. Security exchange monitoring; bad management | | C. Venture capital; adverse selection | | D. Takeover; moral hazard | | | | | * Question 7
0 out of 10 points | | | The free-rider problem causes _________ because people benefit from a good _____. | | | | | Selected Answer: | [None Given] | Answers: | A. a market failure; without paying for it | | B. adverse selection; while paying for it | | C. efficient markets; without paying for it | | D. a moral hazard; without knowing about it | | | | | * Question 8
0 out of 10 points | | | Placing officers of a ________ firm on the board of directors of a new firm can reduce the problem of ________. | | | | | Selected Answer: | [None Given] | Answers: | A. takeover; adverse selection | | B. banking; free riding | | C. security exchange; adverse selection | | D. venture capital; moral hazard | | | | | * Question 9
0 out of 10 points | | | Financial markets responded to the subprime crisis in the mid-2000s by ________ because of concern over the rising potential of loan default. | | | | | Selected Answer: | [None Given] | Answers: | A. credit rationing | | B. charging higher interest rates | | C. banks loaning only to their best customers. | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | Because of ________, banks prefer to develop ________ with customers. | | | | | Selected Answer: | [None Given] | Answers: | A. fraud; a polite relationship | | B. adverse selection; long-term relationships | | C. moral hazard; short-term relationships | | D. insider trading; friendships | | | | | * Question 1
0 out of 10 points | | | In asymmetric information, we call the party who has information about her actions the ________ and the other, imperfectly informed party, the ________. | | | | | Selected Answer: | D. saver; investor | Answers: | A. principal; trader | | B. boss; employee | | C. agent; principal | | D. saver; investor | | | | | * Question 2
10 out of 10 points | | | A project's expected value of a payment is: | | | | | Selected Answer: | B. | Answers: | A. | | B. | | C. | | D. | | | | | * Question 3
10 out of 10 points | | | The free-rider problem arises: | | | | | Selected Answer: | D. when people benefit from a good without paying for it. | Answers: | A. only when markets are perfectly competitive. | | B. when a country is expanding. | | C. if labor unions are strong. | | D. when people benefit from a good without paying for it. | | | | | * Question 4
10 out of 10 points | | | Financial markets responded to the subprime crisis in the mid-2000s by ________ because of concern over the rising potential of loan default. | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. credit rationing | | B. charging higher interest rates | | C. banks loaning only to their best customers. | | D. All of the answers are correct. | | | | | * Question 5
10 out of 10 points | | | To minimize the problem of ________ before purchasing a stock, you should ________. | | | | | Selected Answer: | B. adverse selection; gather information about the firm whose stock you are interested in | Answers: | A. irrational exuberance; put all your money in savings | | B. adverse selection; gather information about the firm whose stock you are interested in | | C. moral hazard; gather information | | D. moral hazard; monitor the firm | | | | | * Question 6
10 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | B. the fact that banks provide liquidity to depositors. | Answers: | A. the fact that banks increase transaction costs for investors. | | B. the fact that banks provide liquidity to depositors. | | C. the fact that banks increase transaction costs for savers. | | D. the persistent increase in the cost of stocks. | | | | | * Question 7
10 out of 10 points | | | The “lemons” problem arises in: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. high-default-risk bond markets. | | B. an initial public offering. | | C. used car market. | | D. All of the answers are correct. | | | | | * Question 8
10 out of 10 points | | | In Akerlof's “lemons” model, which of the following completes the following sentence? Because all used cars in the market are priced based on the average quality of all cars,
I. owners of high-quality cars are not willing to sell their cars.
II. owners of poor-quality cars want to sell their cars.
III. buyers will only have access to high-quality cars. | | | | | Selected Answer: | C. I and II | Answers: | A. II only | | B. I only | | C. I and II | | D. III only | | | | | * Question 9
10 out of 10 points | | | Security issuers have more elements to assess the quality of a security than the potential buyer of such a security. This creates a problem in securities markets known as: | | | | | Selected Answer: | A. adverse selection. | Answers: | A. adverse selection. | | B. moral hazard. | | C. free-rider problem. | | D. principal agent. | | | | | * Question 10
10 out of 10 points | | | Banks mitigate adverse selection by: | | | | | Selected Answer: | C. screening potential borrowers. | Answers: | A. requiring borrowers to have collateral. | | B. requiring borrowers to open a checking account. | | C. screening potential borrowers. | | D. charging high interest rates. | | | | | * Question 1
10 out of 10 points | | | Methods to reduce information asymmetries include using: | | | | | Selected Answer: | D. All of these are methods. | Answers: | A. information-gathering firms. | | B. boards of directors of publicly traded companies. | | C. private equity firms. | | D. All of these are methods. | | | | | * Question 2
10 out of 10 points | | | George Mason University economist Gordon Tullock once suggested that to make people drive more safely automobile manufacturers should put a spike in the middle of the steering wheel. This is one way of getting rid of: | | | | | Selected Answer: | D. moral hazard. | Answers: | A. Darwinism. | | B. adverse selection. | | C. bad drivers. | | D. moral hazard. | | | | | * Question 3
10 out of 10 points | | | Which of the following are information-gathering firms in financial markets? | | | | | Selected Answer: | B. investment banks | Answers: | A. credit unions | | B. investment banks | | C. insurance companies | | D. commercial banks | | | | | * Question 4
10 out of 10 points | | | One of the Securities and Exchange Commission's main goals is to: | | | | | Selected Answer: | D. reduce information asymmetries. | Answers: | A. set short-term interest rates. | | B. ensure maximum returns to shareholders. | | C. underwrite IPOs. | | D. reduce information asymmetries. | | | | | * Question 5
10 out of 10 points | | | In the aftermath of the 2007–2009 financial crisis, the rating agencies were criticized for: | | | | | Selected Answer: | B. giving triple A ratings to securities that were riskier than the ratings suggested. | Answers: | A. giving their opinions about their ratings. | | B. giving triple A ratings to securities that were riskier than the ratings suggested. | | C. predicting that the housing bubble would burst. | | D. paying corporations for the right to rate their securities. | | | | | * Question 6
10 out of 10 points | | | The moral hazard problem is _____ severe in bond markets than in stock markets. In addition, moral hazard arises in bond markets when firms issue bonds with ____ default risk. | | | | | Selected Answer: | D. less; high | Answers: | A. less; low | | B. more; high | | C. more; low | | D. less; high | | | | | * Question 7
10 out of 10 points | | | Which of the following statements about a Ponzi scheme is true? | | | | | Selected Answer: | B. The schemer sends clients false statements showing that their wealth is increasing. | Answers: | A. The fund manager wisely uses savers' funds. | | B. The schemer sends clients false statements showing that their wealth is increasing. | | C. The scheme's growth is in fact financed by the schemer's contributions. | | D. The schemer's last name is always Ponzi. | | | | | * Question 8
10 out of 10 points | | | 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. | | | | | Selected Answer: | C. I, II, and III | Answers: | A. II only | | B. III only | | C. I, II, and III | | D. I only | | | | | * Question 9
10 out of 10 points | | | When you buy car insurance, you may begin to drive ________ because of ________. | | | | | Selected Answer: | C. carelessly; moral hazard | Answers: | A. carelessly; higher quality cars | | B. safely; strong ethics | | C. carelessly; moral hazard | | D. safely; adverse selection | | | | | * Question 10
10 out of 10 points | | | When buyers have less information than sellers do about the quality of the product, a situation of ____ exists. | | | | | Selected Answer: | A. asymmetric information | Answers: | A. asymmetric information | | B. moral hazard | | C. seller greed | | D. None of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | The adverse selection problem arises because: | | | | | Selected Answer: | [None Given] | Answers: | A. bond prices are volatile. | | B. stock prices are volatile. | | C. of symmetric information. | | D. of asymmetric information. | | | | | * Question 2
0 out of 10 points | | | The most important type of private equity firm are: | | | | | Selected Answer: | [None Given] | Answers: | A. investment banks. | | B. venture capital and takeover firms. | | C. venture capital firms. | | D. takeover firms. | | | | | * Question 3
0 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | [None Given] | Answers: | A. the fact that banks increase transaction costs for investors. | | B. the persistent increase in the cost of stocks. | | C. the fact that banks provide liquidity to depositors. | | D. the fact that banks increase transaction costs for savers. | | | | | * Question 4
0 out of 10 points | | | One of the Securities and Exchange Commission's main goals is to: | | | | | Selected Answer: | [None Given] | Answers: | A. underwrite IPOs. | | B. reduce information asymmetries. | | C. ensure maximum returns to shareholders. | | D. set short-term interest rates. | | | | | * Question 5
0 out of 10 points | | | Hostile takeovers reduce ________ because if a company is poorly managed, there is an incentive to ________. | | | | | Selected Answer: | [None Given] | Answers: | A. adverse selection; reduce externalities | | B. moral hazard; change things | | C. adverse selection; split the firm's stock | | D. free-riding; pay for better information | | | | | * Question 6
0 out of 10 points | | | To reduce information asymmetries, individual savers should examine a firm's:
I. past earnings.
II. future projects.
III. managers. | | | | | Selected Answer: | [None Given] | Answers: | A. III only | | B. I, II, and III | | C. II only | | D. I and II | | | | | * Question 7
0 out of 10 points | | | Moral hazard affects the car insurance market because: | | | | | Selected Answer: | [None Given] | Answers: | A. all car drivers choose to drive carelessly. | | B. insured drivers choose to behave in the best interests of the insurance company. | | C. insured drivers decide to drive even more carefully after buying car insurance. | | D. the insurance company cannot enforce a promise to drive carefully. | | | | | * Question 8
0 out of 10 points | | | Transaction costs are lowest for: | | | | | Selected Answer: | [None Given] | Answers: | A. mortgage loans. | | B. loans to long-time bank customers. | | C. a line of credit. | | D. microloans. | | | | | * Question 9
0 out of 10 points | | | Placing officers of a ________ firm on the board of directors of a new firm can reduce the problem of ________. | | | | | Selected Answer: | [None Given] | Answers: | A. security exchange; adverse selection | | B. takeover; adverse selection | | C. venture capital; moral hazard | | D. banking; free riding | | | | | * Question 10
0 out of 10 points | | | Famous entrepreneur and “lifestyle adviser” ________ was found guilty of ________. | | | | | Selected Answer: | [None Given] | Answers: | A. Phil Donahue; under-reporting profits | | B. Oprah Winfrey; offshore investments | | C. Martha Stewart; insider trading | | D. Rosie O'Donnell; tax evasion | | | | | * Question 1
0 out of 10 points | | | In asymmetric information, we call the party who has information about her actions the ________ and the other, imperfectly informed party, the ________. | | | | | Selected Answer: | D. saver; investor | Answers: | A. principal; trader | | B. boss; employee | | C. agent; principal | | D. saver; investor | | | | | * Question 2
10 out of 10 points | | | A project's expected value of a payment is: | | | | | Selected Answer: | B. | Answers: | A. | | B. | | C. | | D. | | | | | * Question 3
10 out of 10 points | | | The free-rider problem arises: | | | | | Selected Answer: | D. when people benefit from a good without paying for it. | Answers: | A. only when markets are perfectly competitive. | | B. when a country is expanding. | | C. if labor unions are strong. | | D. when people benefit from a good without paying for it. | | | | | * Question 4
10 out of 10 points | | | Financial markets responded to the subprime crisis in the mid-2000s by ________ because of concern over the rising potential of loan default. | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. credit rationing | | B. charging higher interest rates | | C. banks loaning only to their best customers. | | D. All of the answers are correct. | | | | | * Question 5
10 out of 10 points | | | To minimize the problem of ________ before purchasing a stock, you should ________. | | | | | Selected Answer: | B. adverse selection; gather information about the firm whose stock you are interested in | Answers: | A. irrational exuberance; put all your money in savings | | B. adverse selection; gather information about the firm whose stock you are interested in | | C. moral hazard; gather information | | D. moral hazard; monitor the firm | | | | | * Question 6
10 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | B. the fact that banks provide liquidity to depositors. | Answers: | A. the fact that banks increase transaction costs for investors. | | B. the fact that banks provide liquidity to depositors. | | C. the fact that banks increase transaction costs for savers. | | D. the persistent increase in the cost of stocks. | | | | | * Question 7
10 out of 10 points | | | The “lemons” problem arises in: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. high-default-risk bond markets. | | B. an initial public offering. | | C. used car market. | | D. All of the answers are correct. | | | | | * Question 8
10 out of 10 points | | | In Akerlof's “lemons” model, which of the following completes the following sentence? Because all used cars in the market are priced based on the average quality of all cars,
I. owners of high-quality cars are not willing to sell their cars.
II. owners of poor-quality cars want to sell their cars.
III. buyers will only have access to high-quality cars. | | | | | Selected Answer: | C. I and II | Answers: | A. II only | | B. I only | | C. I and II | | D. III only | | | | | * Question 9
10 out of 10 points | | | Security issuers have more elements to assess the quality of a security than the potential buyer of such a security. This creates a problem in securities markets known as: | | | | | Selected Answer: | A. adverse selection. | Answers: | A. adverse selection. | | B. moral hazard. | | C. free-rider problem. | | D. principal agent. | | | | | * Question 10
10 out of 10 points | | | Banks mitigate adverse selection by: | | | | | Selected Answer: | C. screening potential borrowers. | Answers: | A. requiring borrowers to have collateral. | | B. requiring borrowers to open a checking account. | | C. screening potential borrowers. | | D. charging high interest rates. | | | | | * Question 1
10 out of 10 points | | | Methods to reduce information asymmetries include using: | | | | | Selected Answer: | D. All of these are methods. | Answers: | A. information-gathering firms. | | B. boards of directors of publicly traded companies. | | C. private equity firms. | | D. All of these are methods. | | | | | * Question 2
10 out of 10 points | | | George Mason University economist Gordon Tullock once suggested that to make people drive more safely automobile manufacturers should put a spike in the middle of the steering wheel. This is one way of getting rid of: | | | | | Selected Answer: | D. moral hazard. | Answers: | A. Darwinism. | | B. adverse selection. | | C. bad drivers. | | D. moral hazard. | | | | | * Question 3
10 out of 10 points | | | Which of the following are information-gathering firms in financial markets? | | | | | Selected Answer: | B. investment banks | Answers: | A. credit unions | | B. investment banks | | C. insurance companies | | D. commercial banks | | | | | * Question 4
10 out of 10 points | | | One of the Securities and Exchange Commission's main goals is to: | | | | | Selected Answer: | D. reduce information asymmetries. | Answers: | A. set short-term interest rates. | | B. ensure maximum returns to shareholders. | | C. underwrite IPOs. | | D. reduce information asymmetries. | | | | | * Question 5
10 out of 10 points | | | In the aftermath of the 2007–2009 financial crisis, the rating agencies were criticized for: | | | | | Selected Answer: | B. giving triple A ratings to securities that were riskier than the ratings suggested. | Answers: | A. giving their opinions about their ratings. | | B. giving triple A ratings to securities that were riskier than the ratings suggested. | | C. predicting that the housing bubble would burst. | | D. paying corporations for the right to rate their securities. | | | | | * Question 6
10 out of 10 points | | | The moral hazard problem is _____ severe in bond markets than in stock markets. In addition, moral hazard arises in bond markets when firms issue bonds with ____ default risk. | | | | | Selected Answer: | D. less; high | Answers: | A. less; low | | B. more; high | | C. more; low | | D. less; high | | | | | * Question 7
10 out of 10 points | | | Which of the following statements about a Ponzi scheme is true? | | | | | Selected Answer: | B. The schemer sends clients false statements showing that their wealth is increasing. | Answers: | A. The fund manager wisely uses savers' funds. | | B. The schemer sends clients false statements showing that their wealth is increasing. | | C. The scheme's growth is in fact financed by the schemer's contributions. | | D. The schemer's last name is always Ponzi. | | | | | * Question 8
10 out of 10 points | | | 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. | | | | | Selected Answer: | C. I, II, and III | Answers: | A. II only | | B. III only | | C. I, II, and III | | D. I only | | | | | * Question 9
10 out of 10 points | | | When you buy car insurance, you may begin to drive ________ because of ________. | | | | | Selected Answer: | C. carelessly; moral hazard | Answers: | A. carelessly; higher quality cars | | B. safely; strong ethics | | C. carelessly; moral hazard | | D. safely; adverse selection | | | | | * Question 10
10 out of 10 points | | | When buyers have less information than sellers do about the quality of the product, a situation of ____ exists. | | | | | Selected Answer: | A. asymmetric information | Answers: | A. asymmetric information | | B. moral hazard | | C. seller greed | | D. None of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | Which of the following are among the “Five Ps” of business lending? | | | | | Selected Answer: | [None Given] | Answers: | A. profit | | B. production | | C. preferred | | D. There is no such thing as the “Five Ps” of business lending. | | | | | * Question 2
0 out of 10 points | | | In direct finance, | | | | | Selected Answer: | [None Given] | Answers: | A. investors borrow directly from banks. | | B. savers buy securities from investors in financial markets. | | C. savers buy securities from banks. | | D. savers buy securities directly from investors. | | | | | * Question 3
0 out of 10 points | | | Which of the following statements about insider trading is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Insider trading reduces asymmetric information problems. | | B. Insider trading encourages the flow of funds from savers to investors. | | C. Insider trading is prohibited by the SEC. | | D. Insider trading is a legal activity. | | | | | * Question 4
0 out of 10 points | | | Methods to reduce information asymmetries include using: | | | | | Selected Answer: | [None Given] | Answers: | A. information-gathering firms. | | B. boards of directors of publicly traded companies. | | C. private equity firms. | | D. All of these are methods. | | | | | * Question 5
0 out of 10 points | | | Because of ________, banks prefer to develop ________ with customers. | | | | | Selected Answer: | [None Given] | Answers: | A. moral hazard; short-term relationships | | B. insider trading; friendships | | C. adverse selection; long-term relationships | | D. fraud; a polite relationship | | | | | * Question 6
0 out of 10 points | | | You have $100 and are thinking about how you might go about saving it. You pick up the Wall Street Journal and see the following information:
A project that pays $125 with a probability of 0.75, or it pays $75.
A project that pays $200 with a probability of 0.25, or it pays $50.
Alternatively, you could put the $100 in a CD account and earn $110 at the end of the year. Which strategy would be most advantageous to you? And, if you put it into action, how much would you take home? | | | | | Selected Answer: | [None Given] | Answers: | A. project A; $112.50 | | B. the CD; $110 | | C. project B; $162.50 | | D. There is not enough information provided to answer the question. | | | | | * Question 7
0 out of 10 points | | | To reduce moral hazard after buying a stock or bond, individual savers should:
I. monitor the firm's projects.
II. visit the firm's offices.
III. monitor the firm's expenditures. | | | | | Selected Answer: | [None Given] | Answers: | A. I | | B. II | | C. III | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | Because gathering information is costly, when many people buy the same stock ________ arise(s). | | | | | Selected Answer: | [None Given] | Answers: | A. irrational exuberance | | B. the free-rider problem | | C. adverse selection | | D. pecuniary externalities | | | | | * Question 9
0 out of 10 points | | | Putting your savings in a mutual fund creates moral hazard. In this case, you are the ____ and the mutual fund manager is the _____. | | | | | Selected Answer: | [None Given] | Answers: | A. principal; agent | | B. agent; principal | | C. investor; principal | | D. investor; agent | | | | | * Question 10
0 out of 10 points | | | Banks typically have standardized contracts for the most common loans (e.g., car loans), which significantly decrease the cost of making these loans. The concept of spreading such costs over many loans is known as: | | | | | Selected Answer: | [None Given] | Answers: | A. transactions costs. | | B. economies of scale. | | C. constant returns to scale. | | D. free-rider transactions. | | | | | * Question 1
0 out of 10 points | | | If a large number of savers want to buy a certain stock, they should each contribute to the cost of ________, however, they likely won't. This is called ________. | | | | | Selected Answer: | [None Given] | Answers: | A. hiring a trader; the asymmetric information problem | | B. vetting the firm; moral hazard | | C. paying trader fees; imperfect competition | | D. gathering information; the free-rider problem | | | | | * Question 2
0 out of 10 points | | | The moral hazard problem is _____ severe in bond markets than in stock markets. In addition, moral hazard arises in bond markets when firms issue bonds with ____ default risk. | | | | | Selected Answer: | [None Given] | Answers: | A. more; low | | B. less; high | | C. more; high | | D. less; low | | | | | * Question 3
0 out of 10 points | | | Which of the following (is)are responsible for high health insurance premiums?
I. irrational exuberance
II. adverse selection
III. moral hazard | | | | | Selected Answer: | [None Given] | Answers: | A. II only | | B. III only | | C. II and III | | D. I only | | | | | * Question 4
0 out of 10 points | | | During the financial crisis of 2008, the Ponzi scheme led by _____ swindled its investors of about ___. | | | | | Selected Answer: | [None Given] | Answers: | A. Bernard Madoff; $30 billion | | B. Stanford Financial; $4 billion | | C. Dennis Kozlowski; $1 billion | | D. Charles Ponzi; $50 billion | | | | | * Question 5
0 out of 10 points | | | To reduce information asymmetries in financial market, we can use: | | | | | Selected Answer: | [None Given] | Answers: | A. boards of directors. | | B. bond-rating agencies. | | C. investment banks. | | D. All of the answers are correct. | | | | | * Question 6
0 out of 10 points | | | Transaction costs are defined as: | | | | | Selected Answer: | [None Given] | Answers: | A. the costs in time and money of exchange. | | B. the time spent determining a market price. | | C. the cost of transporting goods and services for exchange. | | D. effort required to produce a good or service. | | | | | * Question 7
0 out of 10 points | | | Suppose you have $100 and are deciding to invest in a project. Suppose that asymmetric information is not a problem. You are choosing between project A, which has a one-fifth probability of producing $250 revenue and a four-fifths probability of producing $150 revenue and project B, which has a one-third probability of producing $600 and a two-thirds probability that it produces nothing. Alternatively, you could invest your $100 in a CD and earn 20 percent after a year. Assuming that you want to maximize your return, which strategy would you prefer, and how much do you expect to take home from your investment? | | | | | Selected Answer: | [None Given] | Answers: | A. Project A; $170 | | B. Project B; $200 | | C. the CD; $120 | | D. There is not enough information to answer the question. | | | | | * Question 8
0 out of 10 points | | | Suppose you take out a loan to buy a small plane for your aerial sightseeing company and you pledge the plane as collateral. When the bank requires that the plane cannot be used in acrobatic competitions, it is effectively including a ______ in the loan contract. | | | | | Selected Answer: | [None Given] | Answers: | A. negative collateral | | B. positive collateral | | C. negative covenant | | D. positive covenant | | | | | * Question 9
0 out of 10 points | | | The “lemons” problem arises in: | | | | | Selected Answer: | [None Given] | Answers: | A. high-default-risk bond markets. | | B. an initial public offering. | | C. used car market. | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | 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. | | | | | Selected Answer: | [None Given] | Answers: | A. I, II, and III | | B. II only | | C. I only | | D. III only | | | | | * Question 1
0 out of 10 points | | | Securitization of nonmortgage loans refers to issuing securities backed by which of the following types of loans? | | | | | Selected Answer: | [None Given] | Answers: | A. student loans | | B. two-bedroom home mortgage loans only | | C. commercial real estate loans | | D. residential real estate loans | | | | | * Question 2
0 out of 10 points | | | Which of the following statements about regional and superregional banks is true? | | | | | Selected Answer: | [None Given] | Answers: | A. There are around 3500 regional and superregional banks in the United States. | | B. Their assets are valued at below $500 million. | | C. A superregional bank operates across most of the United States. | | D. They conduct businesses only in the state in which they are chartered. | | | | | * Question 3
0 out of 10 points | | | Savings institutions focus primarily on: | | | | | Selected Answer: | [None Given] | Answers: | A. making loans to private equity firms. | | B. making loans to big corporations | | C. underwriting securities. | | D. making home mortgage loans. | | | | | * Question 4
0 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | [None Given] | Answers: | A. guaranteeing mortgages. | | B. providing tax breaks. | | C. supporting Fannie Mae and Freddie Mac. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | Most credit unions are _____, their assets totaling around _____. | | | | | Selected Answer: | [None Given] | Answers: | A. small; $2 trillion | | B. large; $2 trillion | | C. small; $900 billion | | D. large; $900 billion | | | | | * Question 6
0 out of 10 points | | | The repeal of the Glass-Steagall Act paved the way for the creation of: | | | | | Selected Answer: | [None Given] | Answers: | A. venture capital. | | B. mutual funds. | | C. financial holding companies. | | D. investment banks. | | | | | * Question 7
0 out of 10 points | | | Commercial banks and finance companies differ in that:
I. commercial banks accept deposits and finance companies do not.
II. commercial banks make private loans and finance companies do not.
III. commercial banks do not specialize in a type of loan, while finance companies do specialize. | | | | | Selected Answer: | [None Given] | Answers: | A. I and II only | | B. II and III only | | C. II only | | D. I only | | | | | * Question 8
0 out of 10 points | | | Securitization benefits for banks include: | | | | | Selected Answer: | [None Given] | Answers: | A. increased liquidity. | | B. decreased diversification. | | C. increased risk of default on individual loans. | | D. None of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | One of Andrew Jackson's primary goals when elected president was to: | | | | | Selected Answer: | [None Given] | Answers: | A. increase trade with the Middle East. | | B. eradicate slavery. | | C. eliminate the Second Bank of United States. | | D. abolish Congress. | | | | | * Question 10
0 out of 10 points | | | The reason for bank consolidation is: | | | | | Selected Answer: | [None Given] | Answers: | A. economies of scale. | | B. empire building. | | C. diversification. | | D. All of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | The largest provider of loans from the Federal Family Education Loans Program is: | | | | | Selected Answer: | [None Given] | Answers: | A. Sallie Mae. | | B. the Ford Direct Loan Program. | | C. Freddie Mac. | | D. Fannie Mae. | | | | | * Question 2
0 out of 10 points | | | ________ guarantees mortgage loans for low-income families. | | | | | Selected Answer: | [None Given] | Answers: | A. The Department of Housing & Urban Development | | B. Freddie Mac | | C. The Federal Home Administration | | D. Fannie Mae | | | | | * Question 3
0 out of 10 points | | | A finance company: | | | | | Selected Answer: | [None Given] | Answers: | A. does not make loans. | | B. underwrites large capital investments. | | C. does not accept deposits. | | D. finances takeovers. | | | | | * Question 4
0 out of 10 points | | | ________ and ________ are mortgage agencies that raise funds by issuing bonds. | | | | | Selected Answer: | [None Given] | Answers: | A. Fannie Mae; Freddie Mac | | B. First Bank of the United States; Second Bank of the United States | | C. Washington Mutual; Comptroller of the Currency. | | D. Federal Reserve; National Bank of the United States | | | | | * Question 5
0 out of 10 points | | | U.S. government policies to promote lending focus on a few sectors of the population, including: | | | | | Selected Answer: | [None Given] | Answers: | A. Wall Street companies. | | B. large corporations that are a good credit risk. | | C. students. | | D. finance companies. | | | | | * Question 6
0 out of 10 points | | | Community banks continue to play a strong role in the economy because: | | | | | Selected Answer: | [None Given] | Answers: | A. of their role in reducing adverse selection. | | B. keeping employment strong in local communities. | | C. giving loans to borrowers whatever their credit rating. | | D. expanding lending to large businesses. | | | | | * Question 7
0 out of 10 points | | | Banks often merge: | | | | | Selected Answer: | [None Given] | Answers: | A. after they have suffered large losses. | | B. to create an empire for the bank managers. | | C. to avoid failure. | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | A bank loan that is paid off by the government if the borrower defaults is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. loan guarantee. | | B. usurious loan. | | C. mortgage. | | D. bonded loan. | | | | | * Question 9
0 out of 10 points | | | One of Andrew Jackson's primary goals when elected president was to: | | | | | Selected Answer: | [None Given] | Answers: | A. increase trade with the Middle East. | | B. eradicate slavery. | | C. abolish Congress. | | D. eliminate the Second Bank of United States. | | | | | * Question 10
0 out of 10 points | | | If not for government's promotion, it would be quite difficult for college students to get tuition loans because: | | | | | Selected Answer: | [None Given] | Answers: | A. college students have a bad reputation of misbehavior. | | B. students usually have high incomes and net worth. | | C. students are expected to earn higher-than-average salaries during their adult life. | | D. students usually have brief credit histories. | | | | | * Question 1
0 out of 10 points | | | The _____ Act restricts banks from holding more than ____ percent of all commercial bank deposits. | | | | | Selected Answer: | [None Given] | Answers: | A. McFadden; 5 | | B. Glass-Steagall; 10 | | C. Riegle-Neal; 10 | | D. Gramm-Leach-Bliley; 5 | | | | | * Question 2
0 out of 10 points | | | Which of the following statements about community banks is true? | | | | | Selected Answer: | [None Given] | Answers: | A. They usually raise funds from local depositors and lend to consumers and small businesses. | | B. They only conduct businesses with other banks. | | C. They have assets of more than $10 billion. | | D. They operate all across the country. | | | | | * Question 3
0 out of 10 points | | | _______ banks finance their lending primarily by borrowing from other banks or by issuing bonds. | | | | | Selected Answer: | [None Given] | Answers: | A. Community | | B. Money-center | | C. Superregional | | D. Regional | | | | | * Question 4
0 out of 10 points | | | The largest superregional bank in late 2007 was: | | | | | Selected Answer: | [None Given] | Answers: | A. Bank of America. | | B. M&T Bank. | | C. JPMorgan Chase. | | D. Citibank. | | | | | * Question 5
0 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | [None Given] | Answers: | A. commercial banks. | | B. pawnshops. | | C. credit unions. | | D. All of the answers are correct. | | | | | * Question 6
0 out of 10 points | | | The fall in the value of securitized subprime loans eventually forced the Federal Reserve to arrange the purchase of the investment bank ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. Merrill Lynch; USB | | B. Bear Stearns; JPMorgan Chase | | C. Citigroup; Bear Stearns | | D. the Marx Group; the Friedman Fund | | | | | * Question 7
0 out of 10 points | | | Which of the following statements about the Small Business Administration (SBA) is true? | | | | | Selected Answer: | [None Given] | Answers: | A. A company qualifies for a loan guarantee if it is “small,” as defined by the SBA. | | B. The SBA promotes lending to low-income individuals. | | C. The SBA promotes lending to corporations that are able to issue securities only. | | D. Everybody agrees that the SBA is a great idea. | | | | | * Question 8
0 out of 10 points | | | Recipients of Stafford student loans receive their funding from one of two different programs: | | | | | Selected Answer: | [None Given] | Answers: | A. Sarbans loan or Oxley loan. | | B. Marks loan or Spencer loan. | | C. PLUS loan or FHA loan. | | D. Ford Direct Loan Program or Federal Family Education Loan Program. | | | | | * Question 9
0 out of 10 points | | | To compensate for high default risk, banks may: | | | | | Selected Answer: | [None Given] | Answers: | A. charge negative interest rates. | | B. charge high interest rates. | | C. do not make loans to high-risk borrowers. | | D. require borrowers to put at least 50 percent down. | | | | | * Question 10
0 out of 10 points | | | Under unit banking, banks could operate: | | | | | Selected Answer: | [None Given] | Answers: | A. with any number of branches as long as they did not cross state lines. | | B. with just one branch. | | C. with just one branch in each state. | | D. in just one state. | | | | | * Question 1
0 out of 10 points | | | Freddie Mac and Fannie Mae raise funds by: | | | | | Selected Answer: | [None Given] | Answers: | A. issuing bonds. | | B. taking savings deposits. | | C. borrowing from the Treasury Department. | | D. None of the answers are correct. | | | | | * Question 2
0 out of 10 points | | | In 1836, Congress passed legislation renewing the charter of the ________; it was vetoed by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. Monroe Doctrine; Paul Revere | | B. First Bank of the United States; Alexander Hamilton | | C. Second Bank of the United States; Andrew Jackson | | D. National Bank; Abraham Lincoln | | | | | * Question 3
0 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | [None Given] | Answers: | A. commercial banks. | | B. pawnshops. | | C. credit unions. | | D. All of the answers are correct. | | | | | * Question 4
0 out of 10 points | | | Banks that are considered too big to fail: | | | | | Selected Answer: | [None Given] | Answers: | A. are usually small community banks. | | B. could disrupt the entire financial system if allowed to fail. | | C. usually have assets of less than $1 billion. | | D. have no links with other financial institutions. | | | | | * Question 5
0 out of 10 points | | | Following the securitization process, the securitizer issues securities that entitle the owner to a share of the payments on the loan pool. Prospective buyers of these securities include: | | | | | Selected Answer: | [None Given] | Answers: | A. small businesses with extra cash. | | B. mutual funds. | | C. community banks. | | D. small savers. | | | | | * Question 6
0 out of 10 points | | | The catalyst for the subprime market crisis beginning in 2006 was: | | | | | Selected Answer: | [None Given] | Answers: | A. rising interest rates | | B. rising interest rates and falling real estate prices. | | C. falling real estate prices. | | D. falling interest rates. | | | | | * Question 7
0 out of 10 points | | | Fannie Mae and Freddie Mac started to buy subprime mortgages starting: | | | | | Selected Answer: | [None Given] | Answers: | A. in the early 2000s. | | B. in the late 1980s. | | C. in the 1940s. | | D. in the early 1970s. | | | | | * Question 8
0 out of 10 points | | | Since 1984 the number of banks in the United States has: | | | | | Selected Answer: | [None Given] | Answers: | A. been growing. | | B. been shrinking. | | C. stayed about the same. | | D. been moving away from New York City. | | | | | * Question 9
0 out of 10 points | | | The result of the populists' belief that risky bank behavior helped cause the Great Depression was the: | | | | | Selected Answer: | [None Given] | Answers: | A. Glass-Steagall Act. | | B. First Bank of the United States. | | C. Sherman Antitrust Act. | | D. Sarbanes-Oxley Act. | | | | | * Question 10
0 out of 10 points | | | Characteristics of payday lenders include which of the following? | | | | | Selected Answer: | [None Given] | Answers: | A. They charge lower rates than commercial banks. | | B. They charge very high interest rates. | | C. Potential borrowers have to provide more information about themselves than if they are borrowing from a bank. | | D. Everybody agrees that payday lenders provide a great service to subprime borrowers. | | | | | * Question 1
0 out of 10 points | | | Fannie Mae and Freddie Mac are both an unusual kind of institution called: | | | | | Selected Answer: | [None Given] | Answers: | A. privately managed enterprises. | | B. federally supported companies. | | C. publicly owned corporations. | | D. government sponsored enterprises. | | | | | * Question 2
0 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | [None Given] | Answers: | A. guaranteeing mortgages. | | B. providing tax breaks. | | C. supporting Fannie Mae and Freddie Mac. | | D. All of the answers are correct. | | | | | * Question 3
0 out of 10 points | | | Which of the following states has no payday lenders? | | | | | Selected Answer: | [None Given] | Answers: | A. Oklahoma | | B. Washington | | C. Georgia | | D. New Mexico | | | | | * Question 4
0 out of 10 points | | | The problem with credit scores is: | | | | | Selected Answer: | [None Given] | Answers: | A. they don't contain all information on default risk. | | B. they are often wrong. | | C. they often give misleading information. | | D. creditors rarely use them. | | | | | * Question 5
0 out of 10 points | | | Because of the McFadden Act, each state had its own: | | | | | Selected Answer: | [None Given] | Answers: | A. kind of money. | | B. real estate supervision. | | C. rules regulating stock exchanges. | | D. banking industry. | | | | | * Question 6
0 out of 10 points | | | Which of the following statements about community banks is true? | | | | | Selected Answer: | [None Given] | Answers: | A. They have assets of more than $10 billion. | | B. They usually raise funds from local depositors and lend to consumers and small businesses. | | C. They only conduct businesses with other banks. | | D. They operate all across the country. | | | | | * Question 7
0 out of 10 points | | | An institution that is owned by its depositors is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. pension fund. | | B. savings and loan. | | C. commercial bank. | | D. credit union. | | | | | * Question 8
0 out of 10 points | | | Following the 2007–2009 financial crisis, some economists believe that the financial crisis exposed the flaws in: | | | | | Selected Answer: | [None Given] | Answers: | A. the Glass-Steagall Act. | | B. interstate banking. | | C. the Dodd-Frank Act. | | D. the existence of financial holding companies. | | | | | * Question 9
0 out of 10 points | | | Since rent payments for housing _____ tax-deductible, individuals _____ an incentive to buy homes. | | | | | Selected Answer: | [None Given] | Answers: | A. are; have | | B. are not; do not have | | C. are; do not have | | D. are not; have | | | | | * Question 10
0 out of 10 points | | | The National Bank Act was proposed by: | | | | | Selected Answer: | [None Given] | Answers: | A. Alexander Hamilton. | | B. Thomas Jefferson. | | C. James Madison. | | D. Abraham Lincoln. | | | | | * Question 1
0 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | [None Given] | Answers: | A. I and II | | B. I only | | C. I, II, and III | | D. I and III | | | | | * Question 2
0 out of 10 points | | | Which of the following statements about the Community Reinvestment Act (CRA) of 1977 is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Recently, most banks have not passed their CRA examinations. | | B. In recent years, most banks have received grades of “outstanding” or “satisfactory” after CRA examinations. | | C. The CRA required banks to lend to small businesses only. | | D. Standard CRA examinations are usually conducted in a few hours. | | | | | * Question 3
0 out of 10 points | | | Which of the following statements about international banking is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Hundreds of foreign banks now have subsidiaries in the United States. | | B. Foreign banks are not allowed to open branches in the United States. | | C. U.S. banks are not allowed to open branches in foreign countries. | | D. Eurodollars refer to dollar deposits inside the United States only. | | | | | * Question 4
0 out of 10 points | | | When ________ was Secretary of the Treasury, he argued for ________. | | | | | Selected Answer: | [None Given] | Answers: | A. Alexander Hamilton; a central bank | | B. Thomas Jefferson; a gold standard | | C. George Washington; low interest rates | | D. John Adams; state-chartered banks | | | | | * Question 5
0 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | [None Given] | Answers: | A. seizing homes that have been vacant for more than a year. | | B. building homes and assigning them to low-income families. | | C. buying homes for the poor. | | D. tax incentives. | | | | | * Question 6
0 out of 10 points | | | Under unit banking, banks could operate: | | | | | Selected Answer: | [None Given] | Answers: | A. with just one branch in each state. | | B. with any number of branches as long as they did not cross state lines. | | C. with just one branch. | | D. in just one state. | | | | | * Question 7
0 out of 10 points | | | Most credit unions are _____, their assets totaling around _____. | | | | | Selected Answer: | [None Given] | Answers: | A. large; $900 billion | | B. small; $2 trillion | | C. large; $2 trillion | | D. small; $900 billion | | | | | * Question 8
0 out of 10 points | | | The original purpose of savings and loans was to accept: | | | | | Selected Answer: | [None Given] | Answers: | A. all household deposits and make personal loans. | | B. savings deposits and make mortgage loans. | | C. savings deposits and make all household loans. | | D. checking deposits and make household loans. | | | | | * Question 9
0 out of 10 points | | | Finance companies are not as heavily regulated as commercial banks, which enables them to make subprime loans. Reason(s) for this light regulation include(s) which of the following? | | | | | Selected Answer: | [None Given] | Answers: | A. The adverse selection problem is not as bad in the subprime lending industry. | | B. Finance companies are better than banks at solving asymmetric information problems. | | C. Finance companies do not accept deposits. | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | Banks often merge: | | | | | Selected Answer: | [None Given] | Answers: | A. after they have suffered large losses. | | B. to create an empire for the bank managers. | | C. to avoid failure. | | D. All of the answers are correct. | | | | | * Question 1
0 out of 10 points | | | Which of the following deposits are called Eurodollars? | | | | | Selected Answer: | [None Given] | Answers: | A. euros deposited in a London bank. | | B. yen deposited in a Japanese bank. | | C. dollars deposited in Bank of America. | | D. dollars deposited in a foreign branch of Chase Manhattan located in Paris. | | | | | * Question 2
0 out of 10 points | | | _______ banks finance their lending primarily by borrowing from other banks or by issuing bonds. | | | | | Selected Answer: | [None Given] | Answers: | A. Money-center | | B. Regional | | C. Superregional | | D. Community | | | | | * Question 3
0 out of 10 points | | | Credit unions make: | | | | | Selected Answer: | [None Given] | Answers: | A. small personal loans. | | B. automobile loans. | | C. mortgage loans. | | D. All of the answers are correct. | | | | | * Question 4
0 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | [None Given] | Answers: | A. tax incentives. | | B. buying homes for the poor. | | C. building homes and assigning them to low-income families. | | D. seizing homes that have been vacant for more than a year. | | | | | * Question 5
0 out of 10 points | | | Commercial banks and finance companies differ in that:
I. commercial banks accept deposits and finance companies do not.
II. commercial banks make private loans and finance companies do not.
III. commercial banks do not specialize in a type of loan, while finance companies do specialize. | | | | | Selected Answer: | [None Given] | Answers: | A. I and II only | | B. I only | | C. II only | | D. II and III only | | | | | * Question 6
0 out of 10 points | | | Finance companies are not as heavily regulated as commercial banks, which enables them to make subprime loans. Reason(s) for this light regulation include(s) which of the following? | | | | | Selected Answer: | [None Given] | Answers: | A. The adverse selection problem is not as bad in the subprime lending industry. | | B. Finance companies are better than banks at solving asymmetric information problems. | | C. Finance companies do not accept deposits. | | D. All of the answers are correct. | | | | | * Question 7
0 out of 10 points | | | The National Bank Act was proposed by: | | | | | Selected Answer: | [None Given] | Answers: | A. Thomas Jefferson. | | B. Alexander Hamilton. | | C. Abraham Lincoln. | | D. James Madison. | | | | | * Question 8
0 out of 10 points | | | Finance companies only ________; they do not ________. | | | | | Selected Answer: | [None Given] | Answers: | A. accept checking deposits; make loans | | B. make loans; accept deposits | | C. underwrite pension funds; exchange foreign currency | | D. issue bonds; accept savings | | | | | * Question 9
0 out of 10 points | | | Which of the following is a “thrift” institution? | | | | | Selected Answer: | [None Given] | Answers: | A. commercial bank | | B. insurance company | | C. credit union | | D. finance company | | | | | * Question 10
0 out of 10 points | | | The Deficit Reduction Act of 2005 | | | | | Selected Answer: | [None Given] | Answers: | A. got rid of the Federal Family Education Loan program. | | B. increased Stafford loan interest rates. | | C. eliminated student loans. | | D. reduced the amount of funds students could borrow for college. | | | | | * Question 1
0 out of 10 points | | | A reason for “securitizing” mortgages is to allow a bank to: | | | | | Selected Answer: | [None Given] | Answers: | A. maximize its risk. | | B. consistently generate above normal profits. | | C. reduce loan default risk to zero. | | D. buy other financial assets. | | | | | * Question 2
0 out of 10 points | | | The low introductory interest rates offered by subprime lenders are called: | | | | | Selected Answer: | [None Given] | Answers: | A. “teaser rates.” | | B. “adjustable rates.” | | C. “low-ball rates.” | | D. “HomePride rates.” | | | | | * Question 3
0 out of 10 points | | | The foreign city with the most U.S. banks is: | | | | | Selected Answer: | [None Given] | Answers: | A. Beijing. | | B. London. | | C. Tokyo. | | D. Frankfurt. | | | | | * Question 4
0 out of 10 points | | | ________ are loans offered to the undergraduate's parents. | | | | | Selected Answer: | [None Given] | Answers: | A. PLUS loans | | B. FHA loans | | C. SBA loans | | D. Stafford loans | | | | | * Question 5
0 out of 10 points | | | In 2009, payday lenders in California expanded their business to make loans to people with proof of: | | | | | Selected Answer: | [None Given] | Answers: | A. government unemployment benefits. | | B. no job. | | C. military employment. | | D. no income. | | | | | * Question 6
0 out of 10 points | | | Which of the following states has no payday lenders? | | | | | Selected Answer: | [None Given] | Answers: | A. New Mexico | | B. Georgia | | C. Washington | | D. Oklahoma | | | | | * Question 7
0 out of 10 points | | | Community banks are in no danger of dying out because: | | | | | Selected Answer: | [None Given] | Answers: | A. they generally operate in areas where large banks choose not to. | | B. they have considerable economies of scale. | | C. of their expertise in small-business lending. | | D. of their trillions of dollars in assets. | | | | | * Question 8
0 out of 10 points | | | Savings institutions focus primarily on: | | | | | Selected Answer: | [None Given] | Answers: | A. making loans to private equity firms. | | B. underwriting securities. | | C. making loans to big corporations | | D. making home mortgage loans. | | | | | * Question 9
0 out of 10 points | | | Which of the following deposits are called Eurodollars? | | | | | Selected Answer: | [None Given] | Answers: | A. dollars deposited in a foreign branch of Chase Manhattan located in Paris. | | B. dollars deposited in Bank of America. | | C. euros deposited in a London bank. | | D. yen deposited in a Japanese bank. | | | | | * Question 10
0 out of 10 points | | | Which of the following statements about financial holding companies (FHCs) is true? | | | | | Selected Answer: | [None Given] | Answers: | A. FHCs were allowed by the Glass-Steagall Act of 1933. | | B. FHCs are no longer legal institutions in the United States. | | C. The Dodd-Frank Act of 2010 includes modest limits on the activities of FHCs. | | D. FHCs offer customers only bank accounts. | | | | | * Question 1
0 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. I, II, and III | | C. I and II | | D. I and III | | | | | * Question 2
0 out of 10 points | | | Because of the McFadden Act, each state had its own: | | | | | Selected Answer: | [None Given] | Answers: | A. kind of money. | | B. rules regulating stock exchanges. | | C. real estate supervision. | | D. banking industry. | | | | | * Question 3
0 out of 10 points | | | The bank that exemplifies the problems associated with government-owned banks is in: | | | | | Selected Answer: | [None Given] | Answers: | A. Japan. | | B. Norway. | | C. China. | | D. Mexico. | | | | | * Question 4
0 out of 10 points | | | National banks are chartered by the: | | | | | Selected Answer: | [None Given] | Answers: | A. House of Representatives. | | B. Comptroller of the Currency. | | C. Labor Department. | | D. Federal Reserve. | | | | | * Question 5
0 out of 10 points | | | The foreign city with the most U.S. banks is: | | | | | Selected Answer: | [None Given] | Answers: | A. Frankfurt. | | B. Beijing. | | C. Tokyo. | | D. London. | | | | | * Question 6
0 out of 10 points | | | Since rent payments for housing _____ tax-deductible, individuals _____ an incentive to buy homes. | | | | | Selected Answer: | [None Given] | Answers: | A. are not; do not have | | B. are not; have | | C. are; do not have | | D. are; have | | | | | * Question 7
0 out of 10 points | | | A bank charter is a: | | | | | Selected Answer: | [None Given] | Answers: | A. set of rules set up by individual banks. | | B. list of possible interest rates charged by banks. | | C. list of bank operating processes. | | D. government license to operate a bank. | | | | | * Question 8
0 out of 10 points | | | Since the banking crisis of the mid-1980s, many economists believe that some banks have become: | | | | | Selected Answer: | [None Given] | Answers: | A. too big too fail. | | B. monopolies. | | C. important community lenders. | | D. essential to preventing another financial crisis. | | | | | * Question 9
0 out of 10 points | | | During the recent financial crisis, Citigroup almost failed due to _____, and it survived partly due to _____. | | | | | Selected Answer: | [None Given] | Answers: | A. excessive government regulation; loosening of government regulations | | B. losses in its commercial banking division; selling the commercial bank operations | | C. losses on mortgage-backed securities; selling new stock | | D. losses in its U.S. operations; opening new branches around the world | | | | | * Question 10
0 out of 10 points | | | In 1927, Congress passed the ________, which forbade a bank from operating in more than one state. | | | | | Selected Answer: | [None Given] | Answers: | A. McFadden Act | | B. Sherman Act | | C. Glass-Steagall Act | | D. Federal Reserve Act | | | | | * Question 1
0 out of 10 points | | | The creation of the financial holding company Citigroup was made possible by the passage of the: | | | | | Selected Answer: | [None Given] | Answers: | A. Sarbanes-Oxley Act. | | B. Gramm-Leach-Bliley Act. | | C. Sherman Antitrust Act. | | D. Glass-Steagall Act. | | | | | * Question 2
0 out of 10 points | | | Securitization of nonmortgage loans refers to issuing securities backed by which of the following types of loans? | | | | | Selected Answer: | [None Given] | Answers: | A. two-bedroom home mortgage loans only | | B. commercial real estate loans | | C. residential real estate loans | | D. student loans | | | | | * Question 3
0 out of 10 points | | | The catalyst for the subprime market crisis beginning in 2006 was: | | | | | Selected Answer: | [None Given] | Answers: | A. falling real estate prices. | | B. rising interest rates and falling real estate prices. | | C. falling interest rates. | | D. rising interest rates | | | | | * Question 4
0 out of 10 points | | | Money-center banks finance their lending primarily through: | | | | | Selected Answer: | [None Given] | Answers: | A. borrowing from other banks. | | B. taking deposits. | | C. borrowing from the Federal Reserve System. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | Since 1984 the number of banks in the United States has: | | | | | Selected Answer: | [None Given] | Answers: | A. been growing. | | B. been shrinking. | | C. stayed about the same. | | D. been moving away from New York City. | | | | | * Question 6
0 out of 10 points | | | Which of the following statements about the Community Reinvestment Act (CRA) of 1977 is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Standard CRA examinations are usually conducted in a few hours. | | B. Recently, most banks have not passed their CRA examinations. | | C. The CRA required banks to lend to small businesses only. | | D. In recent years, most banks have received grades of “outstanding” or “satisfactory” after CRA examinations. | | | | | * Question 7
0 out of 10 points | | | Most credit unions are _____, their assets totaling around _____. | | | | | Selected Answer: | [None Given] | Answers: | A. large; $2 trillion | | B. large; $900 billion | | C. small; $2 trillion | | D. small; $900 billion | | | | | * Question 8
0 out of 10 points | | | Which of the following statements about financial holding companies (FHCs) is true? | | | | | Selected Answer: | [None Given] | Answers: | A. FHCs are no longer legal institutions in the United States. | | B. FHCs were allowed by the Glass-Steagall Act of 1933. | | C. The Dodd-Frank Act of 2010 includes modest limits on the activities of FHCs. | | D. FHCs offer customers only bank accounts. | | | | | * Question 9
0 out of 10 points | | | Which of the following statements about community banks is true? | | | | | Selected Answer: | [None Given] | Answers: | A. They usually raise funds from local depositors and lend to consumers and small businesses. | | B. They only conduct businesses with other banks. | | C. They operate all across the country. | | D. They have assets of more than $10 billion. | | | | | * Question 10
0 out of 10 points | | | Freddie Mac and Fannie Mae raise funds by: | | | | | Selected Answer: | [None Given] | Answers: | A. issuing bonds. | | B. taking savings deposits. | | C. borrowing from the Treasury Department. | | D. None of the answers are correct. | | | | | * Question 1
10 out of 10 points | | | A credit union is different from a savings and loan because it: | | | | | Selected Answer: | A. restricts membership to a common group of people. | Answers: | A. restricts membership to a common group of people. | | B. only makes mortgage loans. | | C. will not accept checking deposits. | | D. restricts the maximum balance a depositor must have. | | | | | * Question 2
10 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | D. I only | Answers: | A. I, II, and III | | B. I and III | | C. I and II | | D. I only | | | | | * Question 3
0 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | A. pawnshops. | Answers: | A. pawnshops. | | B. loan sharks. | | C. payday lenders. | | D. All of the answers are correct. | | | | | * Question 4
10 out of 10 points | | | A bank loan that is paid off by the government if the borrower defaults is called a: | | | | | Selected Answer: | A. loan guarantee. | Answers: | A. loan guarantee. | | B. mortgage. | | C. usurious loan. | | D. bonded loan. | | | | | * Question 5
10 out of 10 points | | | Banks that are considered too big to fail: | | | | | Selected Answer: | A. could disrupt the entire financial system if allowed to fail. | Answers: | A. could disrupt the entire financial system if allowed to fail. | | B. have no links with other financial institutions. | | C. usually have assets of less than $1 billion. | | D. are usually small community banks. | | | | | * Question 6
10 out of 10 points | | | Money-center banks finance their lending primarily through: | | | | | Selected Answer: | A. borrowing from other banks. | Answers: | A. borrowing from other banks. | | B. taking deposits. | | C. borrowing from the Federal Reserve System. | | D. All of the answers are correct. | | | | | * Question 7
0 out of 10 points | | | In 2010, commercial banks had about ____ in outstanding loans and deposits. | | | | | Selected Answer: | A. $6 trillion | Answers: | A. $6 trillion | | B. $13 trillion | | C. $8 trillion | | D. $14 trillion | | | | | * Question 8
10 out of 10 points | | | Which of the following statements about community banks is true? | | | | | Selected Answer: | C. They usually raise funds from local depositors and lend to consumers and small businesses. | Answers: | A. They have assets of more than $10 billion. | | B. They only conduct businesses with other banks. | | C. They usually raise funds from local depositors and lend to consumers and small businesses. | | D. They operate all across the country. | | | | | * Question 9
10 out of 10 points | | | Since rent payments for housing _____ tax-deductible, individuals _____ an incentive to buy homes. | | | | | Selected Answer: | C. are not; have | Answers: | A. are; do not have | | B. are not; do not have | | C. are not; have | | D. are; have | | | | | * Question 10
0 out of 10 points | | | Banks are reluctant to lend to borrowers with weak credit histories because of _____; they rely on ______ to reduce this problem. | | | | | Selected Answer: | A. asymmetric information; expanding credit | Answers: | A. asymmetric information; expanding credit | | B. adverse selection; low interest rates | | C. high default risk; high interest rates | | D. adverse selection; credit reports | | | | | * Question 1
10 out of 10 points | | | Many of the today's largest U.S. banks were created by: | | | | | Selected Answer: | D. a series of mergers. | Answers: | A. predatory takeovers. | | B. bank consolidation encouraged by the Office of Comptroller. | | C. banking defaults. | | D. a series of mergers. | | | | | * Question 2
10 out of 10 points | | | Which of the following act, forbade banks to operate in more than one state? | | | | | Selected Answer: | B. the McFadden Act (1927) | Answers: | A. the Federal Reserve acts (1913) | | B. the McFadden Act (1927) | | C. the Riegle-Neal Act (1994) | | D. the Glass-Steagall Act (1933) | | | | | * Question 3
10 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | B. tax incentives. | Answers: | A. seizing homes that have been vacant for more than a year. | | B. tax incentives. | | C. building homes and assigning them to low-income families. | | D. buying homes for the poor. | | | | | * Question 4
10 out of 10 points | | | Money-center banks' largest loans are to: | | | | | Selected Answer: | A. private equity firms taking over companies. | Answers: | A. private equity firms taking over companies. | | B. individual households. | | C. credit card firms. | | D. large corporations. | | | | | * Question 5
10 out of 10 points | | | A bank charter is a: | | | | | Selected Answer: | C. government license to operate a bank. | Answers: | A. list of bank operating processes. | | B. set of rules set up by individual banks. | | C. government license to operate a bank. | | D. list of possible interest rates charged by banks. | | | | | * Question 6
10 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | D. I only | Answers: | A. I and III | | B. I and II | | C. I, II, and III | | D. I only | | | | | * Question 7
10 out of 10 points | | | Credit unions make: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. small personal loans. | | B. automobile loans. | | C. mortgage loans. | | D. All of the answers are correct. | | | | | * Question 8
10 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. pawnshops. | | B. loan sharks. | | C. payday lenders. | | D. All of the answers are correct. | | | | | * Question 9
10 out of 10 points | | | The largest commercial banks are called: | | | | | Selected Answer: | D. money-center banks. | Answers: | A. international banks. | | B. investment banks. | | C. federal reserve banks. | | D. money-center banks. | | | | | * Question 10
10 out of 10 points | | | The financial crisis of 2007–2009 led to: | | | | | Selected Answer: | B. new regulations designed to limit risk taking by banks. | Answers: | A. a nationalization of the banking system. | | B. new regulations designed to limit risk taking by banks. | | C. a reinstatement of the Glass-Steagall Act. | | D. a relaxation of the restrictions on interstate banking. | | | | | * Question 1
0 out of 10 points | | | Which of the following statements about money-center banks is true? | | | | | Selected Answer: | [None Given] | Answers: | A. They finance their lending primarily by accepting deposits. | | B. Their assets amount to less than $1 billion. | | C. Usually their assets amount to around $10 billion. | | D. Their headquarters are located in a major financial center. | | | | | * Question 2
0 out of 10 points | | | The Gramm-Leach-Bliley Act, which fully repealed the ________ was passed in 1999. | | | | | Selected Answer: | [None Given] | Answers: | A. restriction on finance companies to take deposits | | B. restrictions placed upon shareholders | | C. use of creative corporate accounting | | D. separation of commercial banks and securities firms | | | | | * Question 3
0 out of 10 points | | | The low introductory interest rates offered by subprime lenders are called: | | | | | Selected Answer: | [None Given] | Answers: | A. “low-ball rates.” | | B. “teaser rates.” | | C. “HomePride rates.” | | D. “adjustable rates.” | | | | | * Question 4
0 out of 10 points | | | Community banks are in no danger of dying out because: | | | | | Selected Answer: | [None Given] | Answers: | A. of their trillions of dollars in assets. | | B. they have considerable economies of scale. | | C. of their expertise in small-business lending. | | D. they generally operate in areas where large banks choose not to. | | | | | * Question 5
0 out of 10 points | | | The only government-owned bank in the United States is the: | | | | | Selected Answer: | [None Given] | Answers: | A. Bank of America. | | B. First Bank of the United States. | | C. Bank of North Dakota. | | D. Federal Reserve Bank. | | | | | * Question 6
0 out of 10 points | | | Credit unions make: | | | | | Selected Answer: | [None Given] | Answers: | A. small personal loans. | | B. automobile loans. | | C. mortgage loans. | | D. All of the answers are correct. | | | | | * Question 7
0 out of 10 points | | | The charter for the First Bank of the United States lasted ________ years. | | | | | Selected Answer: | [None Given] | Answers: | A. 20 | | B. 5 | | C. 100 | | D. 10 | | | | | * Question 8
0 out of 10 points | | | Which of the following describes the services offered by the First Bank of the United States? | | | | | Selected Answer: | [None Given] | Answers: | A. was the lender of last resort | | B. issued a national currency | | C. lent money to federal government | | D. All of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | [None Given] | Answers: | A. buying homes for the poor. | | B. building homes and assigning them to low-income families. | | C. tax incentives. | | D. seizing homes that have been vacant for more than a year. | | | | | * Question 10
0 out of 10 points | | | Which of the following statements about the Small Business Administration (SBA) is true? | | | | | Selected Answer: | [None Given] | Answers: | A. Everybody agrees that the SBA is a great idea. | | B. The SBA promotes lending to low-income individuals. | | C. A company qualifies for a loan guarantee if it is “small,” as defined by the SBA. | | D. The SBA promotes lending to corporations that are able to issue securities only. | | | | | * Question 1
10 out of 10 points | | | A credit union is different from a savings and loan because it: | | | | | Selected Answer: | A. restricts membership to a common group of people. | Answers: | A. restricts membership to a common group of people. | | B. only makes mortgage loans. | | C. will not accept checking deposits. | | D. restricts the maximum balance a depositor must have. | | | | | * Question 2
10 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | D. I only | Answers: | A. I, II, and III | | B. I and III | | C. I and II | | D. I only | | | | | * Question 3
0 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | A. pawnshops. | Answers: | A. pawnshops. | | B. loan sharks. | | C. payday lenders. | | D. All of the answers are correct. | | | | | * Question 4
10 out of 10 points | | | A bank loan that is paid off by the government if the borrower defaults is called a: | | | | | Selected Answer: | A. loan guarantee. | Answers: | A. loan guarantee. | | B. mortgage. | | C. usurious loan. | | D. bonded loan. | | | | | * Question 5
10 out of 10 points | | | Banks that are considered too big to fail: | | | | | Selected Answer: | A. could disrupt the entire financial system if allowed to fail. | Answers: | A. could disrupt the entire financial system if allowed to fail. | | B. have no links with other financial institutions. | | C. usually have assets of less than $1 billion. | | D. are usually small community banks. | | | | | * Question 6
10 out of 10 points | | | Money-center banks finance their lending primarily through: | | | | | Selected Answer: | A. borrowing from other banks. | Answers: | A. borrowing from other banks. | | B. taking deposits. | | C. borrowing from the Federal Reserve System. | | D. All of the answers are correct. | | | | | * Question 7
0 out of 10 points | | | In 2010, commercial banks had about ____ in outstanding loans and deposits. | | | | | Selected Answer: | A. $6 trillion | Answers: | A. $6 trillion | | B. $13 trillion | | C. $8 trillion | | D. $14 trillion | | | | | * Question 8
10 out of 10 points | | | Which of the following statements about community banks is true? | | | | | Selected Answer: | C. They usually raise funds from local depositors and lend to consumers and small businesses. | Answers: | A. They have assets of more than $10 billion. | | B. They only conduct businesses with other banks. | | C. They usually raise funds from local depositors and lend to consumers and small businesses. | | D. They operate all across the country. | | | | | * Question 9
10 out of 10 points | | | Since rent payments for housing _____ tax-deductible, individuals _____ an incentive to buy homes. | | | | | Selected Answer: | C. are not; have | Answers: | A. are; do not have | | B. are not; do not have | | C. are not; have | | D. are; have | | | | | * Question 10
0 out of 10 points | | | Banks are reluctant to lend to borrowers with weak credit histories because of _____; they rely on ______ to reduce this problem. | | | | | Selected Answer: | A. asymmetric information; expanding credit | Answers: | A. asymmetric information; expanding credit | | B. adverse selection; low interest rates | | C. high default risk; high interest rates | | D. adverse selection; credit reports | | | | | * Question 1
10 out of 10 points | | | Many of the today's largest U.S. banks were created by: | | | | | Selected Answer: | D. a series of mergers. | Answers: | A. predatory takeovers. | | B. bank consolidation encouraged by the Office of Comptroller. | | C. banking defaults. | | D. a series of mergers. | | | | | * Question 2
10 out of 10 points | | | Which of the following act, forbade banks to operate in more than one state? | | | | | Selected Answer: | B. the McFadden Act (1927) | Answers: | A. the Federal Reserve acts (1913) | | B. the McFadden Act (1927) | | C. the Riegle-Neal Act (1994) | | D. the Glass-Steagall Act (1933) | | | | | * Question 3
10 out of 10 points | | | The U.S. government encourages home ownership by: | | | | | Selected Answer: | B. tax incentives. | Answers: | A. seizing homes that have been vacant for more than a year. | | B. tax incentives. | | C. building homes and assigning them to low-income families. | | D. buying homes for the poor. | | | | | * Question 4
10 out of 10 points | | | Money-center banks' largest loans are to: | | | | | Selected Answer: | A. private equity firms taking over companies. | Answers: | A. private equity firms taking over companies. | | B. individual households. | | C. credit card firms. | | D. large corporations. | | | | | * Question 5
10 out of 10 points | | | A bank charter is a: | | | | | Selected Answer: | C. government license to operate a bank. | Answers: | A. list of bank operating processes. | | B. set of rules set up by individual banks. | | C. government license to operate a bank. | | D. list of possible interest rates charged by banks. | | | | | * Question 6
10 out of 10 points | | | Securitization contributed to the financial crisis of 2007–2009 because:
I. the securities were backed by subprime mortgages.
II. risk-taking institutions purchased securities backed by subprime mortgages.
III. Fannie Mae and Freddie Mac did not purchase subprime mortgages. | | | | | Selected Answer: | D. I only | Answers: | A. I and III | | B. I and II | | C. I, II, and III | | D. I only | | | | | * Question 7
10 out of 10 points | | | Credit unions make: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. small personal loans. | | B. automobile loans. | | C. mortgage loans. | | D. All of the answers are correct. | | | | | * Question 8
10 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. pawnshops. | | B. loan sharks. | | C. payday lenders. | | D. All of the answers are correct. | | | | | * Question 9
10 out of 10 points | | | The largest commercial banks are called: | | | | | Selected Answer: | D. money-center banks. | Answers: | A. international banks. | | B. investment banks. | | C. federal reserve banks. | | D. money-center banks. | | | | | * Question 10
10 out of 10 points | | | The financial crisis of 2007–2009 led to: | | | | | Selected Answer: | B. new regulations designed to limit risk taking by banks. | Answers: | A. a nationalization of the banking system. | | B. new regulations designed to limit risk taking by banks. | | C. a reinstatement of the Glass-Steagall Act. | | D. a relaxation of the restrictions on interstate banking. | | | | | * Question 1
0 out of 10 points | | | The key factor that kept subprime foreclosures down in the early 2000s was: | | | | | Selected Answer: | [None Given] | Answers: | A. low interest rates. | | B. rising housing prices. | | C. the Fed cutting short-term interest rates. | | D. All of the answers are correct. | | | | | * Question 2
0 out of 10 points | | | The low introductory interest rates offered by subprime lenders are called: | | | | | Selected Answer: | [None Given] | Answers: | A. “teaser rates.” | | B. “low-ball rates.” | | C. “adjustable rates.” | | D. “HomePride rates.” | | | | | * Question 3
0 out of 10 points | | | The largest provider of loans from the Federal Family Education Loans Program is: | | | | | Selected Answer: | [None Given] | Answers: | A. Sallie Mae. | | B. Freddie Mac. | | C. the Ford Direct Loan Program. | | D. Fannie Mae. | | | | | * Question 4
0 out of 10 points | | | Usually a subprime mortgage loan carried interest rates ______ the best mortgage rates. | | | | | Selected Answer: | [None Given] | Answers: | A. 3 to 7 percentage points below | | B. 2 to 5 percentage points below | | C. 0.5 to 1 percentage points above | | D. 2 to 5 percentage points above | | | | | * Question 5
0 out of 10 points | | | A financial holding company is an institution that owns: | | | | | Selected Answer: | [None Given] | Answers: | A. a very large investment bank. | | B. numerous mutual funds. | | C. a group of financial institutions. | | D. a mix of financial and manufacturing companies. | | | | | * Question 6
0 out of 10 points | | | Since the banking crisis of the mid-1980s, many economists believe that some banks have become: | | | | | Selected Answer: | [None Given] | Answers: | A. too big too fail. | | B. important community lenders. | | C. monopolies. | | D. essential to preventing another financial crisis. | | | | | * Question 7
0 out of 10 points | | | Subprime lenders include: | | | | | Selected Answer: | [None Given] | Answers: | A. pawnshops. | | B. loan sharks. | | C. payday lenders. | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | To make it possible for low-income borrowers to obtain mortgages, subprime lenders: | | | | | Selected Answer: | [None Given] | Answers: | A. lowered the loan payment–income ratio. | | B. required proof of income. | | C. offered standard 30-year mortgage rates. | | D. All of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | The primary reason for the decline in the number of U.S. banks is: | | | | | Selected Answer: | [None Given] | Answers: | A. bank consolidation. | | B. foreign purchases of U.S. banks. | | C. increased banking regulation. | | D. None of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | A bank loan that is paid off by the government if the borrower defaults is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. bonded loan. | | B. mortgage. | | C. loan guarantee. | | D. usurious loan. | | | | | * Question 1
0 out of 10 points | | | As a result of the subprime lending crisis, what happened to Fannie Mae and Freddie Mac? | | | | | Selected Answer: | [None Given] | Answers: | A. The Fed seized their assets and auctioned them off. | | B. They were privatized. | | C. They were put into conservativeship. | | D. They were sold to a foreign central bank. | | | | | * Question 2
0 out of 10 points | | | The fall in the value of securitized subprime loans eventually forced the Federal Reserve to arrange the purchase of the investment bank ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. the Marx Group; the Friedman Fund | | B. Bear Stearns; JPMorgan Chase | | C. Citigroup; Bear Stearns | | D. Merrill Lynch; USB | | | | | * Question 3
0 out of 10 points | | | The Glass-Steagall Act was passed in ________ to minimize ________. | | | | | Selected Answer: | [None Given] | Answers: | A. 1913; the expansion of bank branches | | B. 1832; the number of currencies in circulation | | C. 1863; the number of banks | | D. 1933; bank failures | | | | | * Question 4
0 out of 10 points | | | A financial institution that pools a group of loans for sale to other institutions has ________ the loans. | | | | | Selected Answer: | [None Given] | Answers: | A. “bundled” | | B. “mutualized” | | C. “sacrificed” | | D. “securitized” | | | | | * Question 5
0 out of 10 points | | | Banks often merge: | | | | | Selected Answer: | [None Given] | Answers: | A. after they have suffered large losses. | | B. to create an empire for the bank managers. | | C. to avoid failure. | | D. All of the answers are correct. | | | | | * Question 6
0 out of 10 points | | | According to a survey of payday lenders, the average annual interest rate charged on loans is about: | | | | | Selected Answer: | [None Given] | Answers: | A. 76 percent. | | B. 150 percent. | | C. 400 percent. | | D. 20 percent. | | | | | * Question 7
0 out of 10 points | | | A credit union is different from a savings and loan because it: | | | | | Selected Answer: | [None Given] | Answers: | A. restricts membership to a common group of people. | | B. will not accept checking deposits. | | C. restricts the maximum balance a depositor must have. | | D. only makes mortgage loans. | | | | | * Question 8
0 out of 10 points | | | Following the securitization process, the securitizer issues securities that entitle the owner to a share of the payments on the loan pool. Prospective buyers of these securities include: | | | | | Selected Answer: | [None Given] | Answers: | A. small businesses with extra cash. | | B. community banks. | | C. small savers. | | D. mutual funds. | | | | | * Question 9
0 out of 10 points | | | Securitization of nonmortgage loans refers to issuing securities backed by which of the following types of loans? | | | | | Selected Answer: | [None Given] | Answers: | A. student loans | | B. commercial real estate loans | | C. two-bedroom home mortgage loans only | | D. residential real estate loans | | | | | * Question 10
0 out of 10 points | | | A financial holding company is an institution that owns: | | | | | Selected Answer: | [None Given] | Answers: | A. a group of financial institutions. | | B. numerous mutual funds. | | C. a very large investment bank. | | D. a mix of financial and manufacturing companies. | | | | |

* Question 1
0 out of 10 points | | | Banks often have to sell their loans at fire-sale prices: | | | | | Selected Answer: | [None Given] | Answers: | A. because they wish to increase their profits. | | B. when their assets exceed their net worth. | | C. they wish to increase their borrowing from the Federal Reserve. | | D. because they know more about the borrower than the institution buying the loan. | | | | | * Question 2
0 out of 10 points | | | The largest assets on the consolidated balance sheet of U.S. banks is/are: | | | | | Selected Answer: | [None Given] | Answers: | A. federal funds. | | B. ownership of securities. | | C. loans. | | D. “other” assets. | | | | | * Question 3
0 out of 10 points | | | Holding assets constant, if the equity ratio rises, the return on equity: | | | | | Selected Answer: | [None Given] | Answers: | A. is unchanged. | | B. rises. | | C. falls. | | D. There is not enough information provided to answer the question. | | | | | * Question 4
0 out of 10 points | | | The most liquid form of assets on a bank's balance sheet are: | | | | | Selected Answer: | [None Given] | Answers: | A. reserves. | | B. loans. | | C. federal funds. | | D. checking deposits. | | | | | * Question 5
0 out of 10 points | | | A bank's net worth is also called its: | | | | | Selected Answer: | [None Given] | Answers: | A. loans. | | B. revenue. | | C. capital. | | D. deposits. | | | | | * Question 6
0 out of 10 points | | | Which of the following include liabilities for banks? | | | | | Selected Answer: | [None Given] | Answers: | A. reserves | | B. checking deposits | | C. loans | | D. cash items | | | | | * Question 7
0 out of 10 points | | | Suppose a bank's capital is valued at $20, its assets amount to $100, and its profits amount to $5. Which of the following is the return on assets? | | | | | Selected Answer: | [None Given] | Answers: | A. 25 percent | | B. 4.16 percent | | C. 5 percent | | D. 20 percent | | | | | * Question 8
0 out of 10 points | | | Suppose a bank's capital is valued at $20, its assets amount to $100, and its profits amount to $5. Which of the following is the return on equity? | | | | | Selected Answer: | [None Given] | Answers: | A. 4.16 percent | | B. 25 percent | | C. 8.03 percent | | D. 5 percent | | | | | * Question 9
0 out of 10 points | | | Which of the following is the correct equation for a bank's return on equity? | | | | | Selected Answer: | [None Given] | Answers: | A. | | B. | | C. | | D. | | | | | * Question 10
0 out of 10 points | | | Which of the following securities are banks not allowed to hold? | | | | | Selected Answer: | [None Given] | Answers: | A. stocks | | B. Treasury bonds | | C. high-rated corporate bonds | | D. municipal bonds | | | | | * Question 1
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 2
0 out of 10 points | | | Table 9.1: Bob's Bank Asset or Liability | Amount ($) | Checkable deposits | 10 | Nontransaction deposits | 40 | Reserves | 5 | Loans | 35 | Bank capital | 5 | Securities | 15 | Reference: Ref 9-1
(Table 9.1: Bob's Bank) Which of the following represents the Bob's Bank balance sheet? a. | | Assets | Liabilities | Reserves | 5 | Checkable deposits | 10 | Loans | 35 | Nontransaction deposits | 40 | Bank capital | 10 | Securities | 15 | b. | | Assets | Liabilities | Reserves | 5 | Checkable deposits | 10 | Loans | 35 | Nontransaction deposits | 40 | Securities | 15 | Bank capital | 5 | c. | | Assets | Liabilities | Checkable deposits | 10 | Reserves | 5 | Nontransaction deposits | 40 | Loans | 35 | Bank capital | 10 | Securities | 15 | | | | | | Selected Answer: | [None Given] | Answers: | A. a | | B. b | | C. c | | D. There is not enough information provided to answer the question. | | | | | * Question 3
0 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | [None Given] | Answers: | A. liquidity risk. | | B. credit (or default) risk. | | C. market risk. | | D. interest rate risk. | | | | | * Question 4
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. What is this bank's total income? | | | | | Selected Answer: | [None Given] | Answers: | A. $17.50 | | B. $2.50 | | C. $20 | | D. $160 | | | | | * Question 5
0 out of 10 points | | | The bank that has “bucked the trend” of relying on off-balance-sheet activities, increased fees, and the use of purchased funds in favor of attracting small checking deposits is: | | | | | Selected Answer: | [None Given] | Answers: | A. the Commerce Bank. | | B. the Bank of America. | | C. the People's Bank. | | D. Wells Fargo. | | | | | * Question 6
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. derivatives | | B. investment banking | | C. federal fund loans | | D. lines of credit | | | | | * Question 7
0 out of 10 points | | | Banks often have to sell their loans at fire-sale prices: | | | | | Selected Answer: | [None Given] | Answers: | A. when their assets exceed their net worth. | | B. they wish to increase their borrowing from the Federal Reserve. | | C. because they wish to increase their profits. | | D. because they know more about the borrower than the institution buying the loan. | | | | | * Question 8
0 out of 10 points | | | To find a bank's return on its assets, we: | | | | | Selected Answer: | [None Given] | Answers: | A. divide its total expenses by its total income. | | B. divide its profits by its capital. | | C. subtract its total expenses from its total income. | | D. divide its profits by its total assets. | | | | | * Question 9
0 out of 10 points | | | Suppose that a bank has $40 in vault cash and deposits at the Fed, $40 in securities and $80 in loans, $80 in checking deposits, $70 in federal funds, and $10 of net worth. Suppose there is a bank run and customers close their checking accounts. What should the bank do to avoid going out of business?
I. use its reserves and sells its securities
II. sell its loans
III. It cannot avoid going out of business. | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. I and II only | | C. II only | | D. III only | | | | | * Question 10
0 out of 10 points | | | Banks are allowed to hold all of the following, except: | | | | | Selected Answer: | [None Given] | Answers: | A. mortgage-backed securities. | | B. stocks. | | C. Treasury bonds. | | D. securities with low risk. | | | | | * Question 1
0 out of 10 points | | | Suppose that the mortgage default rate turns out to be higher than the bank expected. How does this fact affect a bank's net worth? | | | | | Selected Answer: | [None Given] | Answers: | A. It reduces it because the bank must write off the value of the loan. | | B. It increases net worth because the bank earns a higher interest rate on riskier mortgages. | | C. It has no impact. | | D. It reduces it because the bank now has lower liabilities. | | | | | * Question 2
0 out of 10 points | | | The return on equity is: | | | | | Selected Answer: | [None Given] | Answers: | A. the ratio of a bank's profits to its capital. | | B. equal to its after-tax income. | | C. the ratio of a bank's profits to its expenses. | | D. equal to net income. | | | | | * Question 3
0 out of 10 points | | | A letter of credit is effectively a(n) ________ against a loan default. | | | | | Selected Answer: | [None Given] | Answers: | A. derivative asset | | B. bond that protects the lender | | C. risk-free loan | | D. insurance policy | | | | | * Question 4
0 out of 10 points | | | The largest liabilities held by banks are: | | | | | Selected Answer: | [None Given] | Answers: | A. securities. | | B. vault cash. | | C. loans. | | D. nontransaction deposits. | | | | | * Question 5
0 out of 10 points | | | When you deposit $100 in your savings account, your bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. reserves increase by exactly $100. | | B. liabilities fall by $100. | | C. capital increases by $100. | | D. assets increase by $100. | | | | | * Question 6
0 out of 10 points | | | Because ________ generate no income, banks hold a ________ portion of their assets in this form. | | | | | Selected Answer: | [None Given] | Answers: | A. loans; small | | B. securities; large | | C. buildings; large | | D. reserves; small | | | | | * Question 7
0 out of 10 points | | | Which of the following is a “core deposit”? | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits | | B. savings deposits | | C. small-time deposits | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | One measure of interest rate risk is the: | | | | | Selected Answer: | [None Given] | Answers: | A. rate-sensitivity gap. | | B. federal funds rate. | | C. unemployment rate. | | D. interest rate volatility. | | | | | * Question 9
0 out of 10 points | | | The fall in housing prices during the financial crisis caused many homeowners to: | | | | | Selected Answer: | [None Given] | Answers: | A. have a mortgage whose value was worth less than the house. | | B. walk away from their houses. | | C. decide to take out a home equity loan. | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | To calculate a bank's profits, we use its: | | | | | Selected Answer: | [None Given] | Answers: | A. balance sheet. | | B. income statement. | | C. return on liabilities. | | D. profit margins. | | | | | * Question 1
0 out of 10 points | | | A bank's liabilities: | | | | | Selected Answer: | [None Given] | Answers: | A. is the amount owed to others. | | B. equal its deposits. | | C. must equal its assets. | | D. equal zero in the long run. | | | | | * Question 2
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. What is this bank's total income? | | | | | Selected Answer: | [None Given] | Answers: | A. $2.50 | | B. $20 | | C. $160 | | D. $17.50 | | | | | * Question 3
0 out of 10 points | | | A standby letter of credit guarantees payment on: | | | | | Selected Answer: | [None Given] | Answers: | A. a security. | | B. shipments of oil. | | C. shipments of wheat. | | D. stock. | | | | | * Question 4
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; reserves of $10; $100 in savings accounts that earn an interest rate of 2.5 percent; checking deposits equal to $30, a net worth of $30, and other expenses of $15. This bank gets a return on its equity of about: | | | | | Selected Answer: | [None Given] | Answers: | A. 7.5 percent | | B. 16.7 percent. | | C. 4.8 percent. | | D. 25 percent. | | | | | * Question 5
0 out of 10 points | | | A loan to a commercial bank made directly from the Fed is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. federal funds loan. | | B. discount loan. | | C. Treasury bill. | | D. bailout. | | | | | * Question 6
0 out of 10 points | | | Banks seek to expand their commercial and industrial loans because: | | | | | Selected Answer: | [None Given] | Answers: | A. there is little competition for commercial loans among banks. | | B. they are more profitable than consumer loans. | | C. they can securitize the loans in the junk-bond market. | | D. they wish to establish an ongoing relationship with firms. | | | | | * Question 7
0 out of 10 points | | | Losses on real estate loans were lower for banks than for finance companies during the financial crisis because: | | | | | Selected Answer: | [None Given] | Answers: | A. the finance companies were more tightly regulated than the banks. | | B. the banks did not securitize their loans. | | C. the banks did not make real estate loans. | | D. the banks rationed credit by screening out risky borrowers. | | | | | * Question 8
0 out of 10 points | | | On a bank's balance sheet, which of the following is a liability? | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits | | B. small-time deposits | | C. savings accounts | | D. All of the answers are liabilities. | | | | | * Question 9
0 out of 10 points | | | The creation of ________ in the late 1970s allowed firms to avoid taking ________ loans from commercial banks. | | | | | Selected Answer: | [None Given] | Answers: | A. AAA bonds; federal fund | | B. discount loans; consumer | | C. junk bonds; commercial and industrial | | D. stocks; commercial | | | | | * Question 10
0 out of 10 points | | | If many of a bank's depositors wish to withdraw large sums of money at one point in time, the bank faces: | | | | | Selected Answer: | [None Given] | Answers: | A. much more government oversight. | | B. liquidity risk. | | C. default. | | D. a bank run. | | | | | * Question 1
0 out of 10 points | | | Which of the following is the most expensive source of funds for banks? | | | | | Selected Answer: | [None Given] | Answers: | A. repurchase agreements | | B. savings deposits | | C. checking deposits | | D. small-time deposits | | | | | * Question 2
0 out of 10 points | | | Consider the banks' ability to raise funds. Over time, banks have seen a ____ in their least expensive source of funds and a _____ in their most expensive source of funds. | | | | | Selected Answer: | [None Given] | Answers: | A. fall; rise | | B. rise; fall | | C. fall; fall | | D. rise; rise | | | | | * Question 3
0 out of 10 points | | | Suppose a bank's capital is valued at $20, its assets amount to $100, and its profits amount to $5. Which of the following is the return on assets? | | | | | Selected Answer: | [None Given] | Answers: | A. 4.16 percent | | B. 20 percent | | C. 5 percent | | D. 25 percent | | | | | * Question 4
0 out of 10 points | | | Which of the following is a “core deposit”? | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits | | B. savings deposits | | C. small-time deposits | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | A loan to a commercial bank made directly from the Fed is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. discount loan. | | B. bailout. | | C. Treasury bill. | | D. federal funds loan. | | | | | * Question 6
0 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | [None Given] | Answers: | A. interest rate risk. | | B. market risk. | | C. liquidity risk. | | D. credit (or default) risk. | | | | | * Question 7
0 out of 10 points | | | If a bank has $50 of rate sensitive assets and $60 in rate-sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. rise; $0.20 | | B. fall; $0.20 | | C. rise; $2.00 | | D. There is not enough information provided to answer the question. | | | | | * Question 8
0 out of 10 points | | | The fall in housing prices during the financial crisis caused many homeowners to: | | | | | Selected Answer: | [None Given] | Answers: | A. have a mortgage whose value was worth less than the house. | | B. walk away from their houses. | | C. decide to take out a home equity loan. | | D. All of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | When you deposit $100 in your savings account, your bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. liabilities fall by $100. | | B. capital increases by $100. | | C. assets increase by $100. | | D. reserves increase by exactly $100. | | | | | * Question 10
0 out of 10 points | | | Congress passed the Credit Card Accountability and Responsibility, and Disclosure Act in order to: | | | | | Selected Answer: | [None Given] | Answers: | A. require credit card users to reduce the use of their credit cards. | | B. restrict the fees imposed on credit card users. | | C. prevent banks from imposing a fee when transferring a balance from another credit card. | | D. require the banks to provide credit cards to students and other customers with a low income. | | | | | * Question 1
0 out of 10 points | | | Which of the following is the most expensive source of funds for banks? | | | | | Selected Answer: | [None Given] | Answers: | A. repurchase agreements | | B. savings deposits | | C. checking deposits | | D. small-time deposits | | | | | * Question 2
0 out of 10 points | | | Consider the banks' ability to raise funds. Over time, banks have seen a ____ in their least expensive source of funds and a _____ in their most expensive source of funds. | | | | | Selected Answer: | [None Given] | Answers: | A. fall; rise | | B. rise; fall | | C. fall; fall | | D. rise; rise | | | | | * Question 3
0 out of 10 points | | | Suppose a bank's capital is valued at $20, its assets amount to $100, and its profits amount to $5. Which of the following is the return on assets? | | | | | Selected Answer: | [None Given] | Answers: | A. 4.16 percent | | B. 20 percent | | C. 5 percent | | D. 25 percent | | | | | * Question 4
0 out of 10 points | | | Which of the following is a “core deposit”? | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits | | B. savings deposits | | C. small-time deposits | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | A loan to a commercial bank made directly from the Fed is called a: | | | | | Selected Answer: | [None Given] | Answers: | A. discount loan. | | B. bailout. | | C. Treasury bill. | | D. federal funds loan. | | | | | * Question 6
0 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | [None Given] | Answers: | A. interest rate risk. | | B. market risk. | | C. liquidity risk. | | D. credit (or default) risk. | | | | | * Question 7
0 out of 10 points | | | If a bank has $50 of rate sensitive assets and $60 in rate-sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. rise; $0.20 | | B. fall; $0.20 | | C. rise; $2.00 | | D. There is not enough information provided to answer the question. | | | | | * Question 8
0 out of 10 points | | | The fall in housing prices during the financial crisis caused many homeowners to: | | | | | Selected Answer: | [None Given] | Answers: | A. have a mortgage whose value was worth less than the house. | | B. walk away from their houses. | | C. decide to take out a home equity loan. | | D. All of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | When you deposit $100 in your savings account, your bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. liabilities fall by $100. | | B. capital increases by $100. | | C. assets increase by $100. | | D. reserves increase by exactly $100. | | | | | * Question 10
0 out of 10 points | | | Congress passed the Credit Card Accountability and Responsibility, and Disclosure Act in order to: | | | | | Selected Answer: | [None Given] | Answers: | A. require credit card users to reduce the use of their credit cards. | | B. restrict the fees imposed on credit card users. | | C. prevent banks from imposing a fee when transferring a balance from another credit card. | | D. require the banks to provide credit cards to students and other customers with a low income. | | | | | * Question 1
0 out of 10 points | | | The rate-sensitivity gap is equal to: | | | | | Selected Answer: | [None Given] | Answers: | A. total income minus total expense. | | B. rate-sensitive assets minus rate-sensitive liabilites. | | C. rate-senitive assets divided by rate-sensitive liabilities. | | D. quantity of assets minus quantity of liabilities. | | | | | * Question 2
0 out of 10 points | | | Holding capital constant, an increase in assets _____ the equity ratio and ____ the bank's risk of insolvency. | | | | | Selected Answer: | [None Given] | Answers: | A. decreases; decreases | | B. increases; increases | | C. increases; decreases | | D. decreases; increases | | | | | * Question 3
0 out of 10 points | | | A bank's insolvency risk is measured by its: | | | | | Selected Answer: | [None Given] | Answers: | A. loan ratio. | | B. equity ratio. | | C. noninterest income ratio. | | D. interest income ratio. | | | | | * Question 4
0 out of 10 points | | | The S&L crisis was caused by the: | | | | | Selected Answer: | [None Given] | Answers: | A. fall in the price of oil. | | B. rise in commercial real estate prices. | | C. growing gap between short- and long-term interest rates. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. Its total income is ________, total expense is ________, and profit is ________. | | | | | Selected Answer: | [None Given] | Answers: | A. $160; $115; $45 | | B. $20; $17.50; $2.50 | | C. $100; $100; $0 | | D. $5; $5; $0 | | | | | * Question 6
0 out of 10 points | | | A bank's liabilities: | | | | | Selected Answer: | [None Given] | Answers: | A. equal its deposits. | | B. must equal its assets. | | C. is the amount owed to others. | | D. equal zero in the long run. | | | | | * Question 7
0 out of 10 points | | | The increased use of credit cards has led to: | | | | | Selected Answer: | [None Given] | Answers: | A. an increased use of ATM cards. | | B. higher rates of inflation. | | C. a decline in consumer loans. | | D. an increase in consumer loans. | | | | | * Question 8
0 out of 10 points | | | Which of the following is a “core deposit”? | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits | | B. savings deposits | | C. small-time deposits | | D. All of the answers are correct. | | | | | * Question 9
0 out of 10 points | | | When an individual hires a commercial bank to manage her assets, the term for that service is: | | | | | Selected Answer: | [None Given] | Answers: | A. an investment bank. | | B. a brokerage. | | C. private banking. | | D. good banking services. | | | | | * Question 10
0 out of 10 points | | | Loans from one bank to another are called ______; loans from a corporation to a bank are called ______. | | | | | Selected Answer: | [None Given] | Answers: | A. discount loans; bonds | | B. repurchase agreements; federal funds | | C. certificates of deposit; discount loans | | D. federal funds; repurchase agreements | | | | | * Question 1
0 out of 10 points | | | Interest rates on securities held by banks are _____ than interest rates on bank loans, and _____ than interest rates on reserves. | | | | | Selected Answer: | [None Given] | Answers: | A. lower; higher | | B. higher; lower | | C. lower; lower | | D. higher; higher | | | | | * Question 2
0 out of 10 points | | | Suppose that a bank has $200 in assets and $100 in net worth. It earned $5 in interest income, $8 in noninterest income, and paid $3 on its savings accounts. Its return on assets is ___ and its return on equity is ____. | | | | | Selected Answer: | [None Given] | Answers: | A. 5.6 percent; 3 percent | | B. 5.6 percent; 13 percent | | C. 2.5 percent; 3 percent | | D. 5 percent; 10 percent | | | | | * Question 3
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 4
0 out of 10 points | | | With the decline in commercial and investment loans has come an increase in: | | | | | Selected Answer: | [None Given] | Answers: | A. federal fund loans. | | B. car loans. | | C. real estate loans. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | If the interest rate on a bank's liabilities rises without an increase in asset interest rates, the bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. return on equity falls. | | B. return on assets falls. | | C. profits fall. | | D. All of the answers are correct. | | | | | * Question 6
0 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | [None Given] | Answers: | A. liquidity risk. | | B. market risk. | | C. credit (or default) risk. | | D. interest rate risk. | | | | | * Question 7
0 out of 10 points | | | On a bank's balance sheet, which of the following is an asset? | | | | | Selected Answer: | [None Given] | Answers: | A. vault cash | | B. loans | | C. securities | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | Interest rate risk occurs because of: | | | | | Selected Answer: | [None Given] | Answers: | A. different maturities of bank assets and liabilities. | | B. the volatility of short-term interest rates. | | C. the short-term nature of bank borrowing. | | D. All contribute to interest rate risk. | | | | | * Question 9
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. How much profit does this bank make? | | | | | Selected Answer: | [None Given] | Answers: | A. $20 | | B. $35 | | C. $2.50 | | D. –$5 | | | | | * Question 10
0 out of 10 points | | | Loans from one bank to another are called ______; loans from a corporation to a bank are called ______. | | | | | Selected Answer: | [None Given] | Answers: | A. certificates of deposit; discount loans | | B. federal funds; repurchase agreements | | C. discount loans; bonds | | D. repurchase agreements; federal funds | | | | | * Question 1
0 out of 10 points | | | Interest rates on securities held by banks are _____ than interest rates on bank loans, and _____ than interest rates on reserves. | | | | | Selected Answer: | [None Given] | Answers: | A. lower; higher | | B. higher; lower | | C. lower; lower | | D. higher; higher | | | | | * Question 2
0 out of 10 points | | | Suppose that a bank has $200 in assets and $100 in net worth. It earned $5 in interest income, $8 in noninterest income, and paid $3 on its savings accounts. Its return on assets is ___ and its return on equity is ____. | | | | | Selected Answer: | [None Given] | Answers: | A. 5.6 percent; 3 percent | | B. 5.6 percent; 13 percent | | C. 2.5 percent; 3 percent | | D. 5 percent; 10 percent | | | | | * Question 3
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 4
0 out of 10 points | | | With the decline in commercial and investment loans has come an increase in: | | | | | Selected Answer: | [None Given] | Answers: | A. federal fund loans. | | B. car loans. | | C. real estate loans. | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | If the interest rate on a bank's liabilities rises without an increase in asset interest rates, the bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. return on equity falls. | | B. return on assets falls. | | C. profits fall. | | D. All of the answers are correct. | | | | | * Question 6
0 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | [None Given] | Answers: | A. liquidity risk. | | B. market risk. | | C. credit (or default) risk. | | D. interest rate risk. | | | | | * Question 7
0 out of 10 points | | | On a bank's balance sheet, which of the following is an asset? | | | | | Selected Answer: | [None Given] | Answers: | A. vault cash | | B. loans | | C. securities | | D. All of the answers are correct. | | | | | * Question 8
0 out of 10 points | | | Interest rate risk occurs because of: | | | | | Selected Answer: | [None Given] | Answers: | A. different maturities of bank assets and liabilities. | | B. the volatility of short-term interest rates. | | C. the short-term nature of bank borrowing. | | D. All contribute to interest rate risk. | | | | | * Question 9
0 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. How much profit does this bank make? | | | | | Selected Answer: | [None Given] | Answers: | A. $20 | | B. $35 | | C. $2.50 | | D. –$5 | | | | | * Question 10
0 out of 10 points | | | Loans from one bank to another are called ______; loans from a corporation to a bank are called ______. | | | | | Selected Answer: | [None Given] | Answers: | A. certificates of deposit; discount loans | | B. federal funds; repurchase agreements | | C. discount loans; bonds | | D. repurchase agreements; federal funds | | | | | * Question 1
0 out of 10 points | | | A ________ is when a bank sells a security to another institution with a promise to buy it back later. | | | | | Selected Answer: | [None Given] | Answers: | A. repurchase agreement | | B. sweep account | | C. federal fund | | D. Treasury loan | | | | | * Question 2
0 out of 10 points | | | Commercial bank “tying” refers to: | | | | | Selected Answer: | [None Given] | Answers: | A. giving households that open savings and checking accounts better interest rates on loans. | | B. allowing firms access to free checking accounts with a one-million-dollar deposit. | | C. making firms take out loans in return for a bank's underwriting. | | D. giving favorable interest rates to households that take out both auto and home loans. | | | | | * Question 3
0 out of 10 points | | | The cost to a bank of holding too many liquid assets is: | | | | | Selected Answer: | [None Given] | Answers: | A. a very high reserve rate. | | B. leaving it exposed to default risk. | | C. not having cash in the vault. | | D. interest lost on loans and holding securities. | | | | | * Question 4
0 out of 10 points | | | Suppose that the mortgage default rate turns out to be higher than the bank expected. How does this fact affect a bank's net worth? | | | | | Selected Answer: | [None Given] | Answers: | A. It reduces it because the bank must write off the value of the loan. | | B. It increases net worth because the bank earns a higher interest rate on riskier mortgages. | | C. It has no impact. | | D. It reduces it because the bank now has lower liabilities. | | | | | * Question 5
0 out of 10 points | | | Which of the following is not a way banks can borrow? | | | | | Selected Answer: | [None Given] | Answers: | A. overnight repurchase agreement | | B. certificate of deposit | | C. discount loan | | D. federal funds | | | | | * Question 6
0 out of 10 points | | | Losses on real estate loans were lower for banks than for finance companies during the financial crisis because: | | | | | Selected Answer: | [None Given] | Answers: | A. the banks did not make real estate loans. | | B. the banks rationed credit by screening out risky borrowers. | | C. the finance companies were more tightly regulated than the banks. | | D. the banks did not securitize their loans. | | | | | * Question 7
0 out of 10 points | | | When you deposit a paycheck in your bank account your bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. assets increase and liabilities decrease. | | B. assets increase. | | C. assets increase and liabilities are unchanged. | | D. assets and liabilities increase. | | | | | * Question 8
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 9
0 out of 10 points | | | A bank's purchased funds include all of the following except: | | | | | Selected Answer: | [None Given] | Answers: | A. repurchase agreements. | | B. federal funds. | | C. large-time deposits. | | D. checking deposits. | | | | | * Question 10
0 out of 10 points | | | A bank's insolvency risk is measured by its: | | | | | Selected Answer: | [None Given] | Answers: | A. equity ratio. | | B. interest income ratio. | | C. loan ratio. | | D. noninterest income ratio. | | | | | * Question 1
0 out of 10 points | | | Major categories of a bank's assets include: | | | | | Selected Answer: | [None Given] | Answers: | A. borrowings. | | B. nontransaction deposits. | | C. checking deposits. | | D. loans. | | | | | * Question 2
0 out of 10 points | | | When a bank wishes to build a long-term relationship with a borrower, it may offer: | | | | | Selected Answer: | [None Given] | Answers: | A. free toasters to the borrower. | | B. loans with zero collateral. | | C. a line of credit. | | D. interest-free loans. | | | | | * Question 3
0 out of 10 points | | | Prior to 1980, ________ loans were the largest component of commercial bank loans. | | | | | Selected Answer: | [None Given] | Answers: | A. real estate | | B. federal fund | | C. commercial and industrial | | D. consumer | | | | | * Question 4
0 out of 10 points | | | A bank's insolvency risk is measured by its: | | | | | Selected Answer: | [None Given] | Answers: | A. interest income ratio. | | B. equity ratio. | | C. noninterest income ratio. | | D. loan ratio. | | | | | * Question 5
0 out of 10 points | | | When a bank ________ a loan, it removes it from its balance sheet. | | | | | Selected Answer: | [None Given] | Answers: | A. buys | | B. writes off | | C. converts | | D. cashes in | | | | | * Question 6
0 out of 10 points | | | A bank's reserves are equal to: | | | | | Selected Answer: | [None Given] | Answers: | A. saving deposits plus checkable deposits. | | B. deposits at the Fed. | | C. vault cash plus deposits at the Fed. | | D. vault cash. | | | | | * Question 7
0 out of 10 points | | | Which of the following is a risk faced by banks? | | | | | Selected Answer: | [None Given] | Answers: | A. moral risk | | B. credit (or default) risk | | C. adverse risk | | D. free-rider risk | | | | | * Question 8
0 out of 10 points | | | Derivatives contributed to the financial crisis because: | | | | | Selected Answer: | [None Given] | Answers: | A. they are tied to stock prices. | | B. banks are allowed to keep them off their balance sheets. | | C. banks used derivatives for speculative purposes. | | D. All of the answers are true. | | | | | * Question 9
0 out of 10 points | | | Because ________ generate no income, banks hold a ________ portion of their assets in this form. | | | | | Selected Answer: | [None Given] | Answers: | A. reserves; small | | B. buildings; large | | C. securities; large | | D. loans; small | | | | | * Question 10
0 out of 10 points | | | If a bank has $50 of rate sensitive assets and $60 in rate-sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. rise; $0.20 | | B. fall; $0.20 | | C. rise; $2.00 | | D. There is not enough information provided to answer the question. | | | | | * Question 1
10 out of 10 points | | | The main reasons why the banking business has evolved include: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. competition from securities markets. | | B. deregulation. | | C. financial innovation. | | D. All of the answers are correct. | | | | | * Question 2
0 out of 10 points | | | A bank can safely reduce its amount of reserves if: | | | | | Selected Answer: | [None Given] | Answers: | A. the federal funds rate is very high. | | B. there is little chance that its depositors will make large withdrawals. | | C. it is balanced by a large amount of loans. | | D. interest rates fall. | | | | | * Question 3
0 out of 10 points | | | The bank that has “bucked the trend” of relying on off-balance-sheet activities, increased fees, and the use of purchased funds in favor of attracting small checking deposits is: | | | | | Selected Answer: | [None Given] | Answers: | A. the Commerce Bank. | | B. the People's Bank. | | C. Wells Fargo. | | D. the Bank of America. | | | | | * Question 4
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. federal fund loans | | B. investment banking | | C. derivatives | | D. lines of credit | | | | | * Question 5
0 out of 10 points | | | A bank's reserves are equal to: | | | | | Selected Answer: | [None Given] | Answers: | A. vault cash. | | B. deposits at the Fed. | | C. saving deposits plus checkable deposits. | | D. vault cash plus deposits at the Fed. | | | | | * Question 6
0 out of 10 points | | | The fall in housing prices during the financial crisis caused many homeowners to: | | | | | Selected Answer: | [None Given] | Answers: | A. have a mortgage whose value was worth less than the house. | | B. walk away from their houses. | | C. decide to take out a home equity loan. | | D. All of the answers are correct. | | | | | * Question 7
0 out of 10 points | | | To find a bank's return on its assets, we: | | | | | Selected Answer: | [None Given] | Answers: | A. divide its profits by its capital. | | B. divide its total expenses by its total income. | | C. divide its profits by its total assets. | | D. subtract its total expenses from its total income. | | | | | * Question 8
0 out of 10 points | | | Which of the following securities are banks not allowed to hold? | | | | | Selected Answer: | [None Given] | Answers: | A. stocks | | B. Treasury bonds | | C. municipal bonds | | D. high-rated corporate bonds | | | | | * Question 9
0 out of 10 points | | | If a bank has $50 of rate sensitive assets and $60 in rate-sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ________ by ________. | | | | | Selected Answer: | [None Given] | Answers: | A. rise; $0.20 | | B. fall; $0.20 | | C. rise; $2.00 | | D. There is not enough information provided to answer the question. | | | | | * Question 10
0 out of 10 points | | | Net worth is: | | | | | Selected Answer: | [None Given] | Answers: | A. revenues minus costs. | | B. price minus marginal cost. | | C. profits minus salaries. | | D. assets minus liabilities. | | | | | * Question 1
10 out of 10 points | | | The bank that has “bucked the trend” of relying on off-balance-sheet activities, increased fees, and the use of purchased funds in favor of attracting small checking deposits is: | | | | | Selected Answer: | A. the Commerce Bank. | Answers: | A. the Commerce Bank. | | B. the People's Bank. | | C. Wells Fargo. | | D. the Bank of America. | | | | | * Question 2
10 out of 10 points | | | Suppose that the mortgage default rate turns out to be higher than the bank expected. How does this fact affect a bank's net worth? | | | | | Selected Answer: | A. It reduces it because the bank must write off the value of the loan. | Answers: | A. It reduces it because the bank must write off the value of the loan. | | B. It reduces it because the bank now has lower liabilities. | | C. It increases net worth because the bank earns a higher interest rate on riskier mortgages. | | D. It has no impact. | | | | | * Question 3
0 out of 10 points | | | When a bank's customer writes a check, the bank obtains the funds from ____. | | | | | Selected Answer: | [None Given] | Answers: | A. repurchase agreements | | B. cash in its vault | | C. currency sitting in the bank | | D. the bank's deposits at the Federal Reserve | | | | | * Question 4
0 out of 10 points | | | When you deposit a paycheck in your bank account your bank's: | | | | | Selected Answer: | [None Given] | Answers: | A. assets increase and liabilities decrease. | | B. assets increase and liabilities are unchanged. | | C. assets increase. | | D. assets and liabilities increase. | | | | | * Question 5
0 out of 10 points | | | Suppose the short-term interest rates rises from 2 percent to 5 percent. The change in profits for a bank with a rate-sensitive gap of –$50 is: | | | | | Selected Answer: | [None Given] | Answers: | A. –$1.00. | | B. $2.50. | | C. –$2.50. | | D. –$1.50. | | | | | * Question 6
0 out of 10 points | | | Which of the following securities are banks allowed to hold? | | | | | Selected Answer: | [None Given] | Answers: | A. Treasury bonds | | B. municipal bonds | | C. bonds issued by government agencies | | D. Banks are allowed to hold all of these securities. | | | | | * Question 7
0 out of 10 points | | | Because the return on equity quantifies how much ________, bank managers endeavor to maximize ROE much like other businesses try to produce high returns for their ________. | | | | | Selected Answer: | [None Given] | Answers: | A. banks earn per dollar that its stockholders own; stockholders | | B. a bank profits; owners | | C. banks earn on loans; workers | | D. banks earns after taxes; board of directors | | | | | * Question 8
0 out of 10 points | | | Net worth is: | | | | | Selected Answer: | [None Given] | Answers: | A. assets minus liabilities. | | B. revenues minus costs. | | C. profits minus salaries. | | D. price minus marginal cost. | | | | | * Question 9
0 out of 10 points | | | The S&L crisis was caused by the: | | | | | Selected Answer: | [None Given] | Answers: | A. fall in the price of oil. | | B. rise in commercial real estate prices. | | C. growing gap between short- and long-term interest rates. | | D. All of the answers are correct. | | | | | * Question 10
0 out of 10 points | | | The most liquid form of assets on a bank's balance sheet are: | | | | | Selected Answer: | [None Given] | Answers: | A. checking deposits. | | B. reserves. | | C. federal funds. | | D. loans. | | | | | * Question 1
10 out of 10 points | | | Which of the following is not a way banks can borrow? | | | | | Selected Answer: | A. certificate of deposit | Answers: | A. certificate of deposit | | B. federal funds | | C. discount loan | | D. overnight repurchase agreement | | | | | * Question 2
10 out of 10 points | | | Consider a bank with the following income statement: It has $100 in loans with an interest rate of 5 percent; $50 in security holdings, paying 10 percent; noninterest income of $10; $100 in savings accounts that have an interest rate of 2.5 percent; and other expenses of $15. What is this bank's total income? | | | | | Selected Answer: | B. $20 | Answers: | A. $2.50 | | B. $20 | | C. $160 | | D. $17.50 | | | | | * Question 3
10 out of 10 points | | | Suppose that a bank has $40 in vault cash and deposits at the Fed, $40 in securities and $80 in loans, $80 in checking deposits, $70 in federal funds, and $10 of net worth. Suppose there is a bank run and customers close their checking accounts. What should the bank do to avoid going out of business?
I. use its reserves and sells its securities
II. sell its loans
III. It cannot avoid going out of business. | | | | | Selected Answer: | D. I and II only | Answers: | A. I only | | B. II only | | C. III only | | D. I and II only | | | | | * Question 4
10 out of 10 points | | | Commercial banks were allowed to underwrite securities and advise on mergers and acquisitions once again in 1999, when the ____ Act was repealed. | | | | | Selected Answer: | C. Glass-Steagall | Answers: | A. McFadden | | B. Federal Reserve | | C. Glass-Steagall | | D. Dodd-Frank | | | | | * Question 5
10 out of 10 points | | | The largest assets on the consolidated balance sheet of U.S. banks is/are: | | | | | Selected Answer: | B. loans. | Answers: | A. “other” assets. | | B. loans. | | C. federal funds. | | D. ownership of securities. | | | | | * Question 6
0 out of 10 points | | | Which of the following is not a way banks can raise funds? | | | | | Selected Answer: | C. federal funds | Answers: | A. lines of credit | | B. checking deposits | | C. federal funds | | D. certificates of deposit | | | | | * Question 7
10 out of 10 points | | | Which of the following is the cheapest source of funds for banks? | | | | | Selected Answer: | A. checking deposits | Answers: | A. checking deposits | | B. repurchase agreements | | C. savings deposits | | D. small-time deposits | | | | | * Question 8
10 out of 10 points | | | When you deposit $100 in your savings account, your bank's: | | | | | Selected Answer: | C. reserves increase by exactly $100. | Answers: | A. capital increases by $100. | | B. liabilities fall by $100. | | C. reserves increase by exactly $100. | | D. assets increase by $100. | | | | | * Question 9
10 out of 10 points | | | _____ grew as a share of bank lending from around 26 percent in 1973 to around 59 percent in 2009. | | | | | Selected Answer: | C. Real estate loans | Answers: | A. Consumer loans | | B. Industrial loans | | C. Real estate loans | | D. Commercial loans | | | | | * Question 10
10 out of 10 points | | | On a bank's balance sheet, which of the following is an asset? | | | | | Selected Answer: | D. None of the answers are correct. | Answers: | A. checking deposits | | B. small-time deposits | | C. savings accounts | | D. None of the answers are correct. | | | | | * Question 1
10 out of 10 points | | | The S&L crisis was caused by the: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. fall in the price of oil. | | B. rise in commercial real estate prices. | | C. growing gap between short- and long-term interest rates. | | D. All of the answers are correct. | | | | | * Question 2
10 out of 10 points | | | Which of the following is not a way banks can raise funds? | | | | | Selected Answer: | B. lines of credit | Answers: | A. checking deposits | | B. lines of credit | | C. federal funds | | D. certificates of deposit | | | | | * Question 3
10 out of 10 points | | | If the interest rate on a bank's liabilities rises without an increase in asset interest rates, the bank's: | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. return on equity falls. | | B. return on assets falls. | | C. profits fall. | | D. All of the answers are correct. | | | | | * Question 4
10 out of 10 points | | | The most liquid form of assets on a bank's balance sheet are: | | | | | Selected Answer: | D. reserves. | Answers: | A. checking deposits. | | B. loans. | | C. federal funds. | | D. reserves. | | | | | * Question 5
10 out of 10 points | | | Suppose that a bank has $40 in vault cash and deposits at the Fed, $40 in securities and $80 in loans, $80 in checking deposits, $70 in federal funds, and $10 of net worth. Suppose there is a bank run and customers close their checking accounts. What should the bank do to avoid going out of business?
I. use its reserves and sells its securities
II. sell its loans
III. It cannot avoid going out of business. | | | | | Selected Answer: | B. I and II only | Answers: | A. III only | | B. I and II only | | C. II only | | D. I only | | | | | * Question 6
10 out of 10 points | | | A bank's net worth is also called its: | | | | | Selected Answer: | C. capital. | Answers: | A. revenue. | | B. deposits. | | C. capital. | | D. loans. | | | | | * Question 7
10 out of 10 points | | | Floating interest rates are used by banks mainly to reduce: | | | | | Selected Answer: | A. interest rate risk. | Answers: | A. interest rate risk. | | B. market risk. | | C. credit (or default) risk. | | D. liquidity risk. | | | | | * Question 8
10 out of 10 points | | | Which of the following are ways for a bank to borrow? | | | | | Selected Answer: | D. All of the answers are correct. | Answers: | A. issuing bonds | | B. federal funds | | C. discount loans | | D. All of the answers are correct. | | | | | * Question 9
10 out of 10 points | | | A bank's liabilities: | | | | | Selected Answer: | D. is the amount owed to others. | Answers: | A. equal its deposits. | | B. equal zero in the long run. | | C. must equal its assets. | | D. is the amount owed to others. | | | | | * Question 10
10 out of 10 points | | | The cost to a bank of holding too many liquid assets is: | | | | | Selected Answer: | C. interest lost on loans and holding securities. | Answers: | A. a very high reserve rate. | | B. not having cash in the vault. | | C. interest lost on loans and holding securities. | | D. leaving it exposed to default risk. | | | | | * Question 1
0 out of 10 points | | | One measure of interest rate risk is the: | | | | | Selected Answer: | [None Given] | Answers: | A. interest rate volatility. | | B. unemployment rate. | | C. federal funds rate. | | D. rate-sensitivity gap. | | | | | * Question 2
0 out of 10 points | | | Which of the following is the equity ratio? | | | | | Selected Answer: | [None Given] | Answers: | A. | | B. | | C. | | D. | | | | | * Question 3
0 out of 10 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 4
0 out of 10 points | | | Which of the following are ways for a bank to borrow? | | | | | Selected Answer: | [None Given] | Answers: | A. issuing bonds | | B. federal funds | | C. discount loans | | D. All of the answers are correct. | | | | | * Question 5
0 out of 10 points | | | To find a bank's return on its assets, we: | | | | | Selected Answer: | [None Given] | Answers: | A. divide its profits by its total assets. | | B. subtract its total expenses from its total income. | | C. divide its profits by its capital. | | D. divide its total expenses by its total income. | | | | | * Question 6
0 out of 10 points | | | Suppose a bank's interest expenses amount to $20, its noninterest expenses amount to $10, and its total income is $45. This bank's profits are: | | | | | Selected Answer: | [None Given] | Answers: | A. $25. | | B. $15. | | C. $10. | | D. $30. | | | | | * Question 7
0 out of 10 points | | | When a bank is short of reserves it can: | | | | | Selected Answer: | [None Given] | Answers: | A. borrow from the Office of the Comptroller of the Currency. | | B. borrow from the FDIC. | | C. borrow from the Fed. | | D. borrow from the U.S. Treasury. | | | | | * Question 8
0 out of 10 points | | | The cost to a bank of holding too many liquid assets is: | | | | | Selected Answer: | [None Given] | Answers: | A. a very high reserve rate. | | B. interest lost on loans and holding securities. | | C. leaving it exposed to default risk. | | D. not having cash in the vault. | | | | | * Question 9
0 out of 10 points | | | Which of the following is the correct equation for a bank's return on equity? | | | | | Selected Answer: | [None Given] ROE = Profits/capital | Answers: | A. | | B. | | C. | | D. | | | | | * Question 10
0 out of 10 points | | | When ________ was repealed, commercial banks were allowed to conduct ________ . | | | | | Selected Answer: | [None Given] | Answers: | A. the Glass-Steagall Act; investment-banking services | | B. Sherman Antitrust Act; monetary policy | | C. the reserve requirement; zero-reserve loans | | D. the Luxemburg-Engel Act; risk-free loans | | | | |

* Question 1
0 out of 3.125 points | | | The bank that exemplifies the problems associated with government-owned banks is in: | | | | | Selected Answer: | [None Given] | Answers: | A. Japan. | | B. China. | | C. Mexico. | | D. Norway. | | | | | * Question 2
0 out of 3.125 points | | | Suppose a bank has an equity ratio equal to 20 percent, and assets totaling $100. Which of the following events will make this bank insolvent? | | | | | Selected Answer: | [None Given] | Answers: | A. The bank writes off loans for $25. | | B. The bank writes off loans for $15. | | C. The bank writes off loans for $5. | | D. The bank writes off loans for $10. | | | | | * Question 3
0 out of 3.125 points | | | The government abolished the _____ program in 2010 in favor of a _____ program to reduce the government's cost to help students finance their education. | | | | | Selected Answer: | [None Given] | Answers: | A. government-sponsored; private-lending | | B. private-lending; government-sponsored | | C. loan guarantee; direct loan | | D. Sallie Mae; Stafford loan | | | | | * Question 4
0 out of 3.125 points | | | When applying the “lemons” problem to stocks, buyers know that stocks are ________ and this pushes stock prices ________. | | | | | Selected Answer: | [None Given] | Answers: | A. overvalued; up | | B. undervalued; up | | C. overvalued; down | | D. in equilibrium; zero | | | | | * Question 5
0 out of 3.125 points | | | You have $100 and are thinking about how you might go about saving it. You pick up the Wall Street Journal and see the following information:
A project that pays $125 with a probability of 0.75, or it pays $75.
A project that pays $200 with a probability of 0.25, or it pays $50.
Alternatively, you could put the $100 in a CD account and earn $110 at the end of the year. Which strategy would be most advantageous to you? And, if you put it into action, how much would you take home? | | | | | Selected Answer: | [None Given] | Answers: | A. project A; $112.50 | | B. the CD; $110 | | C. project B; $162.50 | | D. There is not enough information provided to answer the question. | | | | | * Question 6
0 out of 3.125 points | | | The financial crisis of 2007–2009 led Congress to enact legislation known as the _______ designed to ____ executive pay. | | | | | Selected Answer: | [None Given] | Answers: | A. Troubled Asset Relief Program; restrict | | B. Financial Crisis Inquiry Commission; examine | | C. Economic Recovery Board; protect | | D. Dodd-Frank Act; allow shareholders a vote regarding | | | | | * Question 7
0 out of 3.125 points | | | A bank acquires capital by: | | | | | Selected Answer: | [None Given] | Answers: | A. making loans. | | B. issuing stock. | | C. buying securities from other institutions. | | D. borrowing from the discount window. | | | | | * Question 8
0 out of 3.125 points | | | According to a survey of payday lenders, the average annual interest rate charged on loans is about: | | | | | Selected Answer: | [None Given] | Answers: | A. 76 percent. | | B. 400 percent. | | C. 150 percent. | | D. 20 percent. | | | | | * Question 9
0 out of 3.125 points | | | The Credit Card Accountability and Responsibility, and Disclosure Act imposes all of the following restrictions except: | | | | | Selected Answer: | [None Given] | Answers: | A. a penalty rate must return to its previous level if the customer resumes timely payments for at least 6 months. | | B. customers must have at least 21 days to pay bills before being charged a late fee. | | C. banks may not impose a fee when a customer transfers credit card balances | | D. late fees are limited to $25 in most cases. | | | | | * Question 10
0 out of 3.125 points | | | A credit union is different from a savings and loan because it: | | | | | Selected Answer: | [None Given] | Answers: | A. will not accept checking deposits. | | B. only makes mortgage loans. | | C. restricts membership to a common group of people. | | D. restricts the maximum balance a depositor must have. | | | | | * Question 11
0 out of 3.125 points | | | Banks typically have standardized contracts for the most common loans (e.g., car loans), which significantly decrease the cost of making these loans. The concept of spreading such costs over many loans is known as: | | | | | Selected Answer: | [None Given] | Answers: | A. economies of scale. | | B. free-rider transactions. | | C. constant returns to scale. | | D. transactions costs. | | | | | * Question 12
0 out of 3.125 points | | | Placing officers of a ________ firm on the board of directors of a new firm can reduce the problem of ________. | | | | | Selected Answer: | [None Given] | Answers: | A. banking; free riding | | B. venture capital; moral hazard | | C. takeover; adverse selection | | D. security exchange; adverse selection | | | | | * Question 13
0 out of 3.125 points | | | Which of the following are information-gathering firms in financial markets? | | | | | Selected Answer: | [None Given] | Answers: | A. credit unions | | B. investment banks | | C. insurance companies | | D. commercial banks | | | | | * Question 14
0 out of 3.125 points | | | Which of the following is not an off-balance-sheet bank activity? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. derivatives | | C. asset management | | D. They are all off-balance-sheet activities. | | | | | * Question 15
0 out of 3.125 points | | | In the United States, financial markets are primarily regulated by: | | | | | Selected Answer: | [None Given] | Answers: | A. the Securities and Exchange Commission. | | B. Congress. | | C. the Treasury Secretary. | | D. the Board of Governors of the Federal Reserve. | | | | | * Question 16
0 out of 3.125 points | | | Subprime borrowers usually resort to which of the following subprime lenders? | | | | | Selected Answer: | [None Given] | Answers: | A. loan sharks | | B. securities markets | | C. investment banks | | D. stock exchanges | | | | | * Question 17
0 out of 3.125 points | | | The process of transforming loans into securities is called: | | | | | Selected Answer: | [None Given] | Answers: | A. hypothecation. | | B. subordination. | | C. securitization. | | D. collateralization. | | | | | * Question 18
0 out of 3.125 points | | | Methods to reduce information asymmetries include using: | | | | | Selected Answer: | [None Given] | Answers: | A. information-gathering firms. | | B. boards of directors of publicly traded companies. | | C. private equity firms. | | D. All of these are methods. | | | | | * Question 19
0 out of 3.125 points | | | Holding assets constant, if the equity ratio rises, the return on equity: | | | | | Selected Answer: | [None Given] | Answers: | A. is unchanged. | | B. rises. | | C. falls. | | D. There is not enough information provided to answer the question. | | | | | * Question 20
0 out of 3.125 points | | | Which of the following is not a way banks can borrow? | | | | | Selected Answer: | [None Given] | Answers: | A. federal funds | | B. overnight repurchase agreement | | C. discount loan | | D. certificate of deposit | | | | | * Question 21
0 out of 3.125 points | | | To reduce moral hazard after buying a stock or bond, individual savers should examine a firm's:
I. past earnings.
II. future projects.
III. managers. | | | | | Selected Answer: | [None Given] | Answers: | A. II only | | B. II and III | | C. III only | | D. I only | | | | | * Question 22
0 out of 3.125 points | | | One of the reasons for the decline of checking deposits in the mid-1990s was the: | | | | | Selected Answer: | [None Given] | Answers: | A. growth of derivative accounts. | | B. growth of mutual fund accounts. | | C. decline in the value of the dollar. | | D. increased use of ATM accounts. | | | | | * Question 23
0 out of 3.125 points | | | Which of the following is not a way banks can raise funds? | | | | | Selected Answer: | [None Given] | Answers: | A. lines of credit | | B. federal funds | | C. certificates of deposit | | D. checking deposits | | | | | * Question 24
0 out of 3.125 points | | | Fannie Mae and Freddie Mac started to buy subprime mortgages starting: | | | | | Selected Answer: | [None Given] | Answers: | A. in the late 1980s. | | B. in the 1940s. | | C. in the early 1970s. | | D. in the early 2000s. | | | | | * Question 25
0 out of 3.125 points | | | Loans from one bank to another are called ______; loans from a corporation to a bank are called ______. | | | | | Selected Answer: | [None Given] | Answers: | A. federal funds; repurchase agreements | | B. certificates of deposit; discount loans | | C. repurchase agreements; federal funds | | D. discount loans; bonds | | | | | * Question 26
0 out of 3.125 points | | | Because of the McFadden Act, each state had its own: | | | | | Selected Answer: | [None Given] | Answers: | A. banking industry. | | B. rules regulating stock exchanges. | | C. real estate supervision. | | D. kind of money. | | | | | * Question 27
0 out of 3.125 points | | | Which bank has, to date, hit the 10 percent of all commercial bank deposits limit set by the Riegle-Neal Act? | | | | | Selected Answer: | [None Given] | Answers: | A. M&T Bank | | B. Bank of America | | C. Chase Manhattan | | D. JPMorgan Chase | | | | | * Question 28
0 out of 3.125 points | | | Which of the following are examples of home loan covenants?
I. fire insurance
II. flood insurance
III. car insurance | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. II only | | C. III only | | D. I and II | | | | | * Question 29
0 out of 3.125 points | | | Which of the following securities are banks not allowed to hold? | | | | | Selected Answer: | [None Given] | Answers: | A. stocks | | B. municipal bonds | | C. high-rated corporate bonds | | D. Treasury bonds | | | | | * Question 30
0 out of 3.125 points | | | _____ grew as a share of bank lending from around 26 percent in 1973 to around 59 percent in 2009. | | | | | Selected Answer: | [None Given] | Answers: | A. Consumer loans | | B. Commercial loans | | C. Industrial loans | | D. Real estate loans | | | | | * Question 31
0 out of 3.125 points | | | In 1927, Congress passed the ________, which forbade a bank from operating in more than one state. | | | | | Selected Answer: | [None Given] | Answers: | A. Glass-Steagall Act | | B. Federal Reserve Act | | C. Sherman Act | | D. McFadden Act | | | | | * Question 32
0 out of 3.125 points | | | Normally, the bond market is less susceptible to adverse selection than the stock market, except: | | | | | Selected Answer: | [None Given] | Answers: | A. when the risk of bond default is high. | | B. when moral hazard is high. | | C. when asymmetric information is an issue. | | D. when the stock market is in a bubble. | | | | |

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