19... Acquiring information on a bank's activities in order to determine a bank's risk is difficult for depositors and is another argument for government Question 19 options: a) ownership.
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- The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT: Select one: a. encouraging banks to produce timely accounting statements and reports. b. encouraging banks to limit lending to a single customer to no more than 10% of capital. c. the periodic monitoring of banks. d. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. e. the provision of deposit insurance.In government programs of bank supervision, what is being supervised?Multiple choices 1. Banks face liquidity risk because A) they can have difficulty meeting their depositor's demands to withdraw money. B) they are unable to borrow from the Federal Reserve. C) households and businesses may seek to borrow a large amount of funds in a short period of time. D) governments tend to run high budget deficits. 2. The original intention of the Fed's role as lender of last resort was to make loans to banks that were A) not illiquid nor insolvent. B) illiquid, but not insolvent. C) insolvent, but not illiquid. D) both illiquid and insolvent. 3. Why might a nation seek to maintain a pegged exchange rate? A) It makes business planning easier for firms involved in the global economy. B) It removes the need to intervene in the foreign exchange market. C) It ensures that the exchange rate will remain at its equilibrium. D) It makes their currency more attractive on the foreign exchange market. 4. Suppose a country pegs its currency. If investors start to believe the…
- 26. Compared to commercial banks and thrift institutions, finance companies are Question 26 options: a) heavily regulated. b) able to attract small depositors. c) prevented from making relatively small loans. d) virtually unregulated.31) The FDIC must take steps to close down banks whose equity capital is less than ________ of assets. A) 4% B) 3% C) 2% D) 1% 32) Off-balance-sheet activities A) generate fee income with no increase in risk. B) increase bank risk but do not increase income. C) generate fee income but increase a bank's risk. D) generate fee income and reduce risk. 33) The Basel Accord, an international agreement, requires banks to hold capital based on A) risk-weighted assets. B) the total value of assets. C) liabilities. D) deposits. 34) The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets. A) 10% B) 8% C) 5% D) 3% 35) Under the Basel Accord, assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________. A) 2; adverse selection B) 2; credit risk C) 4; adverse selection D)…Explain the four different layers of protection and regulation that are imposed by regulators of commercial banks to ensure their safety and soundness
- 6.. The Diamond-Dybvig Model of Bank Runs 1. We know from problem Diamond’s article (2007, p. 194) that are the socially optimal deposit returns when f=1/4. Suppose that, even though the true fraction of agents with liquidity needs in period 1 is ¼, agents think (incorrectly) that the proportion is f=.60. Will there be a run?27) Which of the following is not a function of the Federal Reserve System, or the "Fed"? A) acting as a lender of last resort B) acting as a banker's bank C) performing check clearing services D) insuring deposits in the banking system E) taking actions to control the money supplyWhat effect has the presence of federal deposit insurance had on the banking industry? Banks have made riskier loans. Banks have made it more difficult for customers to qualify for loans. Banks now hold more excess reserves. Depositors have become more vigilant in monitoring the decisions made by managers of their banks.
- 11) Which of the following increases the quantity of money? A) an individual's cash withdrawal from a bank B) an individual's purchase of a government security from the Fed C) the Fed's purchase of a government security D) an increase in the government's budget deficit 12) Open market purchases by the Federal Reserve System (the Fed) A) raise the federal funds rate. B) increase bank reserves. C) occur when the Fed wants to decrease the quantity of money. D) All of the above answers are correct. 13) When the Fed raises the federal funds rate, A) net exports increase. B) the value of the dollar falls on the foreign exchange market. C) the value of the dollar rises on the foreign exchange market. D) consumption increases. 14) If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________. A) increase; increase B) increase; decrease C) decrease; increase D)…(b) Mahsuri Bank which is one of the local banks in your community has the following balance sheet (in billions of RM) as follows: Liabilities 3,000 Deposits 1,350 Assets RM billions RM billions Reserves 5,000 Government securities Loans 650 i. If the required reserve ratio is 0.25 or 25 percent, how much in excess reserves does the bank hold? ii. Determine the maximum amount by which the bank can expand its loan? If the bank makes the loans in (ii), show the immediate impact on the bank's balance sheet. ii.(b) Not all central bank uses all three. Find out what tools are used by the central bank in your region to affect the money supply
