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Unformatted text preview: Chapters 15, 17, 18, 20 Practice June 30, 2010 1 Chapter 15 1. You would like to buy an used car and you know the blue book values are 15,000 and 25,000. How much are you willing to pay? What will eventually occur in the used car market if buyers cant tell the difference between a good car and a bad car. What is this called? 2. How does moral hazard make it less likely lenders will get paid back? 3. What is the principal-agent problem? Is it an adverse selection problem or moral hazard problem? 4. Name two tools to help solve the adverse selection problem. What is a specific financial intermediary to help solve the principal-agent problem? 5. What is the first and second stages to begin a financial crisis? 2 Chapter 17 1. The reserve requirement is 10%. Bank XYZ uses the deposits to make loans and also keeps 1% of excess reserves on top of the requird reserves. Bank XZY has 100 million dollars in deposits currently. How much is currently in their reserve account on their balance sheet? 1 2. If a bank has $100,000 of deposits, a required reserve ratio of 10 percent, and $30,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is $10,000, $20,000, or $25,000? 3. What is the most and least costly way to meet deposit outflows? 4. A bank has 100 million dollars in deposits and 15 million dollars in reserves. The require reserve ratio is 12%. There is a deposit outflow of 15 million. What is the shortfall in reserves? 5. X-Bank reported an ROE of 10% and an ROA of 1%. How well capitalized in this bank? 6. A bank has 9.5 million in reserves, 90 million in loans, 95 million in deposits, and 4.5 million in capital. The required reserve ratio is 10%. If there is a deposit outflow of 5 million what should the bank do to maintain its reserve requirement? 3 Chapter 18 1. Name a financial innovation due to changes in demand conditions and explain? 2. Name a financial innovation due to avoiding financial regulation? 3. Define securitization? 4. What are two types of innovation to occur that have reduced the competitiveness of banks?...
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- Spring '08
- Balance Sheet, Fractional-reserve banking, investment bank