ch11 - The Economics of Money, Banking, and Financial...

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The Economics of Money, Banking, and Financial Markets, 9e (Mishkin) – Global Edition Chapter 11 Economic Analysis of Financial Regulation 11.1 Asymmetric Information and Financial Regulation 1) Depositors lack of information about the quality of bank assets can lead to ________. A) bank panics B) bank booms C) sequencing D) asset transformation Answer: A Ques Status: Previous Edition 2) The fact that banks operate on a "sequential service constraint" means that A) all depositors share equally in the bank's funds during a crisis. B) depositors arriving last are just as likely to receive their funds as those arriving first. C) depositors arriving first have the best chance of withdrawing their funds. D) banks randomly select the depositors who will receive all of their funds. Answer: C Ques Status: Previous Edition 3) Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a A) last-in, first-out constraint. B) sequential service constraint. C) double-coincidence of wants constraint. D) everyone-shares-equally constraint. Answer: B Ques Status: Previous Edition 4) Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the A) too-big-to-fail effect. B) moral hazard problem. C) adverse selection problem. D) contagion effect. Answer: D Ques Status: Previous Edition 5) The contagion effect refers to the fact that A) deposit insurance has eliminated the problem of bank failures. B) bank runs involve only sound banks. C) bank runs involve only insolvent banks. D) the failure of one bank can hasten the failure of other banks. Answer: D Ques Status: Previous Edition 1
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6) During the boom years of the 1920s, bank failures were quite A) uncommon, averaging less than 30 per year. B) uncommon, averaging less than 100 per year. C) common, averaging about 600 per year. D) common, averaging about 1000 per year. Answer: C Ques Status: Previous Edition 7) To prevent bank runs and the consequent bank failures, the United States established the ________ in 1934 to provide deposit insurance. A) FDIC B) SEC C) Federal Reserve D) ATM Answer: A Ques Status: New 8) The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is A) that the FDIC guarantees all deposits when it uses the "payoff" method. B) that the FDIC guarantees all deposits when it uses the "purchase and assumption" method. C) that the FDIC is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures. D) that the FDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions. Answer:
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This note was uploaded on 11/23/2011 for the course FIN 243 taught by Professor Jw during the Spring '11 term at Hong Kong Shue Yan.

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ch11 - The Economics of Money, Banking, and Financial...

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