Assignment 3 Solution

Assignment 3 Solution - Econ 500 Fall 2011 Z. Janko...

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1 DEPARTMENT OF ECONOMICS Econ 500 – Money and Banking Fall 2011 Assignment 3 – Answer Key Part I. Multiple Choice 1. A bank bundling together a collection of student loans or mortgages and selling claims to principal and interest payments to a third party is known as a. Collateralization b. Selling junk bonds c. Securitization d. Selling commercial paper e. Modernization 2. Examples of instability in financial markets include all EXCEPT a. Bank runs b. Systemic failure of Financial Institutions c. Excessive risk taking d. Bank Capital below capital requirements e. Symmetric information 3. Which of the following statements is TRUE a. Financial Markets are the least regulated markets b. Underwriting and Securitization are examples where conflict of interest is present c. The “Principal Agent Problem” is when banks act in the best interest of their customers d. Some ways to remedy conflicts of interest include increased supervisory oversight and increased capital requirements 4. Which of the following is NOT true about systemic risk a. Systemic risk is aggregate/market risk beyond control of the individual firm b. Systemic risk in the financial markets can lead to breakdown in financial intermediation and damage to the whole financial industry c. Firms do not have incentive to manage systemic risk d. Systemic risk is an example of market failure e. Systemic risk is due to the adverse selection problem Econ 500 Fall 2011 Z. Janko
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2 5. Financial Supervision include all of the below EXCEPT a. Underwriting b. Chartering c. Filing call reports d. Scheduled and unscheduled Examinations 6. As part of Scheduled and unscheduled Examinations regulators examine a. Whether a bank is meeting its capital requirements, and how much leverage a bank is undertaking b. To what extent a bank is exposed to credit risk and interest rate risk c. What is the liquidity position of the bank, such as its liquidity/short term liability exposure d. All of the above
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Assignment 3 Solution - Econ 500 Fall 2011 Z. Janko...

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