Question 1

The bank lending channel of a credit crunch is when

Accepted Answer

A)  bank restrict credit and so all firms find it hard to borrow 
B)  banks restrict credit and so small and medium size firms in particular find it hard to borrow 
C)  banks continue to lend, but borrowing through financial markets is restricted 
D)  borrowing is restricted though falling collateral values 
E)  Central Banks tighten credit conditions too much 
A)  bank restrict credit and so all firms find it hard to borrow 
B)  banks restrict credit and so small and medium size firms in particular find it hard to borrow 
C)  banks continue to lend, but borrowing through financial markets is restricted 
D)  borrowing is restricted though falling collateral values 
E)  Central Banks tighten credit conditions too much B

Question 2

Recessions involving a credit crunch tend to be

Accepted Answer

A)  more severe but shorter than other recessions 
B)  less severe but longer than other recessions 
C)  less severe and shorter than other recessions 
D)  more severe and longer than other recessions 
E)  the same as other recessions 
A)  more severe but shorter than other recessions 
B)  less severe but longer than other recessions 
C)  less severe and shorter than other recessions 
D)  more severe and longer than other recessions 
E)  the same as other recessions E

Question 3

A company wishes to borrow $10,000 but to efficiently monitor that loan each lender will incur costs of $100.What is the difference in monitoring costs per lender (as a percentage of loan value) between the firm borrowing all the money from one lender and splitting the loan between ten lenders

Accepted Answer

A)  0% 
B)  1% 
C)  5% 
D)  9% 
E)  10% 
A)  0% 
B)  1% 
C)  5% 
D)  9% 
E)  10% D

Question 4

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

Accepted Answer

A)  I Don't Run and all others don't Run 
B)  I Don't Run and all others don't Run + I run and all others run 
C)  I run and all others run 
D)  I Don't Run and all others don't Run + I run and all others don't run 
E)  all the outcomes 
A)  I Don't Run and all others don't Run 
B)  I Don't Run and all others don't Run + I run and all others run 
C)  I run and all others run 
D)  I Don't Run and all others don't Run + I run and all others don't run 
E)  all the outcomes

Question 5

The broad credit channel of a credit crunch is when

Accepted Answer

A)  all banks restrict credit to borrowers 
B)  banks restrict lending to small and medium size firms 
C)  even large firms find it hard to borrow due to reduced collateral values 
D)  both firms and households find it hard to borrow 
E)  Central Banks tighten credit conditions too much 
A)  all banks restrict credit to borrowers 
B)  banks restrict lending to small and medium size firms 
C)  even large firms find it hard to borrow due to reduced collateral values 
D)  both firms and households find it hard to borrow 
E)  Central Banks tighten credit conditions too much

Question 6

The following questions apply to the following simplified bank balance sheet
  
-Shareholders in the bank above are offered the following deal.The bank will gamble the whole loan book on a double or nothing coin toss (i.e.50% chance loan book doubles in value,50% chance it has zero value).From the shareholders point of view,this deal

Accepted Answer

A)  gives them a 50% chance of losing 10 and a 50% chance of gaining 10 
B)  gives them a 50% chance of losing 10 and a 50% chance of gaining 20 
C)  gives them a 50% chance of losing 10 and a 50% chance of gaining 100 
D)  gives them a 50% chance of losing 100 and a 50% chance of gaining 100 
E)  gives them a 50% chance of losing 100 and a 50% chance of gaining 200 
A)  gives them a 50% chance of losing 10 and a 50% chance of gaining 10 
B)  gives them a 50% chance of losing 10 and a 50% chance of gaining 20 
C)  gives them a 50% chance of losing 10 and a 50% chance of gaining 100 
D)  gives them a 50% chance of losing 100 and a 50% chance of gaining 100 
E)  gives them a 50% chance of losing 100 and a 50% chance of gaining 200

Question 7

A bus breaks down outside a small bank causing a big crowd.Passing bank customers think the crowd is caused by a queue of depositors withdrawing their money and so take their money out and warn their friends.You are also a depositor at the bank but realize that the run on the bank has been caused by a misconception.Your rational response is to

Accepted Answer

A)  ignore the run since it is based on a misconception 
B)  withdraw your money also even though there is no risk of the bank failing 
C)  withdraw your money as there is now a risk of the bank failing 
D)  put more money in the bank as a show of confidence 
E)  ignore the run even though the bank is now at risk of failing 
A)  ignore the run since it is based on a misconception 
B)  withdraw your money also even though there is no risk of the bank failing 
C)  withdraw your money as there is now a risk of the bank failing 
D)  put more money in the bank as a show of confidence 
E)  ignore the run even though the bank is now at risk of failing

Question 8

Shareholders in a bank may encourage excessive risk taking by the bank because

Accepted Answer

A)  shareholders are generally risk neutral 
B)  shareholders are generally risk averse 
C)  shareholders are generally risk loving 
D)  limited liability means that shareholder losses are limited 
E)  limited liability means that shareholder gains are limited 
A)  shareholders are generally risk neutral 
B)  shareholders are generally risk averse 
C)  shareholders are generally risk loving 
D)  limited liability means that shareholder losses are limited 
E)  limited liability means that shareholder gains are limited

Question 9

Generally speaking,bank deposits

Accepted Answer

A)  are a larger share of GDP in developing countries (relative to developed countries) but a smaller share of total financial assets 
B)  are smaller larger share of GDP in developing countries (relative to developed countries) and a smaller share of total financial assets 
C)  are a larger share of GDP in developing countries (relative to developed countries) and a larger share of total financial assets 
D)  are a smaller share of GDP in developing countries (relative to developed countries) but a larger share of total financial assets 
E)  are a similar share of GDP and financial assets in both developed and developing countries 
A)  are a larger share of GDP in developing countries (relative to developed countries) but a smaller share of total financial assets 
B)  are smaller larger share of GDP in developing countries (relative to developed countries) and a smaller share of total financial assets 
C)  are a larger share of GDP in developing countries (relative to developed countries) and a larger share of total financial assets 
D)  are a smaller share of GDP in developing countries (relative to developed countries) but a larger share of total financial assets 
E)  are a similar share of GDP and financial assets in both developed and developing countries

Question 10

The key argument for a government-backed deposit insurance scheme is

Accepted Answer

A)  to protect depositors against badly run banks 
B)  reduce the likelihood of bank runs 
C)  avoid moral hazard 
D)  to avoid depositors losing money in any type of bank failure 
E)  to make bank too big to fail 
A)  to protect depositors against badly run banks 
B)  reduce the likelihood of bank runs 
C)  avoid moral hazard 
D)  to avoid depositors losing money in any type of bank failure 
E)  to make bank too big to fail

Question 11

A key difference between a Commercial and an Investment Bank is

Accepted Answer

A)  Investment Banks focus on lending for investment rather the consumption 
B)  Commercial Banks tend to act as intermediaries in financial markets 
C)  Investment Banks focus on mortgages and loans to firms 
D)  Investment Banks may engage in proprietary trading 
E)  Commercial Banks often advise firms on how to raise funds in financial markets 
A)  Investment Banks focus on lending for investment rather the consumption 
B)  Commercial Banks tend to act as intermediaries in financial markets 
C)  Investment Banks focus on mortgages and loans to firms 
D)  Investment Banks may engage in proprietary trading 
E)  Commercial Banks often advise firms on how to raise funds in financial markets

Question 12

The following questions apply to the following simplified bank balance sheet
  
-The Bank above suffers a 15% fall in the value of its loans.It is now

Accepted Answer

A)  in a position where none of its creditors will get any of their money back 
B)  effectively bankrupt and depositors stand to lose money 
C)  effectively bankrupt but depositors can be paid off 
D)  effectively bankrupt but depositors and subordinated debt holders can be paid off 
E)  still a viable enterprise but with dramatically reduced capital 
A)  in a position where none of its creditors will get any of their money back 
B)  effectively bankrupt and depositors stand to lose money 
C)  effectively bankrupt but depositors can be paid off 
D)  effectively bankrupt but depositors and subordinated debt holders can be paid off 
E)  still a viable enterprise but with dramatically reduced capital

Question 13

Generally Speaking,bank deposits

Accepted Answer

A)  average over 100% of GDP and are a larger share of GDP in developed countries than in developing. 
B)  average less than 100% of GDP and are a larger share of GDP in developed countries than in developing 
C)  average over 100% of GDP and are a larger share of GDP in developing countries than in developed 
D)  average less than 100% of GDP and are a larger share of GDP in developing countries than in developed 
E)  average less than 100% of GDP and are a similar share of GDP in developed countries and developing 
A)  average over 100% of GDP and are a larger share of GDP in developed countries than in developing. 
B)  average less than 100% of GDP and are a larger share of GDP in developed countries than in developing 
C)  average over 100% of GDP and are a larger share of GDP in developing countries than in developed 
D)  average less than 100% of GDP and are a larger share of GDP in developing countries than in developed 
E)  average less than 100% of GDP and are a similar share of GDP in developed countries and developing

Question 14

Generally speaking the maturity mismatch of banks is due to

Accepted Answer

A)  having short term liabilities and long term assets 
B)  having long term liabilities and short term assets 
C)  liabilities that pay a fixed rate of interest and assets that pay a variable rate 
D)  depositors that are willing to keep their money in the bank for many years whilst loans are often short term 
E)  all of the above 
A)  having short term liabilities and long term assets 
B)  having long term liabilities and short term assets 
C)  liabilities that pay a fixed rate of interest and assets that pay a variable rate 
D)  depositors that are willing to keep their money in the bank for many years whilst loans are often short term 
E)  all of the above

Question 15

The following questions apply to the following simplified bank balance sheet
  
-The Bank above suffers a 5% fall in the value of its loans.It is now

Accepted Answer

A)  in a position where none of its creditors will get any of their money back 
B)  effectively bankrupt and depositors stand to lose money 
C)  effectively bankrupt but depositors can be paid off 
D)  effectively bankrupt but depositors and subordinated debt holders can be paid off 
E)  still a viable enterprise but with dramatically reduced capital 
A)  in a position where none of its creditors will get any of their money back 
B)  effectively bankrupt and depositors stand to lose money 
C)  effectively bankrupt but depositors can be paid off 
D)  effectively bankrupt but depositors and subordinated debt holders can be paid off 
E)  still a viable enterprise but with dramatically reduced capital

Question 16

The tendency for a bank run at one bank to increase the likelihood at another is called

Accepted Answer

A)  economies of scale 
B)  effective monitoring 
C)  contagion 
D)  moral hazard 
E)  Nash Equilibrium 
A)  economies of scale 
B)  effective monitoring 
C)  contagion 
D)  moral hazard 
E)  Nash Equilibrium

Question 17

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

Accepted Answer

A)  I Don't Run and all others don't Run 
B)  I Don't Run and all others don't Run + I run and all others run 
C)  I run and all others run 
D)  I Don't Run and all others don't Run + I run and all others don't run 
E)  All the outcomes 
A)  I Don't Run and all others don't Run 
B)  I Don't Run and all others don't Run + I run and all others run 
C)  I run and all others run 
D)  I Don't Run and all others don't Run + I run and all others don't run 
E)  All the outcomes

Question 18

Which of the following is not a key function of the banking system

Accepted Answer

A)  offering access to an efficient payments system 
B)  economies of scale in pooling the savings of many small depositors 
C)  allowing the efficient operation of financial markets 
D)  more effective monitoring of small and medium size borrowers relative to financial markets 
E)  maturity transformation of instant access deposits into longer term loans 
A)  offering access to an efficient payments system 
B)  economies of scale in pooling the savings of many small depositors 
C)  allowing the efficient operation of financial markets 
D)  more effective monitoring of small and medium size borrowers relative to financial markets 
E)  maturity transformation of instant access deposits into longer term loans

Question 19

Real Estate is important to banks because

Accepted Answer

A)  real estate lending is a large part of total bank lending 
B)  real estate is often used as collateral for loans 
C)  banks tend to own a lot of property 
D)  of both a and b 
E)  of a,b and c 
A)  real estate lending is a large part of total bank lending 
B)  real estate is often used as collateral for loans 
C)  banks tend to own a lot of property 
D)  of both a and b 
E)  of a,b and c

Question 20

A bank is said to be highly leveraged if

Accepted Answer

A)  it has made a large number of risky loans 
B)  it is highly dependent on the interbank market for funding 
C)  its assets are very large in relation to its equity 
D)  its assets are very large in relation to its deposits 
E)  it liabilities are very large 
A)  it has made a large number of risky loans 
B)  it is highly dependent on the interbank market for funding 
C)  its assets are very large in relation to its equity 
D)  its assets are very large in relation to its deposits 
E)  it liabilities are very large

The bank lending channel of a credit crunch is when

Recessions involving a credit crunch tend to be

A company wishes to borrow $10,000 but to efficiently monitor that loan each lender will incur costs of $100.What is the difference in monitoring costs per lender (as a percentage of loan value) between the firm borrowing all the money from one lender and splitting the loan between ten lenders

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

The broad credit channel of a credit crunch is when

Shareholders in a bank may encourage excessive risk taking by the bank because

Generally speaking,bank deposits

The key argument for a government-backed deposit insurance scheme is

A key difference between a Commercial and an Investment Bank is

The following questions apply to the following simplified bank balance sheet -The Bank above suffers a 15% fall in the value of its loans.It is now

Generally Speaking,bank deposits

Generally speaking the maturity mismatch of banks is due to

The following questions apply to the following simplified bank balance sheet -The Bank above suffers a 5% fall in the value of its loans.It is now

The tendency for a bank run at one bank to increase the likelihood at another is called

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

Which of the following is not a key function of the banking system

Real Estate is important to banks because

A bank is said to be highly leveraged if

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

Sovereign Debt and Default

Exchange Rate Determination I the Real Exchange Rate

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Currency Crises and Exchange Rate Systems

Filters

Exam 17: The Banking Sector

The bank lending channel of a credit crunch is when

Recessions involving a credit crunch tend to be

A company wishes to borrow $10,000 but to efficiently monitor that loan each lender will incur costs of $100.What is the difference in monitoring costs per lender (as a percentage of loan value) between the firm borrowing all the money from one lender and splitting the loan between ten lenders

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

The broad credit channel of a credit crunch is when

Shareholders in a bank may encourage excessive risk taking by the bank because

Generally speaking,bank deposits

The key argument for a government-backed deposit insurance scheme is

A key difference between a Commercial and an Investment Bank is

The following questions apply to the following simplified bank balance sheet -The Bank above suffers a 15% fall in the value of its loans.It is now

Generally Speaking,bank deposits

Generally speaking the maturity mismatch of banks is due to

The following questions apply to the following simplified bank balance sheet -The Bank above suffers a 5% fall in the value of its loans.It is now

The tendency for a bank run at one bank to increase the likelihood at another is called

Given the payoff matrix for a Bank Run below (where the first number in each box is the payoff to me).What is the full set of possible Nash equilbria?

Which of the following is not a key function of the banking system

Real Estate is important to banks because

A bank is said to be highly leveraged if

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

Sovereign Debt and Default

Exchange Rate Determination I the Real Exchange Rate

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Currency Crises and Exchange Rate Systems

Filters