Question

Question 1 (1 point)

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In a world without deposit insurance we would expect to see all the following EXCEPT:

Question 1 options:

	frequent bank runs.
	the public being reluctant to deposit in banks.
	people keeping more money in cookie jars and under the mattress.

Question 2 (1 point)

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All the following are current regulations on banks, EXCEPT:

Question 2 options:

	Banks need to show their books to on-site examiners.
	Banks need to hold a certain amount of capital relative to the amount of assets on their balance sheet.
	Banks need to have a system for risk management in the bank.

Question 3 (1 point)

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Consumer protection regulation requires all the following EXCEPT:

Question 3 options:

	Banks are not allowed to discriminate borrowers based on race, gender, and neighborhood.
	Lenders are required to disclose to borrowers the true cost of a loan including finance charges.
	Lenders are required to make sure that borrowers have the ability to pay back a loan by checking their income and credit history. (new after the crises)

Question 4 (1 point)

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The government safety net for banks consists of: (Pick the TWO correct options below.)

Question 4 options:

	Federal Deposit Insurance.
	A guarantee that no investors in banks will lose money.
	An implicit understanding that some banks, if they have a negative bank capital, will be saved by an infusion of capital or a take-over if they are considered "too big to fail."
	A guarantee that nobody working in banking will lose their job in case of a bank failure.

Question 5 (1 point)

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When we call a bank "too big to fail" it means that:

Question 5 options:

	The bank has so much capital, it will not fail.
	The bank is considered so important that a failure will disrupt the financial system and should therefore not be allowed.
	The bank is so large and important that it could never be insolvent.

Question 6 (1 point)

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There is a strong incentive for Moral Hazard in a banking, in particular due to the government safety net, because: (Mark the TWO that apply)

Question 6 options:

	All bankers like to take on risk.
	Depositors deposit their money in banks without checking what the bank does with it.
	If bankers take a lot of risk that pay off, they can get large bonuses, if they lose on their risky bets, they are not likely to carry a large personal cost.
	Nobody loses, even if banks take big risks and fail.

Question 7 (1 point)

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The financial crises started with too many loans being given to people who could not pay back. Too many loans were given probably for all of the following reasons, EXCEPT:

Question 7 options:

	The banks could sell the mortgages, so they were interested in giving out as many mortgages as they could.
	World interest rates were low, so investors were eager to buy the Mortgage-Backed Securities, since they had a higher return.
	The Mortgage Backed Securities were given a high credit rating, which made them an attractive investment object.
	Borrowers who took out the mortgages had a lot of funds to pay substantial down payments.
	House prices kept rising, so investors trusted they could always sell the collateral if borrowers defaulted on their mortgages.

Question 8 (1 point)

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In the years leading up the financial crises, many new securities were created, for instance derivatives like Mortgage Backed Securities. These derivatives:

Question 8 options:

	were heavily regulated as they were introduced.
	became heavily regulated after a short time.
	were not regulated.
	were regulated just like other types of mortgages.

Answer 1

As per the HOMEWORKLIB POLICY the first question is answered. Kindly post the other questions in a separate post. 1. In a world without deposit insurance we would expect to see frequent bank runs. The bank run is a situation where the clients withdraw the money they have invested from the banks because they believe that the bank might close its function in the future. In a world without deposit insurance we would expect to that people keep more money in the cookie jars and under the mattress. This is because, the depositors are not willing to take risks and would want to keep only a portion of money in the bank where they expect to earn some interest. But they will keep most of the money with themselves in the absence of deposit insurance. Thus, the correct option is that the public would be reluctant to deposit in banks. In public, we have a mix of depositors who have different risk-taking capacity and the risk risker investors would prefer to invest money in the money in the bank and earn interest money even without any insurance available against the deposits. The public also understands the risk of theft associated with the cash at home and the loss of opportunity to earn an interest rate.