In: Accounting
1. During the height of the real estate boom in 2006, brokers
offered loans with
little concern about whether or not the borrowers could make the
payments. The brokers were
then able to sell the loans to investors for a high fee. Which of
the following best describes this
scenario?
A. The brokers were acting in their own self-interest and not in
the interest of the investors.
This is an example of the moral hazard problem.
B. The brokers were acting in their own self-interest and not in
the interest of the investors.
This is an example of the adverse selection problem.
C. The borrowers acted in their own self-interest and not in the
interest of the brokers. This
is an example of the moral hazard problem.
D. The borrowers acted in their own self-interest and not in the
interest of the brokers. This
is an example of the adverse selection problem.
2. According to the Consumer Financial Protection Bureau,
millions of Americans
do not have credit enough credit history to create a credit score.
These consumers often face
the worst credit terms. Which of the following best describes
why?
A. Without a credit score, lenders cannot tell high risk borrowers
from low risk borrowers.
Lenders treat all borrowers as high risk. This is an example of the
moral hazard problem.
B. Without a credit score, lenders cannot tell high risk borrowers
from low risk borrowers.
Lenders treat all borrowers as high-risk. This is an example of the
adverse selection
problem.
C. When making loans to borrowers without a credit score, lenders
act in their own self
interest and not the interest of the borrower. This is an example
of the moral hazard
problem.
D. When making loans to borrowers without a credit score, lenders
act in their own self
interest and not the interest of the borrower. This is an example
of the adverse selection
problem.
3.
Which balance sheet item generates the most revenue for
banks?
A. Loans
B. Treasury securities
C. Reserves held at the Federal Reserve
D. Vault cash
E. Equity Securities
4.) Sally takes $1000 in currency and deposits it in a savings
account at First
National Bank. The value of the deposit is
A. an asset for First National Bank and a liability for
Sally.
B. an asset for First National Bank and an asset for Sally.
C. a liability for First National Bank and an asset for
Sally.
D. a liability for First National Bank and a liability for
Sally.
5. If interest rates on all types of assets increase, the
present value of a banks’
current portfolio of loans . At the same time, the profitability of
future loans .
A. rises/rises
B. falls/falls
C. falls/rises
D. rises/falls
6. Bank runs were fairly common in the United States prior to
the Great Depression.
Which of the following best describes why bank runs no longer
occur?
A. Capital requirements have increased and banks are much less
likely to fail.
B. The Federal Reserve will loan any bank that needs liquidity
funds to satisfy withdrawal
requests.
C. The Federal Deposit Insurance Corporation (FDIC) insures all
deposits below $250,000.
D. The Glass Steagall act separated commercial banks from
investment banking and insurance
companies, making banks far less likely to fail.
E. The Riegle-Neal Interstate Banking act of 1994 allowed
15 years ago,
A. the top 10 biggest banks were larger and there were more
banks in total.
B. the top 10 biggest banks were smaller and there were more banks
in total.
C. the top 10 biggest banks were smaller and there were fewer banks
in total.
D. the top 10 biggest banks were larger and there were fewer banks
in total.