Question 10 Banks are vulnerable to failing because: O The Federal Reserve uses the banking system to create excessiv Banks take large risks with their depositors' and creditors' funds t O Banks are rife with fraud. Banks are over-regulated and unable to make sufficient profits to Banks are too large and poorly managed.

Question 10 Banks are vulnerable to failing because: O The Federal Reserve uses the banking system to create excessiv Banks take large risks with their depositors' and creditors' funds t O Banks are rife with fraud. Banks are over-regulated and unable to make sufficient profits to Banks are too large and poorly managed.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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QUESTION 4 The following is true of deposit insurance, except Depositor no longer has incentives to monitor the activities of the bank Moral hazard dissuades the bank manager from taking risky projects In theory, regulators have replaced depositors in the monitoring of banks Moral hazard encourages the bank manager to take on risky projects
QUESTION 10 Why are some banks considered too big to fail? A. The Glass-Steagal Act prohibits the failure of any bank wiht more than $5 billion in assets B. Very large banks have enough assets to prevent financial distress and cannot fail C. These banks are so large that their failure may initiate a financial crisis in the broader economy D. Congress has always stepped in to bail out banks owned by politically connected individuals
The following is true of deposit insurance, except a Depositor no longer has incentives to monitor the activities of the bank b Moral hazard dissuades the bank manager from taking risky projects c In theory, regulators have replaced depositors in the monitoring of banks d Moral hazard encourages the bank manager to take on risky projects
Bank regulation cannot eliminate risk and does not prevent bank failure. It cannot guarantee that bank management will make good decisions especially in high-risk lending and investment. However, bank regulation can enhance safety and stability of the banking industry. Therefore bank regulation is justified. Do you agree or disagree? Please explain your answer.
Which of the following is a reason for financial regulation? a. To ensure market dominance by strong financial institutions. b. The failure of any financial institution may have a serious negative impact on individuals and economies. c. Banks cannot be trusted. d. To ensure government control of the economy.
Problem 1 Does the lender of last resort function of central banks introduce moral hazard into the financial system? Explain. Briefly explain why central bank independence can be a solution to the time- inconsistency problem. What is shadow banking and what was its role in the financial crisis of 2007-2009?
1. Why banks are subject to intense regulations? Explain the circumstances where banks are sometimes left with excess liqidity?
Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk
Banks that are too-big-to-fail refers to: Question 6Answer a. Banks with multiple branches and a large number of depositors. b. Banks that are viewed by regulators as being too big to be closed and liquidated without imposing a systemic risk to the banking and financial system. c. Banks that are too profitable to declare bankruptcy. d. Any financial institution that accepts deposits from the general public
10) Off-balance sheet activities involving guarantees of securities and back-up credit lines A) have no impact on the risk a bank faces. B) greatly reduce the risk a bank faces. C) increase the risk a bank faces. D) slightly reduce the risk a bank faces.
19 Which one is NOT the reason to regulate financial system? Select one: Regulation encourages fair competition in the industry Regulation ensure that banks reduce their liabilities risk and protect customers’ deposit Supervision and monitoring the practices of banks ensure good corporate governance Regulation will make public less confident with financial system
Banks are in the business of managing risk Risk is a fundamental element that drives financial behavior. Without risk, the financial system would be vastly simplified. However, the risk is omnipresent in the real world. Financial Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain world. The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The effective management of credit risk is a critical component of comprehensive risk management essential for the long-term success of a banking institution. Credit risk is the oldest and biggest risk that a bank, by virtue of its very nature of the business, inherits. This has, however, acquired a greater significance in the recent past for various reasons. Foremost among them is the wind of economic liberalization that is blowing across the globe. India is no exception to this swing…

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