Question :
11.1 Asymmetric Information and Financial Regulation
1) Depositors lack of information : 1373725
11.1 Asymmetric Information and Financial Regulation
1) Depositors lack of information about the quality of bank assets can lead to ________.
A) bank panics
B) bank booms
C) sequencing
D) asset transformation
2) The fact that banks operate on a “sequential service constraint” means that
A) all depositors share equally in the bank’s funds during a crisis.
B) depositors arriving last are just as likely to receive their funds as those arriving first.
C) depositors arriving first have the best chance of withdrawing their funds.
D) banks randomly select the depositors who will receive all of their funds.
3) Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a
A) last-in, first-out constraint.
B) sequential service constraint.
C) double-coincidence of wants constraint.
D) everyone-shares-equally constraint.
4) Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the
A) too-big-to-fail effect.
B) moral hazard problem.
C) adverse selection problem.
D) contagion effect.
5) The contagion effect refers to the fact that
A) deposit insurance has eliminated the problem of bank failures.
B) bank runs involve only sound banks.
C) bank runs involve only insolvent banks.
D) the failure of one bank can hasten the failure of other banks.
6) During the boom years of the 1920s, bank failures were quite
A) uncommon, averaging less than 30 per year.
B) uncommon, averaging less than 100 per year.
C) common, averaging about 600 per year.
D) common, averaging about 1000 per year.
7) To prevent bank runs and the consequent bank failures, the United States established the ________ in 1934 to provide deposit insurance.
A) FDIC
B) SEC
C) Federal Reserve
D) ATM
8) The primary difference between the “payoff” and the “purchase and assumption” methods of handling failed banks is
A) that the FDIC guarantees all deposits when it uses the “payoff” method.
B) that the FDIC guarantees all deposits when it uses the “purchase and assumption” method.
C) that the FDIC is more likely to use the “payoff” method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures.
D) that the FDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions.
9) Deposit insurance has not worked well in countries with
A) a weak institutional environment.
B) strong supervision and regulation.
C) a tradition of the rule of law.
D) few opportunities for corruption.
10) When one party to a transaction has incentives to engage in activities detrimental to the other party, there exists a problem of
A) moral hazard.
B) split incentives.
C) ex ante shirking.
D) pre-contractual opportunism.
1
0
combs
