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Quiz

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Question 1 (1 point)

Which of the following is an example of a source of internal finance for companies?

	A) corporate bonds
	B) withheld earnings
	C) commercial loans
	D) employee pension funds

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Question 2 (1 point)

Which of the following is a technique lenders use to alleviate asymmetric information problems?

	A) checking credit ratings
	B) monitoring borrowing activity
	C) restrictive covenants
	D) all of the above

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Question 3 (1 point)

Which of the following is a technique lenders use to alleviate moral hazard problems?

	A) specialized lending
	B) diversified lending
	C) requiring collateral
	D) all of the above

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Question 4 (1 point)

Sarbanes-Oxley was intended to reduce

	A) asymmetric information
	B) allocational efficiency
	C) transactions costs
	D) all of the above

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Question 5 (1 point)

A bank can increase its level of reserves by

	A) buying securities
	B) increasing borrowings
	C) making loans
	D) all of the above

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Question 6 (1 point)

Which of the following is a method banks use to deal with interest rate risk?

	A) specialization
	B) gap analysis
	C) restrictive covenants
	D) compensating balances

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Question 7 (1 point)

When a bank turns demand deposits into mortgages it is creating:

	A) contingency risk
	B) credit risk
	C) interest rate risk
	D) liquidity risk

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Question 8 (1 point)

A bank can increase its level of reserves by

	A) buying securities
	B) increasing borrowings
	C) making loans
	D) all of the above

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Question 9 (1 point)

Unit banks

	A) have no branches
	B) are highly competitive
	C) are an increasingly common type of financial institution
	D) all of the above

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Question 10 (1 point)

With an ARM, who must take on the interest rate risk?

	A) both
	B) lender
	C) neither
	D) borrower

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Question 11 (1 point)

Bank consolidation is potentially a problem because

	A) larger banks are harder to regulate
	B) banks are less diversified
	C) banks are less able to innovate
	D) they cannot manage complex technology

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Question 12 (1 point)

The “too big to fail” policy exacerbates the moral hazard problem between

	A) regulators and banks
	B) politicians and regulators
	C) the public and politicians
	D) banks and borrowers

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Question 13 (1 point)

The creation of the SEC was intended to increase _____ in financial markets.

	A) credit risk options
	B) transparency
	C) profits
	D) liquidity

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Question 14 (1 point)

The FDIC was created in response to

:

	A) the stock market crash
	B) unscrupulous S&Ls
	C) hyperinflation trends
	D) bank runs

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Question 15 (1 point)

Which of the following is considered to be a derivative?

:

	A) bonds
	B) swaps
	C) equities
	D) mutual funds

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Question 16 (1 point)

Which of the following markets is least liquid?

:

	A) the stock market
	B) the forwards market
	C) the currency market
	D) the bond market

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Question 17 (1 point)

Which of the following is true of a financial derivative?

	A) Derivatives are not traded on exchanges and so cannot be regulated.
	B) The price of a derivative is independent of its supply in the market.
	C) Derivatives can be used to multiply gains or losses from an asset.
	D) Derivatives can also be traded without any underlying asset.

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Question 18 (1 point)

Lenders of last resort intend to

	A) restore confidence in financial markets.
	B) impose more regulation on the banks
	C) restrain money supply growth.
	D) increase the capital in financial institutions.

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Question 19 (1 point)

All of the following EXCEPT one would have a strong propensity to initiate a financial crisis. Which is the exception?

	A) exchange rate appreciation
	B) government fiscal deficits
	C) increases in interest rates
	D) banking panics

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Question 20 (1 point)

During a housing bubble, people continue to buy houses because

:

	A) the government guarantees house value won’t fall.
	B) they expect house price to continue to rise.
	C) they are offered adjustable rate mortgages
	D) they are able to get loans at high interest rates.