Questions and Answers of Economics Money Banking

What factors influence a bank’s holding of reserves?
What is the evidence that a bank behaves like a risk averter?
What are the conditions for bank intermediation to take place in the portfolio balance model of banking?
What does the portfolio balance model of banking predict on a bank’s balance sheet if there is an increase in (a) The yield on loans (b) The riskiness of loans?
What is the availability doctrine?
Critically comment on the argument that profit-maximising banks would not ration credit because of the many alternative sources of funding available to the borrower.
Explain the difference between exogenous and endogenous credit rationing.
Credit rationing is not really the result of market failure but a failure on the part of the borrower to appreciate the true price of credit’. Discuss.
Explain what you understand by the following terms: (a). Asymmetric information, (b). Moral hazard,(c). Adverse selection.
Review the implications of adverse incentives for the explanation of credit rationing.
Financial intermediation can be considered as a bundle of separate services. What are these separate components?
Discuss the implications of securitisation for the long-term future of banking.
What factors explain the growth of securitisation?
What is securitisation? Comment on its significance for international banking.
What are (a) NIFs, (b) FRNs,(c) commercial paper? Does the growth of these harm banks?
What are the three categories of securitisation arranged through financial markets?
What is asset-backed securitisation? How are the securities issued?
How do banks gain from asset-backed securitisation?
Banking Efficiency and the Structure of Banking?
Critically comment on the various methods for the evaluation of bank performance.
How is bank performance evaluated?
What are the problems in measuring the efficiency of a bank’s operation?
In recent years, there has been a growth of and acquisitions in the banking industry. Why may this have occurred?
How may the estimation of cost and production functions assist in measuring the efficacy of bank mergers?
What accounting ratios may be used to measure changes in efficiency following a merger?
What is data envelopment analysis and how may it be used in judging whether mergers have increased efficiency?
How may event studies be used to assess whether mergers have been advantageous?
Do bank mergers necessarily lead to anti-competitive behaviour? Explain your answer.
How is concentration measured in the banking market?
It is often said that British banking is highly competitive but paradoxically up until the 2007–2009 global bank crisis the banks reported increasing profit performance and increasing ROE each
What information does the HHI statistic provide about the nature of a banking market?
How would you explain the finding that Chinese banks behaved as if in perfect competition but in a highly controlled regulated banking market?
What is the SCP hypothesis, and is the empirical evidence consistent with this hypothesis?
Explain how the concept of contestability can be applied to concentrated but open banking markets.
What has been the main empirical finding concerning the competitive state of banking markets in developed economies?
Explain how the H-statistic from the Rosse–Panzar methodology indicates the competitive nature of the banking market.
What are the real resource costs of regulation?
Deposit insurance weakens the incentive to maintain capital adequacy’ (K. Dowd). Comment.
What are the main reasons for bank regulation?
Banks cannot be trusted to regulate themselves and, therefore, prudential regulations are a necessary evil.’ Discuss.
What are the arguments in favour of a government-backed deposit insurance scheme?
What measures have been suggested to increase the degree of market discipline on bank’s risk-taking and capital adequacy?
Define money laundering.
What can economic theory contribute to the understanding of the motives of organisations and banks that engage in money laundering activity? How can the theory be used to design anti-money laundering
Why would an individual or company engage in money laundering activity?
Outline the anti-money laundering policies of the developed economies and discuss the potential pitfalls of such policies.
Why might a bank be involved in ML activity?
Describe the three stages of money laundering.
What are the main tasks of the Financial Action Task Force?
What are the inadvertent outcomes of implementing the FATFrecommended regulations for financial inclusion?
Why do banks need to manage risk?
What are the main risks that banks manage?
What is interest rate risk? How do banks manage interest rate risk?
What is value at risk and how is it used to manage market risk?
What is the advantage to the investor from diversification?
How is VaR used to evaluate capital at risk?
What is Credit MetricsTM and how is it used to manage credit risk?
What is operational loss? How would a risk manager begin to evaluate the expected losses from operational events?
How does the Bank of England influence the level of interest rates in the market?
Critically evaluate the argument that an independent central bank should be ‘conservative’ but not ‘too conservative’.
Is it possible to distinguish between the credit channel transmission mechanism and the monetarist notion of the credit channel? Explain how the global credit crunch of 2007 may help distinguish
In the context of central banking, explain the difference between the terms ‘operational independence’ and ‘goal independence’.
What are the macroeconomic objectives of a central bank? How do they differ from the macroeconomic objectives of the government?
How does financial innovation reduce the effectiveness of domestic monetary policy?
Review the mechanisms by which monetary policy affects the economy.
What is the credit channel?
Examine the international trends in commercial banking in the past three decades. Analytically account for the trends and, on the basis of your account, comment and make a projection on the future of
Go to www.econlib.org/library/Enc1/Recessions. html and review the material reported on recessions.a. What is the formal definition of a recession?b. What are the problems with the definition?
Go to www.martincapital.com and click on “U.S. Financial Data” and then “U.S. Financial Charts,” then on “Fed Funds Target” to find data showing real interest rates and nominal interest
Robert Lucas won the Nobel Prize in economics. Go to www.nobelprize.org/nobel_prizes/economics/ and locate the press release on Robert Lucas. What was his Nobel Prize awarded for? When was it awarded?
It can be an interesting exercise to compare the purchasing power of the dollar over different periods in history. Go to www.bankofcanada.ca/rates and scroll down to the link to the inflation
As the CPI inflation rate in Canada fell close to 1% at the beginning of 2009, Bank of Canada policymakers were beginning to be concerned about deflation. Go to www.bankofcanada.ca, and follow the
Go to www.bankofcanada.ca and follow the link to employment statistics. What has happened to the unemployment rate since the end of the Great Recession in July 2009?
Go to http://www.bankofcanada.ca/monetary-policyintroduction/. Review what the Bank of Canada says its goals are for monetary policy. Explain why these are consistent with the Taylor principle.
Go to www.eurmacro.unisg.ch/Tutor/islm.html. Set the policy instruments to be G = 80, t = 0.20, c = 0.75, b = 40. Now increase the sensitivity of investment to the interest rate, b, from 40 to 80.
Go to www.eurmacro.unisg.ch/Tutor/islm.html. Set the policy instruments to be G = 80, t = 0.20, c = 0.75, b = 40. Now increase government spending, G, from 80 to 160. How much does the IS curve shift
Use the data from the previous exercise and also download the three-month T Bill rate (CANSIM series V122531). Run a regression of real money balances on a constant, real GDP, and the nominal
The formula for computing the velocity of money is GDP/M, where M is a money supply measure. Go to the CANSIM data available in the Student Resources section of your MyEconLab website and download
The International Monetary Fund stands ready to help nations facing monetary crises. Go to www.imf.org. Click on the tab labelled “About the IMF.” What is the stated purpose of the IMF? How many
Go to www.bankofcanada.ca/2009/11/speeches/ evolution-international monetary-system/. Review the speech by Mark Carney, “The Evolution of the International Monetary System.” Write a one-page
International travellers and businesspeople frequently need to accurately convert from one currency to another. It is often easy to find the rate needed to convert the Canadian dollar into another
Visit the website of the Bank of Canada, www.bankofcanada.ca. Click “Rates and Statistics” and then “Exchange Rates.”a. What are the fundamental determinants of exchange rates?b. What are the
The Bank of Canada maintains a website that lists the exchange rate between the Canadian dollar and manyother currencies. Go to www.bankofcanada.ca/rates/ exchange/10-year-converter/. Find the
Many countries have central banks that are responsiblefor their nation’s monetary policy. Go to www.bis.org/cbanks.htm and select one of the central banks (for example, Norway). Review that
It is possible to access other central bank websites to learn about their structure. One example is the European Central Bank. Go to www.ecb.int/index.html. On the ECB home page, locate the current
Go to www.bankofcanada.ca, and click on “About the Bank” and then “What We Do.”a. Review the Bank of Canada’s main functions.b. How does the Bank’s monetary policy contribute to rising
Refer to Figure 17-1 on page 406. Go to www.bankof canada.ca and click on ?Rates and Statistics.? What is the current overnight rate target? What is the overnight rate? Is the difference between them
Go to www.bankofcanada.ca and click on “Media Room” and then “Press Releases.” Scroll down and click on the release regarding recent changes in the overnight rate of interest. Summarize the
Go to www.bankofcanada.ca and click on “Rates and Statistics,” then “Indicators,” and then choose “Summary of Key Monetary Policy Variables.”a. What is the 12-month growth rate of M2
An important aspect of the supply of money is bank deposits with the Bank of Canada. Go to www.osfi-bsif.gc.ca and locate financial data for banks. This site reports the consolidated balance sheet
Go to the above site and click on “Monetary Policy.” Then click on “Reports” and then choose “Beige Book.” According to the summary of the most recently published book, is the U.S.
Go to www.federalreserve.gov and click on “About The Fed.” Then click on “The Federal Reserve System” and then on “Structure.” According to the Federal Reserve, what is the most important
Go to www.bankofcanada.ca and click on “About the Bank.” Choose “Management and Corporate Governance.” Write a short essay about the diversity of the 12 outside directors of the Bank of
The following site can be used to demonstrate how the features of an option affect the option’s prices. Go to www.option-price.com/index.php. What happens to the price of an option under each of
Table 13-1 reports the balance sheet of all commercial banks based on aggregate data found in the OSFI?s website. Compare this table to the balance sheet information reported (under Financial
It is relatively easy to find up-to-date information on banks because of their extensive reporting requirements. Go to www.osfi-bsif.gc.ca. This site is sponsored by the Office of the Superintendent
OSFI also maintains extensive data on nondepository credit intermediaries (known as finance companies). Go to its website at the address in Exercise 1, locate the data, and answer the following
The Office of the Superintendent of Financial Institutions (OSFI) maintains extensive data on insurers. Go to www.osfi-bsif.gc.ca and click on “Life Insurance Companies & Fraternals” and then
Despite the regulations that protect banks from failure, some do fail. Go to www2.fdic.gov/hsob/index.asp. Select the tab labelled “Failures and Assistance Transactions.” How many bank failures
Go to the Canadian Bankers Association website at www.cba.ca and search for an article called “Automated Banking Machine Market in Canada.” Write a short essay on ABM transactions in Canada and

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