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.