1 . Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Multiple Choice

• customers will not want to obtain loans from this bank.
• equity investors will not be able
• to sell the bank's stock.
• regulators will scrutinize the bank heavily looking for something wrong.
• depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.

5 . Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Multiple Choice

• customers will not want to obtain loans from this bank.
• equity investors will not be able to sell the bank's stock.
• regulators will scrutinize the bank heavily looking for something wrong.
• depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.

6 . Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Multiple Choice

• customers will not want to obtain loans from this bank.
• equity investors will not be able to sell the bank's stock.
• regulators will scrutinize the bank heavily looking for something wrong.
• depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.

7 . Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Multiple Choice

• customers will not want to obtain loans from this bank.
• equity investors will not be able to sell the bank's stock.
• regulators will scrutinize the bank heavily looking for something wrong.
• depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.

12 . During a bank crisis:

Multiple Choice

• officials at the Federal Reserve find it easy to sort out solvent from insolvent banks.
• it is important for regulators to be able to distinguish insolvent from illiquid banks.
• it is easy to determine the market prices of bank's assets.
• a bank will go to the central bank for a loan before going to other banks.

13 . If your stockbroker gives you bad advice and you lose your investment:

Multiple Choice

• the government will reimburse you similar to reimbursing depositors if a bank fails.
• the government will not reimburse you for the loss; you are not protected from bad advice by your stockbroker.
• these losses would be covered under FDIC insurance.
• your investment would only be covered if the stockbroker was employed by a bank.

14 . The system of deposit insurance prevents bank runs primarily by:

Multiple Choice

• paying off depositors at insolvent banks after a bank run.
• reassuring depositors their money is safe, so the bank run never occurs.
• paying off depositors at solvent banks after a bank run.
• closing banks when there are rumors about a bank's insolvency

14 . The system of deposit insurance prevents bank runs primarily by:

Multiple Choice

• paying off depositors at insolvent banks after a bank run.
• reassuring depositors their money is safe, so the bank run never occurs.
• paying off depositors at solvent banks after a bank run.
• closing banks when there are rumors about a bank's insolvency

15 . Considering the methods available to the FDIC for dealing with a failed bank, the depositors of the failed bank should:

Multiple Choice

• be indifferent between the two since it really does not matter to them which method is used.
• prefer the purchase and assumption method since the deposits over $250,000 will also be protected.
• prefer the payoff method because they will have access to their funds earlier.
• prefer the payoff method since a lot less paperwork is involved for the depositor.

17 . Since the 1920's, the ratio of assets to capital has almost tripled for commercial banks. Many economists believe this is the direct result of:

Multiple Choice

• lower quality management in banks.
• the increase in branch banking.
• allowing banks to offer non-bank services.
• government provided deposit insurance.

18 . The moral hazard problem caused by government safety nets:

Multiple Choice

• is greater for larger banks.
• is greater for smaller banks.
• is pretty constant across banks of all sizes.
• only exists for banks with high leverage ratios.

19 . If the government did not offer the too-big-to-fail safety net:

Multiple Choice

• large banks would be more disciplined by the potential loss of large corporate accounts.
• the moral hazard problem of insuring large banks would increase.
• the moral hazard problem of insuring large banks would not be affected.
• the FDIC deposit insurance limits would have to be raised.