21. A bank funds a five year, fixed rate auto loan with a three year CD. Which of the following would reduce the banks net interest income?

a. an increase in interest rates

b. a decrease in interest rates

c. change in interest rates has no affect

d. cannot be determined based on information given

22. Which of the following are not off-balance sheet activities of a bank?

a. swap contracts

b. commercial letters of credit

c. real estate loans

d. loan commitments

23. Which of the following is a moral hazard?

a. management is pushed to falsify financial statement in order to meet the demands of Wall Street analysts.

b. once a firm takes on large amounts of debt, management may take excessive risk.

c. providing false information on a personal loan application.

d. finance companies lend money to customer they know are not credit worthy.

24. Asymmetric information results in the non-banking public being unable to differentiate between a sound bank and an insolvent bank. How is this resolved in modern banking systems?

a. Discount window lending by the Federal Reserve

b. Collateralized debt obligation

c. Equity lines of credit

d. Government sponsored deposit insurance

25. What ended the Panic of 1907?

a. the ending of the Gold Standard

b. the intervention of J.P. Morgan

c. An emergency loan from the International Monetary Fund

d. A bailout of banks by the U.S. Treasury