Question 1 (1 point)

Usually regulatory financial laws are passed when,

Question 1 options:

	a. There is a perception that financial power is too concentrated.
	b. There is a perception that capital allocation needs improvement.
	c. There is public outrage when financial events have adverse consequences for the economy.
	d. There is a desire to protect people from exploitation by financial institutions.

Question 2 (1 point)

One of the reasons why regulations need to be constantly revised to be effective is,

Question 2 options:

	a. Regulations tend to be poorly written with unintended consequences.
	b. Regulations are not strictly enforced.
	c. The efficacy of financial regulations decays over time as ways around them are discovered by the institutions being regulated.
	d. Regulators themselves can often be incompetent.

Question 3 (1 point)

The goal of regulating bank operations is to reduce risk to as close to zero as possible.

Question 3 options:

	True
	False

Question 4 (1 point)

A bank that makes a "leveraged loan" (HLT) to a company with an 75% debt ratio is exposed to excessive operating risk.

Question 4 options:

	True
	False

Question 5 (1 point)

Banks that accept demand deposits and savings deposits from a geographic market defined by income or social status must also make loans in that same market.

Question 5 options:

	True
	False

Question 6 (1 point)

Banks are not allowed to own stock.

Question 6 options:

	True
	False

Question 7 (1 point)

Banks are not allowed to own bonds.

Question 7 options:

	True
	False

Question 8 (1 point)

Banks are not allowed to underwrite credit default swaps.

Question 8 options:

	True
	False

Question 9 (1 point)

When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity.

Question 9 options:

	True
	False

Question 10 (1 point)

In general, banks would prefer to maintain a high amount of capital to boost their return on equity ratio, yet regulators have argued that banks need only a sufficient amount of capital to absorb potential operating losses.

Question 10 options:

	True
	False

Question 11 (1 point)

Shareholders and managers of banks may prefer that banks be required to hold higher levels of capital because this would allow for higher share prices for the banks and larger bonuses for bank managers.

Question 11 options:

	True
	False

Question 12 (1 point)

A bank can increase its capital ratio by:

Question 12 options:

	a. Borrowing money or using purchased funds to buy back shares of its stock from shareholders.
	b. Selling assets.
	c. Increasing its dividend to encourage more investors to purchase its stock.
	d. Increasing its off-balance sheet activities.

Question 13 (1 point)

The Volcker rule, named for a former Fed chair:

Question 13 options:

	a. is intended to increase the powers of the Fed.
	b. states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system.
	c. sets limits on banks' proprietary trading.
	d. requires all banks to undergo annual stress tests.

Question 14 (1 point)

Which of the Basel Accords introduced scrutiny of operating risk?

Question 14 options:

	a. Basel I.
	b. Basel II.
	c. Basel III.
	d. Basel IV.

Question 15 (1 point)

Which of the Basel Accords introduced the concept of capital adequacy

Question 15 options:

	a. Basel I.
	b. Basel II.
	c. Basel III.
	d. Basel IV.

Question 16 (1 point)

Which of the Basel Accords provided the incentive for banks to adopt VAR measures?

Question 16 options:

	Basel I.
	b. Basel II.
	c. Basel III.
	d. Basel IV.

Question 17 (1 point)

The Basel III framework proposes:

Question 17 options:

	a. lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis.
	b. relying on the rating agencies to assess the risk of bank assets.
	c. increased capital requirements and liquidity requirements for banks.
	d. using the gap ratio to set the capital ratio.