Suppose that you are a bank regulator who knows that there are two types of bank's under your jurisdiction, high quality (H) and low quality (L), who differ in their ability to screen loan applications for credit worthy borrowers. Using past data you estimate that roughly 70% of banks are high quality and 30% are low quality. High quality bank's generate a cashflow per loan of 100k with probability .8 and 0 with probability .2. A low quality bank on the other hand generates a cashflow per loan of 100k with probability .5 and 0 with probability .5.

These banks primarily make small loans to local businesses which creates a social benefit of 4% per dollar lent (i.e. if the bank lends $10 then the social benefit is 4%*$10). When a bank fails though, it generates a social cost of 15% per dollar of losses to the banks creditors (i.e. if creditors lose $10 then the social costs is 15%*$10).

As a regulator you must choose a "capital requirement", dictating how much the banks can borrow to make loans, in order to maximize the expected social value. Each loan costs $50k and generates the returns described above. Additionally, the bank's start with $50k of their own money to invest. You, as the regulator, are debating whether to let the banks borrow money to issue 0, 1, or 2 additional loans. We assume the bank's find it optimal to issue as many loans as possible but can only raise additional funds by borrowing. This means banks will always make at least 1 loan with their initial $50k and will make an additional 0, 1, or 2 loans with borrowed money depending on how much the regulator allows them to borrow. All loans generate the same cash flow (e.g. if the H-type makes 3 loans then with prob .8 each loan generates a cashflow of 100k and with .2 each loan generates a cash flow of 0. Similarly, if the L-type makes 3 loans then each loan generates a cash flow of 100k with prob .5 and each loan generates a cashflow of 0 with probability .5).

Question: Assume the regulator knows which banks are H-type & which are L-type. What is the expected social value (i.e. social benefit minus expected social cost) if the regulator allows the H-type bank to borrow 0, $50k, or $100k to make additional loans? What bout the L-type bank? How much will the regulator optimally allow the H-type & L-type bank's to borrow? (remember all bank always makes at least 1 loan, so they will either make 1, 2, or 3 loans depending on whether the regulator allows them to borrow 0, $50k, or $100k. Also note that the social cost only applies to borrowed money lost in default, not the bank's initial $50k, and the social benefit applies to money lent, not the realized cashflow).

G-XCOD D Question 22 Optimization. Find positive numbers r and y satisfying 10s + 2y = 10that minimum gen 21 + 3x +1. Solve the optimization problem. [A] = = 1.57, y = 0.15 [B] z = 1.45, y = 0.23 [C] = = 1.13, y = 0.67 [D] : - 0.87, y = 3.65 [E] c = 1.21, y = 1.95 D A hp Question 23Question 1What mechanisms could be put in place to motivate management to consider the interests of: (a) the owners? (bl the dsmhaldsm? Question 2 How could accounting regulators use the research conducted by Positive Accounting theorists? Question Home researchers who utilise Legitimacy Theory posit that organisations will attempt to operate within the terms of their 'social contract'. What is a social contract? Question 4ln 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of decidirg whether the Corporations Act should be amended so as to specically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specic regulations mold be added to the legislation, and that instead, 'market forces' would be relied upon to encourage companies to do the 'right thing' (that is, the View was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations' products, and people would not want to invest in the organisation, work for them, and soforth. Because companies were aware of such market forces they would do the 'right thing' even in the absence of legislation]. You are required to explain the decision of the government that no specic regulation be introduced from the perspective of: 1. Public Interest Theory 2. Capture Theory 3. Economic Interest Group Theory of regulation. Question 3 ccounting theorists? Some researchers who utilise Legitimacy Theory posit that organisations will attempt to operate within the terms of their 'social contract'. What is a social contract? Question 4 In 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of deciding whether the Corporations Act should be amended so as to specifically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specific regulations would be added to the legislation, and that instead, 'market forces' would be relied upon to encourage companies to do the 'right thing' (that is, the view was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations' products, and people would not want to invest in the organisation, work for them, and so forth. Because companies were aware of such market forces they would do the 'right thing' even in the absence of legislation). You are required to explain the decision of the government that no specific regulation be introduced from the perspective of: 1. Public Interest Theory 2. Capture Theory 3. Economic Interest Group Theory of regulation.D Question 4 3 pts Thornton is easily upset, moody, and aggressive. He does not communicate well with peers or adults. According to Baumrind, it is MOST likely that his parents are engaged in_parenting. O abusive O authoritarian O authoritative O permissive D Question 5 3 pts The police department announces the location where they will be enforcing the speed limit. This announcement is MOST likely to affect the behavior of people at the _level of moral development. O preconventional O postconventional O conventional O social contract D Question 6 3 pts Once a child can perform mental operations on tangible objects and events, and understand the principles of conservation and reversibility, she has reached Piaget's_stage. O post-operational O operational O formal operational O concrete operationalUESTION 28 What is the name of the mechanism that insures that the social contract is one that free, equal, and rational people would agree to obey? 1. Prisonner's Dilemma O 2. Right of Nature 3. Veil of Ignorance 0 4. Social Contract QUESTION 29 According to Hobbes, morality is impossible without: 0 1. altruism. 0 2. God. 3. the legitimate threat of punishment. 0 4- All of the above. QUESTION 30 What does it mean to say that a moral rule is fundamental? 1. It is always wrong to violate the rule. Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answers Close W O