Davidson; Management - 3rd Australasian Edition



1.
The Uniform Consumer Credit Code in Australia financial system includes:
A.
concern for concentrated financial power
B.
creating uniformity across the country
C.
requiring all relevant information be provided to consumers in a written contract and presented in a clear and easy to understand format
D.
b and c


2.
Innovation around regulation followed by new regulation to offset the innovation is
A.
moral hazard.
B.
the innovation cycle.
C.
the regulatory dialectic.
D.
securitization.


3.
Regulations provide financial institutions certain benefits such as
A.
reducing the chance of failure.
B.
increasing the cost of funds.
C.
increased labor cost to comply with regulations.
D.
increased profit from the added compliance costs.


4.
Market risk is
A.
risk that the bank will confront when selling loans
B.
risk that the bank will absorb when loans become default
C.
risk that the profitability or net worth of the bank will change
D.
risk that the bank is about to fail


5.
All but one of the following is a purpose of regulating financial institutions:
A.
to provide stability of the money supply
B.
to serve certain social objectives
C.
to reduce barriers to entry
D.
to offset the moral hazard incentives to protect the deposit insurance fund


6.
While an individual bank's illiquidity may cause a bank ______, a general loss of faith in banks' ability to pay is called a _______.
A.
loss; run
B.
panic; run
C.
run; panic
D.
payoff; regulatory dialectic


7.
Regulations limiting risk taking of financial institutions are imposed because
A.
the costs of regulation exceeds the benefits.
B.
the private costs of failure exceed the social costs of failure.
C.
the social costs of a general bank failure exceed the private costs to shareholders.
D.
risk is harmful.


8.
All but one of the following is associated with bank failure:
A.
banks hold illiquid assets and reserves that are but a fraction of total deposits.
B.
assets may rise in value more quickly than liabilities when interest rates change.
C.
excessive loan losses may erode net worth.
D.
asset values fall below the value of liabilities.


9.
Which of the following is not a regulatory offset to the moral hazard of deposit insurance?
A.
risk-based capital standards.
B.
risk-based deposit insurance premiums.
C.
truth-in-lending regulations.
D.
safety and soundness examinations.


10.
Counterparty risk is
A.
risk that causes bank failure
B.
risk that the other party to an agreement will default
C.
risk that causes bank panic
D.
risk between two banks


11.
Bank failures are considered to be more important to the economy because
A.
failure of a single bank induces fear about the solvency of other banks.
B.
they reduce the money supply in the economy.
C.
a large number of people in a community lose their liquid wealth.
D.
all of the above


12.
Deposit insurance has
A.
prevented bank depositor panics, but not bank failures.
B.
prevented bank panic and bank failures.
C.
prevented bank failures, but not bank depositor panic.
D.
not prevented bank depositor panics, but has eliminated bank failures.


13.
Financial institutions are regulated for the following reason(s):
A.
they provide essential financial services to consumers and businesses.
B.
there is a need to control the money supply.
C.
government has promised to insure deposits.
D.
all of the above


14.
The most significant cause of bank failure today is:
A.
bank depositor panics.
B.
economic recession.
C.
insufficient bank regulation.
D.
fraud, embezzlement, and poor management practices.


15.
All of the following are reasons to regulate depository institutions except:
A.
To promote safety and soundness.
B.
To affect the structure of banking.
C.
To make sure bank capital ratios are competitive.
D.
To protect the interest of consumers.


16.
The Australian Baking Act of 1959 provides the Reserve Bank of Australia (RBA) with powers to make regulations in relation to:
A.
foreign exchange and foreign investment
B.
the sale and purchase of gold
C.
controlling interest rates
D.
all of the above


17.
The objective of the Probability and Impact Rating System (PAIRS) is to:
A.
determine the focus of supervisory effort
B.
determine the level of supervisory response for each regulated institution
C.
assess the probability that a regulated institution will fail and the impact that this will have on the financial system.
D.
assess financial institutions risks


18.
Liquidity management is
A.
managing bank's cash reserves
B.
managing bank's investment portfolio
C.
ensuring that just the right amount of liquid resources is available without compromising the performance of the bank's business.
D.
ensuring that the bank is always liquid


19.
The maintenance of adequate levels of capital in the banking system is to
A.
protect depositor's funds
B.
prevent bank panic
C.
prevent bank failures
D.
finance daily operation


20.
Tier 1 (core) capital comprises of
A.
other items of capital other than Tier 1 capital
B.
high-quality capital items as defined by the prudential statements
C.
hybrid instruments such as debts and equities
D.
all of the above


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