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Explain how the CAMELS ratings are used. (LO4)
Describe the main provisions of the DIDMCA that relate to deregulation. (LO2)
Briefly describe the Glass-Steagall Act, and then explain how the related regulations have changed since it was enacted. (LO2)
What led to the establishment of FDIC insurance? (LO2)
Explain why the moral hazard problem received so much attention during the credit crisis. (LO2)
Provide examples of off-balance sheet activities. Why are regulators concerned about them? (LO2)
How are a bank’s balance sheet decisions regulated? (LO2)
During the credit crisis in the 2008–2009 period, banks were criticized for restricting their credit. Write a short essay to explain why you think banks should or should not be allowed to restrict their credit during a credit crisis.
Explain how banks use credit default swaps. (LO4)
Explain how some mortgage operations by some commercial banks (along with other financial institutions) played a major role in instigating the credit crisis that began in 2008. (LO3)
Would you expect a bank to charge a higher rate on a term loan or a highly leveraged transaction (HLT) loan? Why? (LO3)
Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank’s capital is less than 10 percent of its assets. How do you think this percentage would compare to that of manufacturing corporations? How would you explain this difference? (LO3)
Why do banks invest in securities even though loans typically generate a higher return? Explain how a bank decides the appropriate percentage of funds that should be allocated to each type of asset. (LO3)
Explain the advantage of a bullet loan. (LO3)
How does the yield on a repurchase agreement differ from a loan in the federal funds market? Why? (LO2)
Describe the process of “borrowing at the Federal Reserve.” What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve? (LO2)
Explain how the federal funds market facilitates bank operations. (LO2)
Define federal funds, the federal funds market, and the federal funds rate. Who sets the target federal funds rate? (LO2)
How does a money market deposit account differ from other sources of funds for banks? (LO2)
Compare and contrast a retail CD and a negotiable CD. (LO2)
What are four major sources of funds for banks? Which alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds? (LO2)
Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds). (LO2, LO3)
Recently, a government official in Europe stated that the European Central Bank needs to weaken the euro so as to improve the European economy. Write a short essay that explains the logic behind this recommendation, and state whether you believe the strategy would be successful.
Explain the possible signal that would be transmitted to the market if a country abandoned its use of the euro. (LO1)
What are the consequences for a government in the eurozone when it obtains credit from the ECB? (LO1)
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