Question

1. Which of the following actions would NOT tend to reduce the moral hazard problem in deposit insurance?

a. Implementation of risk-based premium.

b. Elimination of deposit insurance.

c. Reduction of the insurance coverage.

d. Introduction of voluntary membership.

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2. The Governor of the Federal Reserve System obtain their position through:

a. appointment by the U.S. Senate

b. appointment by the Chairman of the Board of Governors

c. appointment by the U.S. president

d. appointment by the directors of the Federal Reserve banks

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3. Economists believe that the existence of deposit insurance does which of the following?

a. Increases the moral hazard problem in banking.

b. Encourage banks behave more prudently.

c. Eliminates the adverse selection problem.

d. Increases the propensity for bank panics.

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4. In order to maximise profit in a prudent manner, a bank should NOT:

a. Screen its loans.

b. Diversify its business.

c. Hold enough collateral.

d. Consider only interest income.

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5. The main difference between the expectation hypothesis and liquidity premium theories of term structure is that the liquidity premium theory accounts for:

a. Institutional characteristics of investors.

b. Default risk.

c. Market risk.

d. Reinvestment risk.

Answer 1

Question no 2 ans:- a. appointment by the U.S. Senate.

Explanation:-The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate. The Board of Governors guides the operation of the Federal Reserve System to promote the goals and fulfill the responsibilities given to the Federal Reserve by the Federal Reserve Act.