23 Questions
Which of the following is a factor that mitigates the problem of bank runs?
Lender of last resort
Why do you think banks are one of the most-regulated industries in the US?
To protect consumer deposits
Which event prompted the creation of the FDIC in 1933?
Bank runs between 1929 and 1933
Which of the following is NOT a key idea in the theory of bank runs?
Bank runs are always related to bank fundamentals
In equilibrium 1 of the theory of bank runs, what do impatient depositors do?
Withdraw at t=1
What is the role of the Federal Reserve as the 'lender of last resort'?
To prevent bank runs and address bank illiquidity
What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
To provide deposit insurance for banks
Which type of mutual fund tries to outperform a stock index and typically has relatively high fees?
Active mutual funds
Which government program injected capital into the financial sector by purchasing preferred shares in banks and other financial institutions?
Capital Purchase Program
What is the purpose of the Morningstar Style Box in classifying active mutual funds?
To determine appropriate benchmark for a fund
What was the total investment made by the US Treasury in the Capital Purchase Program?
$200 billion
What is the main advantage of ETFs (Exchange-Traded Funds) compared to mutual funds?
Ability to trade throughout the day
Which government program provided loans and capital injections to automakers GM and Chrysler?
Auto bailout
What are hedge funds primarily invested in?
A variety of assets
What is the formula for calculating the Net Asset Value (NAV) per share of an investment company?
NAV = (Value of Assets - Value of Liabilities) / Number of Shares
According to the text, why do renters with insurance have weaker incentives to protect against theft?
Because they believe their belongings are fully covered in case of theft
What does TBTF stand for?
Too Big to Fail
Why does TBTF create a moral hazard problem?
Because it incentivizes banks to take excessive risks
What are the origins of TBTF?
The size and complexity of certain banks
Which of the following is a potential risk associated with hedge fund strategies?
Hedge funds may generate fake alpha by betting against extreme risks
What is the main purpose of activism in hedge fund strategies?
To increase firm value by pushing for changes in the company
What is the key characteristic of global macro hedge fund strategies?
Speculating on changes in the value of currencies and interest rates
What is the main purpose of arbitrage in hedge fund strategies?
To take advantage of differing prices for the same asset
Test your knowledge of the 2008 financial crisis and the government's response with this quiz. Learn about the leaked bailout plans, the temporary ban on short selling, the rejection and eventual passing of TARP, and more. See how much you know about the policies implemented and the broad goals of the government during this turbulent time in the economy.
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