QUESTION 1
Carefully read each of the following questions choose the most correct alternative.
The maturity mismatch between a bank’s assets and liabilities exposes the bank to:
(a) Operational risk
(b) Interest rate or yield risk
(c) Settlement risk
(d) Legal risk
(e) Systemic risk
The range μ ± 2σx contains:
(a) 68% of the values of a random variable X distributed N(μ,σx)
(b) 99% of the values of a random variable X distributed N(μ,σx)
(c) is equivalent to Prob. (-2σx ≤ Z ≤ 2σx) where Z is a random variable distributed N(μ,σZ)
(d) Is equivalent to Prob. (-2 ≤ Z ≤ 2) where Z is a random variable distributed N(0,1)
(e) None of the above.
The risk that many borrowers in a particular foreign country fail to repay their loans is:
(a) Credit risk.
(b) Country risk.
(c) Currency risk.
(d) Liquidity risk.
(e) Interest rate risk.
Provide the most correct term(s) to complete the following sentences:
The risk that the failure of one or more troubled financial institution could trigger the contagious collapse of otherwise healthy financial institutions, and possibly endanger the stability of the financial system as a whole, is referred to as ---------------- ----------------.
The legal doctrine underlying the “------- --------“claim is that the investment activity went beyond the counterparty’s authority or power.
QUESTION 2
Indicate the five main reasons that have been advanced for why difficulties at financial institutions may give rise to public policy concerns and hence justify official intervention to promote the stability of financial institutions?
Furnish brief