1. banks are reluctant to lend to borrowers with weak creadit histories because

Question

1. banks are reluctant to lend to borrowers with weak creadit histories because of ____; they rely on _______ to reduce this problem

A. high default risk; high interest rate B. adverse selection; credit reports C. adverse selection; low interest rate D. asymmetric; expanding credit

2. Credit ratings reduce

A. credit rationing B. moral hazard C. adverse selection D. venture capital

3. Recipients of stafford student loans recieve their funding from one of two different program

A. Ford Direct Loan Program or Ferderal Family Education Loan Program B. PLUS or FHA loan C. Marks loan or Spencer loan D. Sarbans loan or Oxley loan

4. Which of the following statements about community bank is true

A. due to the consolidation process in the banking industry, fewer than 500 community banks are still in business

B. Community banks have a nich in small-business lending

C. Economist agree that community banks will soon completely disappear

D. Community banks will exist as long as the big corporations they len to are in business

5. The foreign city with the most U.S banks is:

A. London B. Frakfurt C. Beijing D. Tokyo

6. Traditional morgages require _______ while many suprime mortgages were offered with ____

A. a substatial down payment; "zero down." B. high interest rate; low interest rate C. no down payment; "zero down" D. low interest rate; substaintial down payment

7. Finance companies are not as heavily regulated as commercial banks, which enables them to make subprime loans. reasons for this light regulation include which of the following:

A. The adverse selection problem is not as bad in the subprime lending industry

B. Finance company are better than banks at solving asymmetric information problems

C. Finance companies do not accept deposits

D. all of the answers are correct

8. The _______ Act restricts banks from holding more than ___ percent of all commercial bank deposits

A. Glass-Steagall; 10 B. McFadden; 5 C. Riegle-Neal; 10 D. Gramm-Leach-Bliley; 5

9. Banks mitigate moral hazrd by

A. requiring borrowers to have collateral B. screening potential borrowers C. charging high interest rate D. requiring borrowers to open a checking account

10. The rating agencies argue that their opinions are

A. priced fairly in the market B. protected by the First amendment C. divided into accurate risk categories, e.g., triple A D. designed to be used only by sophisticated investors

Explanation / Answer

1. banks are reluctant to lend to borrowers with weak credit histories because of high default risk ; they rely on high-interest rates to reduce this problem.

Credit histories show the entire financial transaction history and provide ratings to individuals based on this information.Usually, people with weak credit histories are also the biggest defaulters.By charging high-interest rates baks are able to tackle this problem.

Ans is A

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