ECO 285 – Money & Banking
Dr. D. Foster – Fall 2015
Homework #6 Quiz - This is an individual assignment
1. The authors of the M&B text suggest that financiers get a bad image in popular culture, as
exhibited by Shakespeare’s “The Merchant of Venice.”
2. According to the text, U.S. government agency-backed mortgage “pools” represented about
5% of financial intermediary’s assets in the post-WWII decade of 1945-1955.
3. The “public choice” model assumes that government officials work in the interest of the
public.
4. According the authors of the text, deposit insurance is essentially cost-free and has been
successful at decreasing asymmetric information problems.
5. At the time of its collapse, Continental Illinois was the largest bank failure in the U.S.
6. Continental Illinois was the 17th largest bank in the U.S. at the time that it failed.
7. The differential treatment of a large bank like Continental Illinois has been referred to as
TTBF.
8. By 1981, Continental Illinois had commercial and industrial loans accounting for about 30%
of its assets.
9. Continental Illinois’ share price between 1980 and 1984 peaked at more than $40.
10. Continental Illinois lost nearly $1 billion due to the failure of Penn Square Bank, which was
heavily involved in making loans for agricultural development in Asia.
11. The First National Bank of Keystone was located in the western portion of New York state.
12. J. Knox McConnell ran the First National Bank of Keystone with an “all-woman” workforce.
13. The First National Bank of Keystone made income from buying mortgages, bundling them
into securities and selling these.
14. The problems at the First National Bank of Keystone can be traced to a rather simple
clerical error.
15. A capital market is one where securities are traded that have more than a year to mature.
16. Investors primarily analyze the tradeoff between risk and return or between return and
liquidity but never between risk and liquidity.
17. Due to regulatory forbearance many S&Ls in the 1970s were kept alive although they
came to be known as “zombie banks.”
18. According to Alloway, index based credit default swaps suffer from inability to hedge
against specific defaults.
19. As pointed out in the article, all of the market “trading pits” are closing down, to be
replaced by strictly computer-based trading.
20. According to McKenna, based on her experience at Continental Illinois, an internal audit
that points out problems rarely gets to top management if it means slowing down revenue
growth.
Name:
ECO 473 – Money & Banking
Dr. D. Foster – Fall 2015
Homework #6
Please use the following to record your answers and turn in with your homework:
Quiz #6
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Chapter summary (100 words) over Woods Chapter 5:
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Reaction essay (100-150 words) over Woods Chapter 5:
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