EXAM 1 STUDY GUIDE
1. What happens to output and unemployment during a recession? Increase or decrease?
2. What are the three roles of money and what do they mean? i.e. unit of account, medium of exchange and store of value. Can you distinguish between them?
3. What is asymmetric information?
4. What is the difference between a bond and a stock?
5. What is fiat money?
6. What is agency theory? Who are the agents and who are the principals?
7. High economic growth in a country is contingent on what?
8. What is the difference between monetary and fiscal policy? Who controls each?
9. When does a corporation make money from selling stock? The primary or secondary market? Who helps a firm go public?
10. What is the difference between adverse selection and moral hazard? What is the definition of each?
11. What is collateral?
12. What is the purpose of deposit insurance?
13. When does a government have a surplus? When does it have a deficit?
14. How are securities held on the balance sheet of investors? What about the corporation that issues them?
15. What are the disadvantages of a barter economy? Does the economy get more efficient? Why?
16. What is hyperinflation? What happens in an economy when there is hyperinflation?
17. What are restrictive covenants in a bond indenture? Can you give some examples?
18. What is a call report?
19. Why is financial regulation and supervision difficult in our economy?
20. What is the difference between micro- and macroprudential supervision?
21. What are bank reserves and what money does that figure include?
22. Why are financial intermediaries even more important in developing countries than in industrialized ones?
23. Why is it important for a bank to be well capitalized? Do they have more or less to lose in failure? Are they more or less likely to pursue risky activities?
24. Why has there been a drop in the number of bank failures since the Great Depression?
25. How are banks most likely to meet a reserve shortfall?
26. What is the difference between a value at risk test and a stress test?
27. What is mark to market accounting?
28. How do off balance sheet activities affect a bank’s risk profile?
29. What is the liquidity management of a bank concerned with?
30. How can banks reduce the principal-agent problem associated with trading activities?
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