1) The risk that the borrower is unable or unwilling to fulfill the terms of the loan contract is called the default risk.
True
False
2) Government regulators have a variety of protective mechanisms in place to protect depositors and borrowers against the risk of a financial institution failing due to poor planning or serious mistakes.
True
False
3) A loan that is backed by a claim on certain assets that can be seized if the borrower defaults is known as an unsecured loan.
True
False
4) A bank run occurs when there is a sudden and unexpected rise in deposit withdrawals from a depository institution.
True
False
5) Interest rate risk occurs when the maturities of a financial institution’s assets are mismatched.
True
False
6) The difference between deposit withdrawals and deposit additions is referred to as:
Bank run
Core deposits
Liquidity risk
Net deposit drain
7) A systematic or contagious run on the deposits of the banking industry as a whole is classified as what?
Banking Depression
Bank run
Financial Recession
Bank panic
8) In addition to depository, which of the following types of institutions can also be subject to liquidity risks?
Cryptocurrency businesses
Property management companies
Life insurance companies
Investment property stakeholders
9) Liquidity risk is the result of a liability side issue and which of the following?
A cash flow issue
A resource scarcity issue
A lack of interest revenue
An asset side issue
10) The risk that existing technology or support systems may break down or fail is called what?
Operational risk
Liquidity risk
Market risk
Sovereign risk
11) When technological investments do not produce the anticipated cost savings, what occurs?
Increased innovation
Diseconomies of scale
Operational risk
Technological risk
12) The risk that a specific company will not pay back a loan or an investment is known as:
Firm-specific credit risk
Firm-generalized credit risk
Liquidity risk
Systematic credit risk
13) When a financial institution places restrictions on a loan contract that limit a borrower’s behavior or actions, it is defined as what?
Implicit contract
Default risk modeling
Covenant
Measuring of credit risk
14) Which of the following best defines the credit scoring model?
Mathematical model used to establish a borrower’s default risk.
Calculated model used to predict how long it will take a borrower to pay back a loan.
Computerized model designed to located the best and worst financial borrowers in a particular region.
Mathematical model that is used to establish whether the borrower will use the funds from a loan properly.
15) When a financial institution restricts the quantity of loans available to an individual borrower, it is engaging in what type of practice?
Restrictive loan guarantees
Red-lining mortgaging
Credit rationing
Credit review