1) Which of the following would not be a way to increase the return on equity?
A) Buy back bank stock
B) Pay higher dividends
C) Acquire new funds by selling negotiable CDs and increase assets with them
D) Sell more bank stock
2) If a bank needs to raise the amount of capital relative to assets, a bank manager might choose to
A) buy back bank stock.
B) pay higher dividends.
C) shrink the size of the bank.
D) sell securities the bank owns and put the funds into the reserve account.
Managing Credit Risk 3) Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.
A) adverse selection
B) moral hazard
C) moral suasion
D) intentional fraud
4) If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of
A) adverse credit risk.
B) adverse selection.
C) moral hazard.
D) lemon lenders.