19) Short-term loans without collateral between commercial banks are called A) forward contracts B) repurchase agreements C) discount loans D) federal funds 20) Banks deal with problems of adverse selection by: A) gathering financial information about the borrower B) making only short-term loans C) only lending to existing customers D) charging high interest rates 21) The ratio of a bank's profit to its capital is known as: A) return on assets B) leverage C) return on equity D) net interest margin 22) Since most banks have negative gaps, lower interest rates will most likely A) lower return on assets B) increase time deposits C) increase bank profits D) increase default risk 23) During the financial crisis of 2008, which type of risk was the biggest problem faced by investment banks? A) credit/default risk B) hedging risk C) interest rate risk D) currency risk 24) Adverse selection and moral hazard are two examples of: A) transaction costs B) symmetric information C) information cost D) financial market efficiency 25) Banks experience interest rate risk when: A) adverse selection problems are particularly severe B) changes in interest rates cause bank profits to fluctuate C) moral hazard problems are particularly severe D) investments have high transaction costs