Q$1.$ Why are deposit insurance and other types of government safety nets important to the health of the

economy?

Q$\mathrm{.}2.$ What types of bank regulations are designed to reduce moral hazard problems? Will they completely

eliminate moral hazard problems?

Q$\mathrm{.}3$ What are the costs and benefits of a too$-$big$-$to$-$fail policy?

Q$\mathrm{.}4$ What special problem do off$-$balance$-$sheet activities present to bank regulators, and what have they done

about it$?$

Q$\mathrm{.}5.$ Why has the trend in bank supervision moved away from a focus on capital requirements to a focus on

risk management?

Financial Derivatives

$1.$ Explain the terms hedge, long position and short position in the context of managing financial institutions'

risk.

$2.$ What are the pros and cons of forward contracts?

$3.$ What is an interest$-$rate futures contract? How does it differ from an interest$-$rate forward contract?

$4.$ Explain using an example the statement that $"$at the expiration date of a futures contract, the price of the

contract is the same as the price of the underlying asset to be delivered".

$5.$ What are options? What are their differences from futures contracts?

$6.$ What is the value of a call option at expiration? use an appropriate graph to show the profit and loses of the

buyer and seller of a call option.

$7.$ What is the value of a put option at expiration? use an appropriate graph to show the profit and loses of the

buyer and seller of a put option. Diagrams are given below:

$8.$ You should know the diagrams of Call and Put options with numerical values as given the lecture notes.

$9.$ You should know the numerical example of Future contract that is illustrated in table, refer to the lecture

notes i$.$e$.$ PPT