Question 1: MCQs. Circle the most appropriate answer (6 marks each, 60 marks in total) 1 Which of the following activity commercial banks are not allowed to carry out: accept deposits b. make loans c. operate the payment system d. proprietary stock trading. 2 Regulation of commercial banks is a. minimal, as evidenced by the outbreak of the 2008 Global Financial Crisis. b. extensive, because banks have monopoly power. extensive, as a result of the importance of banks to the state of the economy. d. minimal, because the free market is allowed to allocate financial resources. General speaking, loss rate due to default is the highest on mortgages b. car loans corporate loans d. credit card loans 3. a. c. 4. How are ROA and ROE related? a negatively b positively no relationship d ROE is lower than ROA. 5. a. 6 a. Other things equal, bank managers prefer to have higher leverage b. lower leverage c. zero leverage d. more equity If you were hired as the CEO of a bank, you are supposed to: create jobs b. make money avoid losses d. create value for shareholders Repricing gap model is used to assess banks' a. liquidity risk. b. interest rate risk in the trading book. c. interest rate risk in the banking book. d. credit risk. c. 7