Financial markets

Question 1

Why is regulation important?

Answer 1

1) preventing systemic risk
2) protecting consumers
3) ensuring fair competition
4) promoting financial stability

Question 2

What are the reasons for commercial bank failure?

Answer 2

Overall:
1) bank run/ liquidity crisis—> not enough to to me liabilities
2) insolvency —> not enough capital to offset asset losses ( liabilities> assets)

Others:
1) poor management
2) lack of diversification
3) insufficient reserves to cover a bad loan
4) run on the bank
5) economic downturn
6) regulatory failure

Question 3

What can be done to prevent bank failure?

Answer 3

Ensure sufficient:
1) capital ratio
2) liquidity ratio
3) leverage ratio
4) cash ratio
5) reserve requirements

Question 4

What do the Bank of England do?

Answer 4

1) monetary and financial stability
2) run payment services
3) provide risk free banking services
4) hold gold