Reference no: EM131952824

1. Which of the following statements does NOT reflect credit decisions at the retail level?

a. The financial institutions rely mainly on the pricing tool, i.e., setting a higher interest rate for riskier borrowers, to address credit risk.

b. Loans are typically of small size.

c. The financial institutions usually control the credit risk by limiting the quantity of loans made available to retail borrowers and credit rationing.

d. It is economically inefficient to collect detailed information about borrowers' credit quality.

e. Usually a standard loan rate is charged.

2. Which statement below is NOT true if there is a deposit insurance?

a. A well designed deposit insurance scheme can prevent bank runs.

b. Insured depositors lack incentives to differentiate between good vs bad banks.

c. Deposit insurance will encourage the management and shareholders of banks to manage liquidity risk more prudently.

d. Deposit holder’s place in line does not affect his or her ability to obtain the funds.

e. Deposit holders are less likely to panic if there is a perceived bank solvency problem.