Chapter 2: Banks
2.15.
Regulators calculate that DLC bank (see Section 2.2) will report a profit that is normally
2.16.
Explain the moral hazard problems with deposit insurance. How can they be overcome?
Deposit insurance makes depositors less concerned about the financial health of a bank. As a
result, banks may be able to take more risk without being in danger of losing deposits. This is an
2.17.
The bidders in a Dutch auction are as follows:
Bidder Number of shares Price
A 60,000 $50.00
B 20,000 $80.00
The number of shares being auctioned is 210,000. What is the price paid by investors? How
many shares does each investor receive?
When ranked from highest to lowest the bidders are B, H, C, A, E and F, D, and G. Individuals
B, H, C, and A bid for 160, 000 shares in total. Individuals E and F bid for a further 80,000
2.18.
An investment bank has been asked to underwrite an issue of 10 million shares by a company. It
If it succeeds in selling all 10 million shares in a best efforts arrangement, its fee will be $2
million. If it is able to sell the shares for $10.20, this will also be its profit in a firm commitment