Release Date/Time 24th May 09.30
Latest Submission Date/Time 25th May 09.30
Format of Exam Take home exam
Duration: 2 hours
Word/Page Limit: 3,000 words
Additional Material provided: None
Expected form of Submission Word Document using template provided or PDF of Handwritten
Work
Your uploaded file should be named with your Anonymous
Code and the Exam Code e.g Z0123456 ECON2281-WE01
Submission method Turnitin
Instructions to Candidates: Answer ALL questions in Section A. Section A counts for 30%
of the overall examination marks. All questions in section A
carry equal weight.
Answer ONE question in Section B. Section B counts for 35%
of the overall examination marks. All questions in section B
carry equal weight.
Answer ONE question in Section C. Section C counts for 35%
of the overall examination marks. All questions in section C
carry equal weight.
Page 2 of 3 ECON2281-WE01
Section A
1. Describe moral hazard in the context of information asymmetries and how it can lead to lower
levels of credit in an economy without banks. Briefly discuss one solution offered by banks.
2. What is reinvestment risk (in the context of interest rate risk) How does reinvestment risk
impact the bank’s earnings if interest rate changes Why
3. Briefly describe two sub-components of climate transitional risk and discuss how each of
these might lead to increases in banks’ credit risk.
4. Describe the difference between Account Providers (AP) and regulated Third-Party Providers
(TPP) in the Open Banking context. Briefly explain how each group could economically
benefit from the introduction of Open Banking API standards.
5. Provide one example each of a product and process innovation in banking and explain how
each of the two allows banks to benefit from economies of scale and scope.
6. Explain why a large versus small bank might prefer the acquisition of innovative financial
technology startups over having product-related collaborations with the firm and over
innovating internally through research and development.
CONTINUED
Page 3 of 3 ECON2281-WE01
Section B
7. Critically assess the strengths and weaknesses of BASEL I, II and III with respect to its
objectives of enhancing financial stability in the banking sector.
8. Explain and illustrate how bank runs could occur. Critically assess the role of deposit insurance
in mitigating bank runs and promoting financial stability.
Section C
9. Describe and illustrate the differences in revenue models of Peer-to-Peer (P2P) lending
platform companies and traditional commercial banks. Critically evaluate the risks inherent to P2P
lending platforms’ business model and compare them to those of traditional commercial banks.
10. Describe and illustrate how blockchain-based, decentralized finance (DeFi) lending protocols
facilitate collateralized debt positions and explain how interest rates (for borrowing and lending)
are determined in such protocols. Discuss and contrast risks that are inherent to decentralized
lending protocols versus that of centralized facilitation of collateralized lending.
