Lesson 4.2.4.4

4.2.4.4 The regulation of the financial system Quiz: AQA Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 4.2.4.4, The regulation of the financial system: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. Which body regulates the prudential soundness of individual financial firms in the UK?

    • Financial Conduct Authority
    • Monetary Policy Committee
    • Prudential Regulation Authority
    • Treasury Select Committee

  2. What is the primary role of the Financial Policy Committee in the UK?

    • Government debt management
    • Retail conduct regulation
    • Income tax setting
    • Systemic risk monitoring

  3. In banking, what does the concept of moral hazard describe?

    • Systemic bank failure
    • Liquidity shortages
    • Strict capital requirements
    • Excessive risk taking

  4. What term describes the risk of collapse across the entire financial system?

    • Systemic risk
    • Moral hazard
    • Credit risk
    • Market risk

  5. What does a financial institution's liquidity ratio measure?

    • Total equity capital
    • Non-performing loans
    • Long-term liabilities
    • Liquid assets held

  6. What does a bank's capital ratio compare its equity against?

    • Risk-weighted assets
    • Short-term deposits
    • Annual net profit
    • Total liquid cash

  7. What main risk arises when a bank borrows short term and lends long term?

    • Moral hazard
    • Asymmetric information
    • Regulatory capture
    • Maturity mismatch

  8. A bank holds 50 million pounds of liquid assets and has 500 million pounds of deposits. What is its liquidity ratio on deposits?

    • 5 per cent
    • 2 per cent
    • 50 per cent
    • 10 per cent

  9. A bank has capital of 40 million pounds and risk-weighted assets of 800 million pounds. What is its capital ratio?

    • 20 per cent
    • 50 per cent
    • 0.5 per cent
    • 5 per cent

  10. Which type of crisis occurs when a bank cannot raise cash to meet short-term debts?

    • Liquidity crisis
    • Currency crisis
    • Fiscal crisis
    • Solvency crisis

  11. What problem is created when government bailouts encourage financial institutions to take excessive risks?

    • Asymmetric information
    • Regulatory capture
    • Moral hazard
    • Systemic risk

  12. When a major bank failure disrupts credit supply across the entire economy, what risk has materialised?

    • Moral hazard
    • Adverse selection
    • Regulatory capture
    • Systemic risk

  13. Which UK body regulates conduct and promotes competition across financial markets?

    • Monetary Policy Committee
    • Financial Policy Committee
    • Prudential Regulation Authority
    • Financial Conduct Authority

  14. How do stricter bank capital requirements typically affect the supply of credit?

    • Increases credit supply
    • Reduces credit supply
    • Eliminates all credit
    • Has no effect

  15. Why does the Financial Policy Committee raise countercyclical capital buffers during economic booms?

    • Boost asset prices
    • Lower inflation rates
    • Absorb future losses
    • Reduce tax revenues

  16. What main trade-off do regulators face when imposing stricter financial rules on banks?

    • Inflation versus employment
    • Stability versus efficiency
    • Exports versus imports
    • Growth versus equity

  17. Which mechanism requires bank shareholders and creditors to absorb losses rather than taxpayers?

    • State bailouts
    • Quantitative easing
    • Liquidity injections
    • Bail-in rules

  18. How can a sharp drop in asset prices reduce credit availability in the real economy?

    • Increases bank liquidity
    • Boosts profit margins
    • Decreases bank capital
    • Eliminates moral hazard

  19. What type of financial loss occurs when a bank must sell illiquid assets rapidly at discounted prices?

    • Capital gains
    • Dividend payouts
    • Fire sale losses
    • Liquidity surpluses

  20. Which UK regulator oversees the microprudential safety and soundness of individual banks?

    • Financial Policy Committee
    • Financial Conduct Authority
    • Competition and Markets Authority
    • Prudential Regulation Authority

All AQA Economics quizzes