1. When a commercial bank buys government (Treasury) bonds from the general publ
ID: 1103095 • Letter: 1
Question
1. When a commercial bank buys government (Treasury) bonds from the general public, money is created.
True or False
2. A banker must strike a balance in the pursuit of two conflicting goals: profits and liquidity. In terms of asset management, this translates into achieving a balance between holding
Multiple Choice
a. checkable deposits on one hand and reserves on the other.
b. loans on one hand and securities on the other.
c. loans and securities on one hand and reserves on the other.
d. checkable deposits on one hand and securities on the other.
8.
Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by
Multiple Choice
a. $900.
b. $100.
c. $1,000.
d. $90.
10. A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10 percent. The bank then lends $1,500 to a borrower. As a consequence of these transactions, the bank's excess reserves are
Multiple Choice
a. increased by $300.
b.increased by $500.
c. increased by $200.
d.not affected.
12. (Last Word) Leverage in the financial system
Multiple Choice
a. magnifies profits but reduces losses.
b. reduces both profits and losses.
c. magnifies both profits and losses.
d. reduces profits but magnifies losses.
Reserves $100 Checkable Deposits 1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100Explanation / Answer
1. True
Explanation:
When banks buy bonds from the general public, money flows from the hands of bank to the hands of public. The money supply increases in the market. This is called money is created.
2. Ans: loans and securities on one hand and reserves on the other.
3. Ans: $90
Explanation:
Reserve Requirement = 10%. Because out of $1000 cheakable deposits, $100 is reserve. So, from $100 deposit, Reserves will be $10, loan amount will be $90.
4. Ans: increased by $300.
Explanation:
Reserve requirement = 0.10 * 2000 = $200
So, it can give loan upto 1800. Since the loan amount is 1500, so, excess reserve is $300.
5. Ans: magnifies both profits and losses.
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