Answer - Question 27 Marks 1 What are the pros and cons of a fractional reserve banking system for society Choose one answer a Pro Creates wealthy

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Question 27 Marks: 1 What are the pros and cons of a fractional reserve banking system for society? Choose one answer. a. Pro: Creates wealthy bankers. Con: Creates inflation b. Pro: Creates credit expansion leading the production of real goods and services. Con: Creates deflation and banking crises. c. Pro: Creates more credit than otherwise could be possible. Con: Creates banking panics and inflation. d. Pro: Keeps our deposits safe. Con: creates inflation. Question 17 Marks: 1 The Fed prints $100 to buy Treasury securities from the banking system. Assume the requirement is 20%. Assume the full money multiplication process is at work. How much money is created by the banking system? Choose one answer. a. zero, Fed creates the money b. $400 c. $500 d. $100 Question 23 Marks: 1 Consider a failing bank and assume the FDIC insurance is $250,000. A deposit of $550,000 is worth how much if the FDIC uses the payoff method? The purchase and assumption method? Choose one answer. a. 25,000; 550,000 b. 555,000; 550,000 c. 495,000; 550,000 d. 500,000; 550,000 Question 12 Marks: 1 Assume that the Federal Reserve prints $500 in currency and uses the currency to buy Treasury securities from the banking system. The banking system then loans out $900 of checking money. What is the new money supply, M1? Choose one answer. a. 1400 b. 900 c. 400 d. 500
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Question 32 Marks: 1 Use Table 7. Calculate the total risk adjusted assets. Table 7 Assets Liabilities Reserves $5m Checkable deposits $40m Treasury securities $30m Non-transaction Deposits $80m Real Estate loans $20m Commercial Loans $75m Choose one answer. a. $100M b. $95M c. $75M Question 20 Marks: 1 Which of the following is an innovation that allows highly rated companies to borrow short-term. Choose one answer. a. Securitization b. STRIPS c. Junk Bonds d. Commercial Paper Marks: 1 What is the number that should be put in Z? Choose one answer. a. 10,000 b. 15,000 c. 70,000 d. 60,000 Question 10 Marks: 1
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Assume you go to a used car dealership and the salesman wants to sell you an used car that he knows will breakdown in the next several months. You do not know much about cars. You are not sure whether the car is bad or not and therefore you decided not to buy the car. What kind of problem is this? Choose one answer. a. Adverse Selection b. Principal Agent Problem c. Moral Hazard Question 4 Marks: 1 Other things equal, if the required reserve ratio was increased: Choose one answer. a. The money multiplier would decrease.
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This note was uploaded on 09/28/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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Answer - Question 27 Marks 1 What are the pros and cons of a fractional reserve banking system for society Choose one answer a Pro Creates wealthy

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