287 $
© 2014 Pearson Canada Inc.$- How did the increase in the interest rates in the early 1980s contribute to the insolvency of
Canadian Commercial and Northland?
Answer: The banks suffered from an interest-rate risk problem. They had many fixed-rate
mortgages with low interest rates. As interest rates in the economy began to climb, banks began
to lose profitability. In addition, the 1981-1982 recession and a collapse in the prices of energy
and farm products hit the economy of Alberta very hard. Losses mounted and the banks had
negative net worths and were insolvent by 1985.
Diff: 2 Type: SA Page Ref: 225
Skill: Applied
Objective List: 10.2 Characterize the 1980s Canadian banking crisis
10.3 CDIC Developments
The CDIC does not insure ____.
A) savings and chequing accounts
B) term deposits with a maturity of less than 5 years
C) money orders and drafts
D) mutual funds
Answer: D
Diff: 2 Type: MC Page Ref: 227
Skill: Recall
Objective List: 10.3 Examine CDIC Developments
The primary rationale for deposit insurance is ____.
A) protecting depositors from bank insolvency
B) increasing creditworthiness of subprime mortgages
C) increasing barriers to entry in the banking industry to promote financial stability
D) altering risk profiles of both banks and depositors
Answer: A
Diff: 2 Type: MC Page Ref: 227
Skill: Recall
Objective List: 10.3 Examine CDIC Developments
The CDIC does not insure term deposits with an initial maturity date of more than ____.
A) 5 years
B) 2 years
C) 1 year
D) 90 days
Answer: A
Diff: 2 Type: MC Page Ref: 227
Skill: Recall
Objective List: 10.3 Examine CDIC Developments