the economics of money, banking, and financial markets

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16. 
    

    Banks that suffered significant losses in the 1980s made the mistake of ____.
    A) holding too many liquid assets
    B) minimizing default risk
    C) failing to diversify their loan portfolio
    D) holding only safe securities
    Answer: C
    Diff: 2 Type: MC Page Ref: 303
    Skill: Recall
    Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans

    
    


17. 
    

    A bank will want to hold more excess reserves (everything else equal) when ____.
    A) it expects to have deposit inflows in the near future
    B) brokerage commissions on selling bonds increase
    C) the cost of selling loans falls
    D) the discount rate decreases
    Answer: B
    Diff: 2 Type: MC Page Ref: 303
    Skill: Applied
    Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans

    
    


18. 
    

    As the costs associated with deposit outflows ____, the banks willingness to hold excess
    reserves will ____.
    A) decrease; increase
    B) increase; decrease
    C) increase; increase
    D) decrease; not be affected
    Answer: C
    Diff: 1 Type: MC Page Ref: 303
    Skill: Applied
    Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans

    
    


19. 
    

    Which of the following would a bank not hold as insurance against the highest cost of
    deposit outflow-bank failure?
    A) Excess reserves
    B) Secondary reserves
    C) Bank capital
    D) Mortgages
    Answer: D
    Diff: 1 Type: MC Page Ref: 303
    Skill: Applied
    Objective List: 13.2 Specify how banks make profits by accepting deposits and making loans