the economics of money, banking, and financial markets

390 $

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3. 
   

   Which of the following is not an example of a backup line of credit?
   A) loan commitments
   B) overdraft privileges
   C) standby letters of credit
   D) mortgages
   Answer: D
   Diff: 2 Type: MC Page Ref: 317
   Skill: Recall
   Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits

   
   


4. 
   

   Off-balance sheet activities involving guarantees of securities and back-up credit lines
   ____.
   A) have no impact on the risk a bank faces
   B) does not change the risk a bank faces
   C) increase the risk a bank faces
   D) slightly reduce the risk a bank faces
   Answer: C
   Diff: 2 Type: MC Page Ref: 317
   Skill: Recall
   Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits

   
   


5. 
   

   When banks involved in trading activities attempt to outguess markets, they are ____.
   A) forecasting
   B) diversifying
   C) speculating
   D) engaging in riskless arbitrage
   Answer: C
   Diff: 2 Type: MC Page Ref: 318
   Skill: Recall
   Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits

   
   


6. 
   

   Traders working for banks are subject to the ____.
   A) principal-agent problem
   B) free-rider problem
   C) double-jeopardy problem
   D) exchange-risk problem
   Answer: A
   Diff: 2 Type: MC Page Ref: 318
   Skill: Recall
   Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits