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One factor contributing to the decline in cost advantages that banks once had is the
____.
A) decline in the importance of chequable deposits as part of a banks' source of funds
B) decline in the importance of savings deposits as part of a banks' source of funds
C) increase in the importance of chequable deposits as part of a banks' source of funds
D) increase in the importance of savings deposits as part of a banks' source of funds
Answer: A
Diff: 2 Type: MC Page Ref: 250
Skill: Recall
Objective List: 11.2 Examine financial innovation and the growth of the "shadow banking
system"
Banks have attempted to maintain adequate profit levels by ____.
A) making fewer riskier loans, such as commercial real estate loans
B) pursuing new off-balance-sheet activities
C) increasing reserve deposits at the Bank of Canada
D) decreasing capital accounts
Answer: B
Diff: 1 Type: MC Page Ref: 251
Skill: Recall
Objective List: 11.2 Examine financial innovation and the growth of the "shadow banking
system"
The decline in traditional banking internationally can be attributed to ____.
A) increased regulation
B) improved information technology
C) increasing monopoly power of banks over depositors
D) increased protection from competition
Answer: B
Diff: 1 Type: MC Page Ref: 251
Skill: Applied
Objective List: 11.2 Examine financial innovation and the growth of the "shadow banking
system"
Why did the interest rate volatility of the 1970s spur financial innovation?
Answer: Banks were very vulnerable to interest-rate risk in the mortgage loans. To protect
themselves, banks began to issue adjustable-rate mortgages whose interest rate will increase
along with market interest rates. Additionally financial derivatives were developed to help hedge
against interest-rate risk.
Diff: 2 Type: SA Page Ref: 243 - 244
Skill: Recall
Objective List: 11.2 Examine financial innovation and the growth of the "shadow banking
system"