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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
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
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
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