Question

please answer all, thanks.

1. A lender of last resort can prevent a financial panic by:

	A.	Run large deficits to prevent defaults.
	B.	Providing advice to panicked depositors and creditors.
	C.	Lowering interest rates to facilitate lending.
	D.	Making emergency loans to failing financial institutions.
	E.	Raising Interest rates to prevent excessive borrowing.

2. Banks face insolvency problems when::

	A.	There is a large outflow of funds that exceeds a bank's reserves.
	B.	There is a large loss that exceeds a bank's capital.
	C.	There is a large outflow of funds by depositors and creditors that exceeds a bank's capital.
	D.	There is a large loss that exceeds a bank's reserves.
	E.	There is a large outflow of funds that exceeds a bank's deposits.

3. Required reserves are:

	A.	Funds that banks must hold against their deposits.
	B.	Borrowed funds that banks hold to make payments to their creditors.
	C.	Funds banks must hold to make a loan.
	D.	Funds that banks use to invest in loans and bonds.
	E.	Funds that depositors must hold in their bank to receive a loan.

Answer 1

a) "D"

Lender of the last resource is the central banks which extend the loan to the financial institution in panic and prevent any situation of the bank run or financial panic.

b) "A"

In a situation when the outflow from the bank reserves increases the reserve itself, in such a situation the bank can't pay its depositors back. The bank file for the insolvency.

c) "A"

Funds that banks must hold against their deposits. The deposits include both saving and time deposits.