Question

6. Bank A has chequable deposits of $100 million, vault cash equalling $1 million and deposits at the Bank of Canada equalling $14 million. If the desired reserve rate is ten percent what is the maximum amount Bank A could lend? a. $14 million b. $5 million c. $4 million d. $90 million

7. Financial intermediaries reduce the problems in lending associated with information asymmetries by all of the following except: a. collecting and processing standardized information. b. screening applicants to be sure they are creditworthy. c. monitoring loan recipients to be sure the funds are used properly. d. charging interest rates high enough to discourage undesirable borrowers.

8. Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets as Firm A and the same amount of liabilities but its liabilities are all at fixed interest rates. If the central bank lowers interest rates, everything else constant: a. Firm B's net worth will increase more than Firm A's. b. Firm A's net worth will increase more than Firm B's. c. Neither firm's net worth will change. d. The net worth of both firms will increase and by the same amount.

9. The Efficient Markets Hypothesis is consistent with all of the following except a. short run price movements are unpredictable. b. prices reflect all available information. c. the best long term strategy is buy and hold. d. managers that understand investor psychology outperform the market average return.

Answer 1

6) :-B is right option$5 million

7) :- D is right option

Financial Intermediation Is defined as the primary means of moving funds from lenders to borrowers

8) :-B is right option

Financial Security is defined as the condition of having the resources to support a standard of living now and in the foreseeable future

9) :-A is right options

Efficient market hypothesis is defined as all stocks prices reflect all available information on the market. It also assumes that no abnormal returns can be made.

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