Question

T F 1. The supply of loanable funds is the demand for bonds because the only way you lend someone your money is if they give you a bond or promise to repay.

T F 2. When you lend money, the first thing you get back is your money.

T F 3. If the interest rate rises, the value of fixed payment assets also rises.

T F 4. Depository institutions are always illiquid.

T F 5. All banks in the US are chartered by the federal government.

Answer 1

Answer 1)

False

There are various methods with which supplier of funds lends money to borrower of funds. The lending method is not only restricted to bonds. There are other methods like debentures, notes, loan agreements, etc.

Answer 2)

False.

Money is lent for a specific time period. Once you lend the money, the loan is provided for a specific time period. Throughout the time period, interest and loan principal is repaid.

Answer 3)

False

Is interest rates rise, the value of fixed coupon payments reamins the same. Interest rate changes only cause a change in value of bond. Fixed coupon payments do not change with change in interest rates.

Answer 4)

False

Depository institutions are liquid investments where savers can deposit their money and withdraw in times of need. Example: Savings account with commercial banks.