Credit Creation and Bank Deposits Quiz
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Questions and Answers

What are the three most important guiding principles of asset distribution for a bank mentioned in the text?

  • Safety, stability, liquidity
  • Liquidity, profitability, security (correct)
  • Profitability, liquidity, stability
  • Security, profitability, liquidity
  • Which item on the assets side is considered the 'first line of defense' for a bank?

  • Money at Call and Short Notice
  • Cash on hand in vaults (correct)
  • Money kept with central bank
  • Loans to brokers in the stock market
  • What is the purpose of keeping money at Call and Short Notice according to the text?

  • To maintain liquidity (correct)
  • To meet depositor obligations
  • To earn interest from long-term loans
  • To secure long-term investments
  • How are items on the assets side distributed in terms of liquidity and profitability?

    <p>Descending order of liquidity, ascending order of profitability</p> Signup and view all the answers

    Where does the bank keep some money apart from cash on hand as a backup?

    <p>With central bank</p> Signup and view all the answers

    What is the dual nature of bills in hand for a bank according to the text?

    <p>Asset and liability</p> Signup and view all the answers

    Why is bank capital important for protecting depositors according to the text?

    <p>It safeguards against losses to depositors</p> Signup and view all the answers

    Which type of capital account is designed to cover unanticipated losses on loans and investments?

    <p>Special reserve accounts</p> Signup and view all the answers

    How are reserve accounts different from cash reserves for banks?

    <p>Cash reserves involve fund transfers, while reserve accounts do not.</p> Signup and view all the answers

    According to Crowther, what do assets represent on a bank's balance sheet?

    <p>Ownership funds</p> Signup and view all the answers

    Why are bills in hand shown on both sides of the balance sheet?

    <p>Due to their dual nature as assets and liabilities</p> Signup and view all the answers

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