Credit Creation and Bank Deposits Quiz

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11 Questions

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

Liquidity, profitability, security

Which item on the assets side is considered the 'first line of defense' for a bank?

Cash on hand in vaults

What is the purpose of keeping money at Call and Short Notice according to the text?

To maintain liquidity

How are items on the assets side distributed in terms of liquidity and profitability?

Descending order of liquidity, ascending order of profitability

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

With central bank

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

Asset and liability

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

It safeguards against losses to depositors

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

Special reserve accounts

How are reserve accounts different from cash reserves for banks?

Cash reserves involve fund transfers, while reserve accounts do not.

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

Ownership funds

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

Due to their dual nature as assets and liabilities

Test your knowledge on credit creation, bank deposits, and banking processes with this quiz. Learn about the expansion of bank deposits through loans, primary deposits, derivative deposits, and more.

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