Question 1

Distinguish between M1 and M2.

Accepted Answer

Notice deposits and personal t...

Question 2

What is the spread?

Accepted Answer

A)  The difference between a bank's actual reserves and its target reserves.
B)  The interest rate difference between what a bank charges borrowers and what it pays savers.
C)  The difference between a bank's demand deposits and its total loans to customers.
D)  The geographical distribution of banks across the country.E) C) and D)
F) B) and D)

Question 3

Canada's largest commercial bank is the Bank of Canada.

Accepted Answer

A) True 
 B)False

Question 4

What is meant by the term "fractional reserve banking"?

Accepted Answer

A)  A system whereby banks keep only a fraction of their assets in the form of cash.
B)  A system whereby banks keep only a fraction of their cash with the central bank.
C)  A system whereby banks keep only a fraction of their total deposits in the form of cash.
D)  A system whereby banks must maintain a minimum amount of loans in the form of cash reserves.E) A) and C)
F) A) and D)

Question 5

Which of the following was a problem with using gold instead of paper money?

Accepted Answer

A)  Gold wasn't as scarce.
B)  Gold wasn't as accepted.
C)  Gold wasn't a commodity.
D)  Gold wasn't as portable.
E)  Gold wasn't as durable.F) A) and C)
G) B) and C)

Question 6

The following is the balance sheet of the Leafs Bank
 
-Refer to the information above to answer this question.Assume the target reserve ratio is 8 percent.What are the excess reserves of this commercial bank?

Accepted Answer

A)  $0.
B)  $60,000.
C)  $43,200.
D)  $4,800.
E)  $52,000.F) None of the above
G) A) and E)

Question 7

Why are demand deposits (chequing accounts) classified as money?

Accepted Answer

A)  Because they can be readily used in making purchases and for the payment of debts.
B)  Because they earn interest income for the depositor.
C)  Because they are ultimately the obligations of the government.
D)  Because banks hold currency equal to the value of their outstanding deposits.
E)  Because they are insured by the Canadian Deposit Insurance Company.F) All of the above
G) B) and C)

Question 8

The following is the balance sheet of the Regina Bank.(All figures are in $millions) 
 
-Refer to the information above to answer this question.If this bank has excess reserves of $4 then what must be the target reserve ratio?

Accepted Answer

A)  9%.
B)  18%.
C)  7%.
D)  10%.
E)  20%.F) B) and C)
G) A) and D)

Question 9

What is the difference between M1 and M2?

Accepted Answer

A)  M1 includes currency in circulation and M2 does not.
B)  M2 includes certificates of deposit and M1 does not.
C)  M2 includes notice deposits and personal term deposits and M1 does not.
D)  M2 is always smaller than M1.E) A) and B)
F) None of the above

Question 10

Suppose that the Lions Bank has excess reserves of $10,000 and demand deposits of $100 000.If the target reserve ratio is 10 percent what is the size of the bank's actual reserves?

Accepted Answer

A)  0.
B)  $4,000.
C)  $10,000.
D)  $20,000.
E)  $110,000.F) B) and E)
G) D) and E)

Question 11

What gives the Canadian dollar its value?

Accepted Answer

One can think of Canadian currency as "c...

Question 12

Assume a commercial bank has demand deposits of $2,000,000 and excess reserves of $50,000.If the target reserve ratio is 10 percent,then what are the bank's actual reserves?

Accepted Answer

A)  $150,000.
B)  $200,000.
C)  $250,000.
D)  $50,000.
E)  $500,000.F) A) and E)
G) C) and E)

Question 13

What is the definition of M1?

Accepted Answer

A)  Currency in circulation only.
B)  Currency in circulation plus demand deposits and savings accounts.
C)  Currency in circulation plus demand deposits and Canada Savings Bonds.
D)  Currency in circulation plus demand deposits.E) All of the above
F) None of the above

Question 14

How is money functioning in the case of stock market price quotations?

Accepted Answer

A)  As a store of wealth.
B)  As a unit of account.
C)  As a medium of exchange.
D)  A medium of exchange,a store of wealth,and a unit of account.E) B) and C)
F) None of the above

Question 15

The most important characteristic of money is that it be portable.

Accepted Answer

A) True 
 B)False

Question 16

If John and Todd both have chequing accounts in the same commercial bank and John writes a cheque for $5,000 payable to Todd,what will happen to the bank's accounts?

Accepted Answer

A)  They will not be affected.
B)  Assets and liabilities will both decrease by $5,000.
C)  Liabilities will decrease by $1,000,and the bank's equity will increase by $5,000.
D)  Reserves and demand deposits will both decrease by $5,000.
E)  Demand deposits will increase by $5000 and loans to customers will decrease by $5,000.F) A) and B)
G) B) and D)

Question 17

All of the following,except one,will decrease the size of the multiplier.Which is the exception?

Accepted Answer

A)  An increase in the banks' target reserves.
B)  An increase in the amount of cash that people hold.
C)  An insufficient number of creditworthy applicants for loans.
D)  A decrease in interest rates.
E)  A reduced demand for loans by people in times of recession.F) None of the above
G) D) and E)

Question 18

List the six characteristics of money?

Accepted Answer

The six characteristics of mon...

Question 19

Suppose that Bank Apollo has a target reserve ratio of 5 percent,$10,000 in demand deposits,and $1,000 in reserves.Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at a business that does not use Bank Apollo.What is the net effect on Bank Apollo?

Accepted Answer

A)  It will be neither under- or over-reserved.
B)  It will be over-reserved by $500.
C)  It will be under-reserved by $500.
D)  It will be under-reserved by $25.
E)  Its reserve status is unaffected.F) B) and E)
G) C) and D)

Question 20

The following table shows the balance sheet of the Bank of Manitoba.
  By how much is the Bank of Manitoba over- or under- reserved if the target reserve ratio is as follows:
a)2%
b)5%
c)12%
d)20%

Accepted Answer

a)over-reserved by $...

Exam 8: Money and Banking

List the six characteristics of money?

Correct AnswerverifiedThe six characteristics of mon...View AnswerShow Answer

The most important characteristic of money is that it be portable.

Correct AnswerverifiedShow Answer

What is the definition of M1?

Correct AnswerverifiedShow Answer

What is the difference between M1 and M2?

Correct AnswerverifiedShow Answer

The following table shows the balance sheet of the Bank of Manitoba. By how much is the Bank of Manitoba over- or under- reserved if the target reserve ratio is as follows: a)2% b)5% c)12% d)20%

Correct Answerverifieda)over-reserved by $...View AnswerShow Answer

The following is the balance sheet of the Regina Bank.(All figures are in $millions) -Refer to the information above to answer this question.If this bank has excess reserves of $4 then what must be the target reserve ratio?

Correct AnswerverifiedShow Answer

The following is the balance sheet of the Leafs Bank -Refer to the information above to answer this question.Assume the target reserve ratio is 8 percent.What are the excess reserves of this commercial bank?

Correct AnswerverifiedShow Answer

What gives the Canadian dollar its value?

Correct AnswerverifiedOne can think of Canadian currency as "c...View AnswerShow Answer

Assume a commercial bank has demand deposits of $2,000,000 and excess reserves of $50,000.If the target reserve ratio is 10 percent,then what are the bank's actual reserves?

Correct AnswerverifiedShow Answer

All of the following,except one,will decrease the size of the multiplier.Which is the exception?

Correct AnswerverifiedShow Answer

Suppose that Bank Apollo has a target reserve ratio of 5 percent,$10,000 in demand deposits,and $1,000 in reserves.Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at a business that does not use Bank Apollo.What is the net effect on Bank Apollo?

Correct AnswerverifiedShow Answer

If John and Todd both have chequing accounts in the same commercial bank and John writes a cheque for $5,000 payable to Todd,what will happen to the bank's accounts?

Correct AnswerverifiedShow Answer

Canada's largest commercial bank is the Bank of Canada.

Correct AnswerverifiedShow Answer

Distinguish between M1 and M2.

Correct AnswerverifiedNotice deposits and personal t...View AnswerShow Answer

Suppose that the Lions Bank has excess reserves of $10,000 and demand deposits of $100 000.If the target reserve ratio is 10 percent what is the size of the bank's actual reserves?

Correct AnswerverifiedShow Answer

What is the spread?

Correct AnswerverifiedShow Answer

Which of the following was a problem with using gold instead of paper money?

Correct AnswerverifiedShow Answer

How is money functioning in the case of stock market price quotations?

Correct AnswerverifiedShow Answer

What is meant by the term "fractional reserve banking"?

Correct AnswerverifiedShow Answer

Why are demand deposits (chequing accounts) classified as money?

Correct AnswerverifiedShow Answer

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The six characteristics of mon...
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a)over-reserved by $...
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One can think of Canadian currency as "c...
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Correct Answer
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Correct Answer
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Notice deposits and personal t...
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Correct Answer
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