Banks, Bonds, and Stocks Quiz

What is one way banks earn a profit?

• By storing money without lending it

• By charging lower interest rates than they pay

• By charging higher interest rates than they pay

• By giving money away for free

What is the primary role of banks in the economy?

• To store money without any transactions

• To funnel money from savers to investors

• To print new currency

• To provide free financial advice

How do banks reduce the risk of lending money?

• By lending to a single borrower

• By spreading the risk across many borrowers

• By not lending money at all

• By investing in only one type of asset

What is one function of banks mentioned in the text?

• Banks create new money

• Banks pool savings from many savers

• Banks destroy old currency

• Banks only serve large corporations

What is one of the functions of banks related to information?

• Banks provide entertainment services.

• Banks solve information problems.

• Banks offer travel discounts.

• Banks create art exhibitions.

What is maturity transformation in banking?

• Using long-term loans to fund short-term projects.

• Using short-term loans to fund long-term projects.

• Using savings accounts to fund credit cards.

• Using credit cards to fund savings accounts.

What can cause a bank to collapse?

• A large number of deposits.

• A large number of withdrawals.

• A large number of loans.

• A large number of investments.

What makes bank runs less likely in the United States?

• High interest rates.

• Deposit insurance.

• Low inflation.

• Government bailouts.

What is the purpose of deposit insurance introduced by the federal government?

• To increase bank profits

• To ensure savings are safe even if a bank collapses

• To reduce interest rates on loans

• To encourage more bank runs

What is a shadow bank?

• A bank that operates only online

• A financial firm that acts like a bank but doesn't follow the same rules

• A bank that only deals with international transactions

• A bank that is owned by the government