Banks and NON-Banks Quiz

Which of these is a function of the financial system as per Merton?

• A) A financial system provides a payments system for the exchange of goods and services.

• B) A financial system provides a mechanism for the pooling of funds to undertake large-scale indivisible enterprises.

• C) A financial system provides a way to manage uncertainty and control risk.

• D) All of the above.

What is maturity transformation of banks?

• A) Banks invest their capital in loans.

• B) Banks take short-term deposits and transform them into long-term loans.

• C) Banks take long-term deposits and transform them into short-term loans.

• D) All of the above.

What is not a liability for banks?

• A) Loan

• B) Deposits

• C) Investments in G-Secs

• D) Borrowings

What is an asset for banks?

• A) Loans and Advances

• B) Deposits

• C) Capital

• D) Borrowings

Which of the following statement is incorrect:

• A. An advance is a financial solution meant for short-term requirements, offered either by financial institutions or your employers.

• B. A loan is a formal financial arrangement where a borrower and a lender agree on long-term funding, with the loan amount being considerably larger and used for significant expenses.

• C. Unlike loans, advances come with a structured repayment plan spread over several months or years, depending on the amount borrowed and the agreed terms.

• D. Unlike advances, loans come with a structured repayment plan spread over several months or years, depending on the amount borrowed and the agreed terms.

What is a bank's liquidity management?

• A) Maintain sufficient liquid assets to meet depositor outflows/withdrawals.

• B) Withdraw loans to manage outflows/withdrawals.

• C) Borrow from other banks to pay withdrawals.

• D) All of the above.

What is the purpose of required reserves?

• A) Safety

• B) Liquidity

• C) Both A and B

• D) Neither A nor B

Why will a bank keep extra reserves higher than required reserves?

• A) Earns higher interest

• B) Deposit holders advises banks that keep extra reserves

• C) Central Bank advises the bank to keep extra reserves

• D) For Liquidity Management

Where does the bank keep the required reserve?

• A) With the central bank

• B) With the government

• C) With itself

• D) None of the above

What can shadow banking provide to market participants?

• A) Higher regulation

• B) Alternative sources of funding

• C) Guaranteed returns

• D) Deposit insurance