WorksheetsLecture 3 - Financial Institutions & markets (Part 2)
Total questions: 15
Worksheet time: 8mins
A government wants inflation under control and the financial system to remain stable, but it does not want the institution in charge to behave like a profit-seeking bank. Which description best fits the role of a central bank?
A lender that competes with banks for household and business customers
A public authority that supports monetary and financial system stability
A private institution that clears payments and sets market lending rates
A government agency that raises tax revenue and manages public spending
In a corridor system, the central bank wants the overnight interbank rate to stay within a predictable range. What role does the standing lending facility usually play?
It sets the lower bound for overnight market rates
It sets the upper bound for overnight market rates
It changes the policy stance without using the policy rate
It replaces open market operations during normal conditions
A central bank observes that liquidity shortages are not temporary but continue over a longer period. Which tool is generally more suitable for addressing this more persistent liquidity problem?
Same-day repos to manage short-term reserve fluctuations
Reserve repos to absorb excess reserves for one trading session
Statutory reserve requirements to influence structural liquidity conditions
Intraday lending to support payment settlement within the day
The overnight rate suddenly jumps during the day because a large tax payment drains reserve from the banking system, but the central bank does not want to change its monetary policy stance. What is the most appropriate immediate response?
Reduce the policy rate to bring the overnight rate back down
Inject reserves through same-day repo operations to ease the shortage
Lower the reserve requirement ratio to increase liquidity permanently
Begin large-scale bond purchases to support broader market confidence
An intern compares the balance sheets of a central bank and a commercial bank. Which item would most likely appear as a major liability of the central bank?
Loans to households and businesses across the economy
Currency in circulation and reserves held by banks
Customer deposits and wholesale market borrowing
Corporate bonds issued to finance operating activity
A central bank records a lower profit in one year after taking action to stabilize markets during a period of stress. Which evaluation of its financial performance is most appropriate?
It should be judged mainly by whether it maximizes profit every year
It should be judged by sustainable cost recovery and sensible remittances
It should be judged by whether its return on equity exceeds commercial banks
It should be judged by whether remittances remain unchanged each year
Which comparison best distinguishes the typical asset side of a central bank balance sheet from that of a commercial bank balance sheet?
Central bank: retail loans; commercial bank: foreign reserves
Central bank: government securities and reserves; commercial bank: customer loans
Central bank: mortgages and credit cards; commercial bank: currency in circulation
Central bank: equity holdings; commercial bank: seigniorage assets
During a period of global financial stress, banks in one country face funding pressure in foreign currency. Why does the international layer of the financial system matter in this situation?
Cross-border support tools can help stabilize funding and payment flows
Domestic merchants can independently set exchange rates for trade settlement
Capital markets can suspend disclosure rules to restore investor confidence
Central banks can replace banks in making retail foreign loans directly
During a global funding shock, local banks need access to US dollars even though domestic liquidity conditions are stable. What is the main purpose of dollar swap lines in this case?
To reduce domestic tax rates during periods of international stress
To channel US dollar funding through home central banks to local banks
To provide long-term mortgage lending to households in foreign currency
To stabilize global equity indices during periods of market volatility
A regulator refers to Basel Committee on Banking Supervision (BCBS) standards when revising domestic capital rules. How should students understand the legal status of those BCBS standards?
They apply automatically in every country without further legal action
They act as international standards that are implemented through local rules
They operate as voluntary banking codes with no regulatory relevance
They function as IMF lending conditions for all member countries
A country is losing foreign reserves quickly and can no longer defend its exchange rate during a currency crisis. The government needs immediate external support. Which institution is best placed to respond first?
The IMF, because it provides short-term stabilization support during crises
The World Bank, because it mainly finances long-term development projects
The IMF, because it focuses mainly on infrastructure and poverty programs
The World Bank, because it manages the reserve holdings of member states
Which statement best distinguishes the main roles of the IMF and the World Bank in the international financial system?
The IMF focuses on monetary stability, while the World Bank supports long-term development
The IMF manages equity markets, while the World Bank supervises central banks
The IMF funds infrastructure projects, while the World Bank defends exchange rates
The IMF and World Bank both operate mainly as profit-seeking global lenders
A budgeting app asks a user for permission to view account balances and initiate payments directly from the user’s bank account. Which technical feature makes this arrangement possible?
Batch card approvals that reproduce account activity across several platforms
Paper-based instructions exchanged regularly between the bank and the app
Application programming interfaces that enable secure data and payment access
Email-based file sharing that allows customers to send account credentials
A domestic bank introduces QR payment acceptance for small merchants and expects usage to increase over time. Which near-term revenue effect is most plausible?
QR services can create additional fee income as merchant adoption grows
QR services must remain free because payment rules prohibit monetization
QR services remove existing fee income and shift banks fully into lending
QR services cannot generate revenue because they are only peer-to-peer tools
A fast-growing online shop wants one connection that gives access to multiple banks and payment rails, while also providing fraud screening and transaction routing. Which provider role best fits this need?
A platform layer that connects systems and adds routing and risk controls
A single bank that directly links to all rails and manages all screening alone
A card scheme that replaces domestic payment rails across all transactions
A central bank service that handles merchant onboarding and chargeback disputes
