A Depository Institution Can Make Highly Illiquid and Long-Maturity Loans

question 16

Multiple Choice

A depository institution can make highly illiquid and long-maturity loans with funds obtained by issuing transaction deposits because

• A) depository institutions tend to be owned by individuals with a high tolerance of risk.
• B) most transaction depositors have very transaction patterns.
• C) depositors, taken as a group, behave in a predictable manner.
• D) depository institutions are skilled at evaluating credit risks.
• E) depository institutions have a large pool of assets to draw from.

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Definitions:

Structured Problems

Problems that are straightforward and clear with respect to information needs.

Environment of Uncertainty

Circumstances or situations where the outcomes, risks, or effects are unpredictable and lack clarity.

Action Alternatives

Refers to different strategies or courses of action that an organization or individual might choose to address a particular problem or situation.

Cognitive Styles

The ways individuals deal with information while making decisions.