When the Financial System Has Achieved a High Degree of Efficiency

question 86

Multiple Choice

When the financial system has achieved a high degree of efficiency,

• A) Borrowers are able to finance at the highest possible cost.
• B) Surplus spending units are able to receive the lowest return on their savings.
• C) Transaction and intermediation costs are low.
• D) Lenders will have a limited choice of financial investments.

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Definitions:

Excess Reserves

The capital reserves held by banks over and above the minimum required by regulators, available for lending or investing.

Required Reserves

The minimum amount of reserves that a bank must hold, as mandated by the central bank, against its deposit liabilities.

Reserve Requirement

The mandatory percentage of deposits that banks must hold in reserve, either in their vaults or at the central bank, not available for lending.

Government Bond

A debt security issued by a government to support government spending and obligations, typically offering a fixed rate of return.