In a Fractional-Reserve Banking System,a Bank

question 55

Multiple Choice

In a fractional-reserve banking system,a bank

• A)does not make loans.
• B)does not accept deposits.
• C)keeps only a fraction of its deposits in reserve.
• D)None of the above is correct.

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Definitions:

Annual Effective Rate

The interest rate on a loan or investment, adjusted for compounding over a one-year period.

Monthly

Occurring, produced, or done every month.

Semi-Annually Compounded

Interest calculation method where the interest is added to the principal on a half-yearly basis.

Nominal Rate

The stated interest rate of a bond or loan, not accounting for inflation or compounding effects, also known as the annual percentage rate (APR).