Theoretically, During a Financial Crisis, the Fed Is Supposed to Act

question 216

Multiple Choice

Theoretically, during a financial crisis, the Fed is supposed to act as a lender of last resort to

• A)all insolvent banks.
• B)insolvent banks that are illiquid.
• C)solvent banks that are illiquid.
• D)insolvent banks that are highly liquid.

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Definitions:

Real Rate Of Return

The annual percentage profit earned on an investment, adjusted for changes in the price level due to inflation.

Annually Compounded

Interest on an investment or loan calculated once per year, including interest on the initial amount and all previously accumulated interest.

Effective Rate

The actual interest rate of an investment or loan when compounding interest is taken into account, differing from the nominal rate by including the effects of compounding.

Financial Position

A snapshot of the resources, obligations, and the net worth of an individual or organization at a specific point in time.