Public Confidence in the Commercial Banking System Has Been Strengthened

question 44

Multiple Choice

Public confidence in the commercial banking system has been strengthened by

• A) the requirement that commercial banks use their reserves mainly to buy government bonds.
• B) bank practices that maintain cash reserves equal to 50 percent of demand deposit liabilities.
• C) the fact that all commercial banks are members of the Federal Reserve System.
• D) the over 15 percent spread between interest paid to depositors and interest earned on loans.
• E) the existence of almost universal insurance on deposits up to $250,000.

---

Definitions:

Par Value

The nominal or face value of a bond, stock, or coupon as stated by the issuer, which does not necessarily reflect its market value.

Credit Default Swap

A financial derivative allowing an investor to "swap" or offset the risk of credit loss from the default of a borrower.

Default Risk

The risk that a borrower will not make the contractual interest or principal payments on their debt obligations.

Corporate Bond

A debt security issued by a corporation to raise funding, promising to repay the principal along with interest at specified dates.