Which of the Following Is Not True for Banks in Developing

question 178

Multiple Choice

Which of the following is not true for banks in developing countries?

• A) Banks are often viewed with suspicion.
• B) Many bank depositors withdraw their funds at the first sign of economic problems.
• C) Banks often make loans for extended periods because they can easily rely on a continuous supply of deposits.
• D) If financial institutions fail to serve as intermediaries between savers and borrowers, the lack of funds for investment becomes an obstacle to growth.
• E) The credit provided by banks as a percentage of total output is one-fifth of that in high-income countries.

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Definitions:

Uncovered Interest Parity

A financial theory that posits that the difference in interest rates between two countries is equal to the expected change in exchange rates between their currencies.

Exchange Rate Risk

The potential for losses due to fluctuation in the exchange rate between two currencies in international transactions.

Foreign Exchange Market

A global marketplace for trading currencies against each other, determining the exchange rate values between different currencies.

Currency Speculators

Investors who buy and sell foreign exchange with the aim of making a profit from changes in exchange rates, influencing currency values and economic conditions.