Which of the Following Statements About Depository Institutions Is False

question 119

Multiple Choice

Which of the following statements about depository institutions is false?

• A)They create liquidity by borrowing long and lending short.
• B)They keep reserves to meet cash withdrawals.
• C)A credit union is an example of a depository institution.
• D)They pool, and therefore reduce, risk.
• E)They borrow at lower interest rates and lend at higher rates.

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Definitions:

Indirect Interest Costs

Expenses related to obtaining financing (such as legal, administrative, and underwriting fees) that do not directly involve the payment of interest.

Combination Leases

Combines some aspects of both operating and financial leases. For example, a financial lease that contains a cancellation clause—normally associated with operating leases—is a combination lease.

Operating Leases

Leasing agreements for assets where the lessor retains ownership, and the lessee uses the asset for a specified period.

Financial Leases

Long-term leases that are non-cancellable and include terms to buy the asset at the end of the lease period.