When a Bank Makes a Loan by Crediting the Borrower's

question 102

Multiple Choice

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

• A)money is created.
• B)the bank gains new reserves.
• C)the bank immediately loses reserves.
• D)the Fed has made an open-market purchase.

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Definitions:

Market-neutral Hedge Funds

Market-neutral hedge funds aim to achieve returns with minimal exposure to overall market risk by employing strategies that attempt to offset potential losses in the markets.

Volatile Returns

Refers to the significant ups and downs in the value of an investment over a short period.

Arbitrage Opportunity

A situation where a trader can make a profit from the price difference of an asset in different markets or forms without taking significant risk.

Risk-free Rate

The theoretical return of an investment with zero risk, often represented by the yield on government bonds.