A Banking Panic Is an Episode in Which

question 92

Multiple Choice

A banking panic is an episode in which:

• A)depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.
• B)commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations.
• C)commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate.
• D)depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve.

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Definitions:

WACC

Weighted Average Cost of Capital; a measure of a firm's cost of capital where each category of capital is proportionately weighted.

Capital

Refers to financial assets or their financial value, as well as the tangible factors of production that are used to create other goods and services.

After-Tax Cost

The actual cost of an expense or investment after taking into account the effects of taxes.

Debt

An amount of money borrowed by one party from another, under the condition that it is to be paid back at a later date, usually with interest.