A Single Bank Is Severely Limited in Its Ability to Create

question 137

Multiple Choice

A single bank is severely limited in its ability to create money because:

• A)​the FDIC will not permit it to create money unless the Resolution Trust Corporation guarantees the loans.
• B)​loan recipients usually take the proceeds of the loan in cash.
• C)​the funds loaned probably will be deposited in another bank.
• D)​recent federal legislation prohibits banks from creating money except to finance international trade.

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Definitions:

APR

Annual Percentage Rate, which represents the annual cost of borrowing or the annual yield from an investment.

Interest Rate

The financial percentage of the principal demanded by a lender for giving a borrower access to resources.

Pure Discount Loan

A loan where the borrower receives a single lump sum payment at maturity instead of periodic payments, with interest incorporated in the repayment amount.