The Fear That Liquidity Problems at One Bank May Cause

question 19

True/False

The fear that liquidity problems at one bank may cause depositors to worry about the solvency of other banks is called the disease effect.

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Definitions:

Obligation

A legal or moral duty to do or not do something, often with legal implications if not fulfilled.

Indorses

Refers to the act of signing the back of a financial document, thus transferring rights or ownership.

Security Funds

Financial reserves set aside to cover potential losses or liabilities, often used in contexts such as investments, insurance, and real estate.

Stop-Payment Order

An order by a bank customer to his or her bank not to pay or certify a certain check.