The Existence of a Lender of Last Resort Creates Moral

question 113

Multiple Choice

The existence of a lender of last resort creates moral hazard for bank managers because:

• A)They have an incentive to take too much risk in their operations
• B)Officials are likely to undervalue the bank's portfolio of assets
• C)They are less likely to apply for a direct loan from the central bank
• D)Banks seek loans from the central bank only after exploring other options

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Definitions:

Planning Budget

A budget prepared for a specific level of activity, often used for planning and coordinating actions.

Activity Variances

Differences between planned or budgeted amounts of costs or revenues and actual amounts incurred, attributable to specific activities.

Customers Served

The number or segment of clients or consumers to whom a business has provided goods or services.

Budgeting

The process of creating a plan to spend your money, outlining projected income versus expenses for a certain period.