Access to the Discount Window of the Federal Reserve Is

question 64

Multiple Choice

Access to the discount window of the Federal Reserve is unlikely to deter bank runs because

• A)discount loans are meant to provide temporary liquidity for inherently solvent banks.
• B)borrowing is not automatic, that is, banks gain access only on a "need to borrow" basis.
• C)a bank needs high-quality liquid assets to pledge as collateral.
• D)discount window advances to undercapitalized banks that eventually fail requires the Federal Reserve to compensate the FDIC for incremental losses caused by keeping the bank open for an additional period of time.
• E)All of the options.

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Definitions:

Constant Percentage

A fixed rate applied uniformly across a set of variables or values, often used in finance and mathematics.

Salvage Value

The estimated resale value of an asset at the end of its useful life, often considered for depreciation calculations.

Depreciation

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life to reflect its decrease in value due to wear and tear, age, or obsolescence.

Depreciable Cost

The total cost of a tangible fixed asset that is subject to depreciation over its useful life, including purchase price, installation charges, and other costs necessary to bring the asset into usable condition.