The Argument That Deposit Insurance Can Prevent the Failure of an Otherwise

question 47

Multiple Choice

The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that

• A) bank examinations by the Canada Deposit Insurance Corporation (CDIC) weed out badly managed banks.
• B) the existence of deposit insurance may prevent self-fulfilling panics.
• C) potential deposits need not be concerned about account overdrafts.
• D) deposit insurance restores confidence in the stock market.
• E) deposit insurance restores confidence in the bond market.

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Definitions:

Solvency Ratio

Financial metrics used to evaluate a company's ability to meet its long-term debt and other obligation by comparing its assets to its liabilities.

Profit Margin

A financial metric that measures the amount of net earnings a company makes as a proportion of its sales.

Return On Common Stockholders' Equity

A measure of the profitability of a corporation in terms of the returns generated on the equity investment of the common shareholders.

Net Sales

Net sales represent the revenue a company generates from its business activities, after subtracting returns, allowances for damaged goods, and discounts.