A Depository Institution Can Make Highly Illiquid and Long-Maturity Loans

question 3

Multiple Choice

A depository institution can make highly illiquid and long-maturity loans with funds obtained by issuing transaction deposits because

• A) depository institutions tend to be owned by individuals with a high tolerance of risk.
• B) most transaction depositors have very transaction patterns.
• C) depositors, taken as a group, behave in a predictable manner.
• D) depository institutions are skilled at evaluating credit risks.
• E) depository institutions have a large pool of assets to draw from.

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Definitions:

Policy Cover

The extent of protection provided by an insurance policy against specific risks or occurrences.

Theft

In criminal law, knowingly taking or obtaining control over the property of another without consent, using deceit, threats, or coercion.

Binder

An oral or a written memorandum of an agreement for insurance intended to provide temporary insurance coverage until the policy is formally accepted.

Insurance Coverage

The protection provided by an insurance policy against financial loss or damage, specifying what types of loss are compensated.