Assume the Value of an FI's Average Loans Is $300

question 4

Multiple Choice

Assume the value of an FI's average loans is $300 and the value of its average deposits is $400.The FI has liquid assets of $100.What is the FI's financing requirement?

• A)$400 - $300 - $100 = $0
• B)$300 - $400 - $100 = -$200
• C)$400 - $300 + $100 = $200
• D)$300 - $400 + $100 = $0

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Definitions:

Legal Limits

These are boundaries established by laws or regulations that define what is permissible within a legal framework.

Collective Action Problem

A situation where individuals in a group have incentives to not cooperate, despite a cooperative outcome being in their collective best interest, often leading to suboptimal results.

Free-Rider Problem

A situation in which individuals consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production, without contributing to its provision.

Coase Theorem

Under certain conditions, when externalities are present, private parties can arrive at the efficient solution without government involvement.