Commercial Banks Create New Money

question 109

Multiple Choice

Commercial banks create new money

• A) by printing currency.
• B) by issuing cheques.
• C) through multiple rounds of lending and borrowing.
• D) when they buy government bonds from the Bank of Canada.
• E) when they increase their desired reserve-deposit ratio.

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Definitions:

Beta

A gauge of the systematic risk or volatility of a security or a portfolio relative to the overall market.

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, often represented by government bonds.

Market Neutral Bets

Investment strategies aiming to profit from both increasing and decreasing prices in one or more markets, whilst minimizing exposure to market risk.

Considerable Leverage

The use of borrowed capital to increase the potential return of an investment.