Which of the Following Statements Is True

question 33

Multiple Choice

Which of the following statements is true?

• A)Basis risk arises because loan rates and deposit rates are not perfectly correlated in their movements over time
• B)Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time
• C)Basis risk arises because loan rates and deposit rates always move in the same direction over time
• D)FIs are not subject to the basis risk

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Definitions:

New Technology

The development and application of innovative tools, machines, techniques, and methods that improve the efficiency and productivity of operations.

Natural Monopolies

Industries where a single firm can supply a good or service to an entire market at a lower cost than two or more firms could, often due to economies of scale.

High Set-up Costs

Initial investments or expenses that are necessary to start a business or manufacturing process, which can act as a barrier to entry for new firms.

Industry

A sector of the economy that produces a specific type of goods or services, characterized by shared production processes or products.