Table 29-6. -Refer to Table 29-6. from the Table It Follows That

question 510

Multiple Choice

Table 29-6.
-Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a

• A)fractional-reserve banking system, since its reserves are less than its deposits.
• B)fractional-reserve banking system, since its reserves are less than its loans.
• C)100-percent-reserve banking system, since its assets are equal to its liabilities.
• D)100-percent-reserve banking system if the Fed's reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

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Definitions:

Deferred Consumption Risk

The risk associated with postponing consumption today in order to invest, with the potential of not having enough resources in the future.

Liquidity Risk

The risk that an entity will not be able to meet its short-term financial obligations due to the inability to quickly convert assets to cash without significant loss.

Maturity Risk

The risk that the value of a financial instrument will change due to a change in the absolute level of interest rates, sometimes referred to as interest rate risk.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.