Chapter 26.2 Flashcards
The largest element of the Canadian money supply today is A) coins. B) paper money. C) bank deposits. D) gold. E) the debt of the federal government.
C
The functions of the Bank of Canada include
A) acting as the lender of last resort for the largest private corporations.
B) acting as banker for the commercial banks.
C) regulating both the money market and stock market.
D) setting the exchange rate for the Canadian dollar on world markets.
E) providing deposit insurance at Canadian commercial banks.
B
Basic functions of the Bank of Canada include
1) acting as lender of last resort to private non-financial corporations;
2) acting as banker for the chartered banks.
3) regulating the money supply.
A) 1 only
B) 2 only
C) 3 only
D) 2 and 3
E) 1, 2, and 3
D
The largest component of the assets of the Bank of Canada is A) Government of Canada securities. B) Government of Canada deposits. C) notes and coins in circulation. D) loans to commercial banks. E) loans to private individuals.
A
The largest component of the liabilities of the Bank of Canada is
A) Government of Canada securities.
B) Government of Canada deposits.
C) Canadian currency in circulation.
D) deposits of commercial banks and other financial institutions.
E) loans to private individuals.
C
In the event of a sudden loss in confidence in the ability of the commercial banks to redeem deposits, the Bank of Canada would probably
A) take over the operation of any banks in severe difficulties.
B) lend reserves to the commercial banks.
C) offer to sell government bonds to the chartered banks.
D) suspend operation of the banking system until the panic subsided.
E) impose severe financial penalties on the commercial banks by charging them interest at higher than the Bank rate.
B
Suppose the rare event occurs that a major Canadian commercial bank is on the verge of insolvency and collapse due to volatile world credit markets. The likely initial response is
A) a bankruptcy filing overseen by the Superintendent of Financial Institutions.
B) the adoption of all of the bank’s liabilities by the Bank of Canada as the “lender of last resort.”
C) the sale of the bank’s assets to the remaining commercial banks.
D) the provision of funds by the World Bank as the “lender of last resort.”
E) the provision of funds by the Bank of Canada as the “lender of last resort.”
E
Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada?
A) The Bank of Canada has the same status as the Department of Finance and is directly responsible to Parliament for its day-to-day operations of monetary policy.
B) The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy.
C) The Bank of Canada is a central-banking institution that is completely independent of the government and is fully autonomous in its conduct of monetary policy.
D) The Bank of Canada is a privately owned banking institution that is overseen by a Board of Directors with a mandate to act in the best interests of the citizens of Canada.
E) The governor of the Bank of Canada and the minister of finance have joint responsibility for both fiscal and monetary policy.
B
Which of the following entries would appear on the liabilities side of the Bank of Canada’s balance sheet?
A) deposit money held in accounts at Canada’s commercial banks
B) Government of Canada securities
C) foreign currency reserves
D) paper notes in circulation
E) Canadian corporate securities
D
Commercial banks in Canada are prohibited by law from
A) accepting demand deposits.
B) issuing paper currency.
C) lending money to households and firms.
D) accepting term deposits.
E) settling inter-bank debts through a clearinghouse.
B
The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies. A crucial function that ceased to work smoothly during this time, and contributed to the global recession that began in 2008, was
A) the acceptance of deposits from firms and households.
B) the joint regulation of financial markets.
C) the provision of credit to firms, households and other banks.
D) cheque clearing and collection.
E) the clearing of electronic transfers.
C
An example of “interbank activities” in the Canadian banking system is
A) banks pooling their money together to fund the operations of the Bank of Canada.
B) banks lending money to each other in order to meet daily cash requirements.
C) the joint regulation of financial markets.
D) the joint regulation of the money supply.
E) lender of last resort to the banking system.
B
The Canada Deposit Insurance Corporation (CDIC) was set up to protect
A) member financial institutions in case of non-payment of loans from borrowers.
B) member financial institutions in case of non payment of loans from the government.
C) depositors with Canadian dollar accounts in member institutions for up to a maximum of $100 000 per eligible deposit.
D) depositors with Canadian dollar accounts in any Canadian financial institution for up to a maximum of $100 000 per institution.
E) depositors of any currency in any Canadian financial institution for up to a maximum of $100 000 per institution.
C
Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet? A) Government of Canada securities B) deposits of commercial banks C) advances to commercial banks D) savings deposits E) shareholders' equity
B
Which of the following entries would appear on the assets side of a commercial bank's balance sheet? A) Government of Canada securities B) chequable deposits C) Government of Canada deposits D) savings deposits E) shareholders' equity
A
Which of the following entries would appear on the liabilities side of a commercial bank's balance sheet? A) mortgage loans B) Government of Canada securities C) cash reserves D) foreign currency reserves E) demand deposits
E
Refer to Table 26-1. What are the total assets on the balance sheet of this commercial bank? A) 2410 B) 2520 C) 2810 D) 2960 E) 3160
D
Refer to Table 26-1. What are the total liabilities on the balance sheet of this commercial bank? A) 2410 B) 2520 C) 2810 D) 2960 E) 3160
D
A bank run is unlikely to occur in Canada today because
A) if necessary, the central bank can provide all the reserves that are necessary to avoid this situation.
B) the commercial banks are required by law to maintain 100% of their deposits in cash.
C) there is relatively little demand for cash at present.
D) banking is done mostly electronically.
E) the commercial banks hold enough government securities that are convertible into cash.
A
What is a bank run?
A) A situation where a commercial bank is holding zero reserves.
B) A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash.
C) A situation where all commercial banks in the system are simultaneously short of reserves.
D) The collapse of a non-commercial bank as a result of non-payment of loans.
E) The collapse of a commercial banks as a result of the devaluation of their assets.
B
Why is the possibility of a bank run extremely small in Canada today?
A) The Bank of Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals.
B) The Department of Finance guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals.
C) The Canadian Deposit Insurance Corporation provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic.
D) The Office of the Superintendent of Financial Institutions provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic.
E) Industry Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals.
C
Canadian commercial banks maintain their reserves in the form of
A) cash in their bank vaults and deposits at the Bank of Canada.
B) cash in their bank vaults.
C) gold in their bank vaults.
D) deposits at other commercial banks that are immediately accessible.
E) cash and foreign currency at the Bank of Canada.
A
A commercial bank’s actual reserve ratio is the
A) fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own vaults.
B) fraction of its deposit liabilities that are backed by gold.
C) ratio of Canadian dollars to foreign currencies that it holds on its books.
D) ratio of chequable deposits to term deposits that it holds on its books.
E) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada.
E
Excess reserves” for a commercial bank refer to
A) any surplus in the bank’s supply of gold.
B) any surplus of chequable deposits.
C) any reserves (cash or deposits with the Bank of Canada) that the bank holds over and above its desired reserves.
D) reserves (cash or deposits with the Bank of Canada) that the Bank of Canada requires the bank to hold.
E) excess demand for money from that bank.
C