Question 1

When it was established in 1935,the Bank of Canada was granted the authority to:

Accepted Answer

When it was established in 1935, the Bank of Canada was given the authority to conduct monetary policy, which includes setting interest rates, controlling money supply, and regulating credit conditions in the economy. The bank's mandate is to keep inflation low, stable, and predictable, which it achieves through various monetary policy tools and instruments. The bank does not manage the finances of provincial governments, prepare the federal budget, or accept deposits from the public.

Question 2

Which of the following entities may NOT be involved in shadow banking activities?

Accepted Answer

The answer of Which of the following entities may NOT...

Question 3

By 1914,banks were able to borrow from:
I.other banks.
II.the Treasury Board.

Accepted Answer

By 1914, banks were able to borrow from other banks and also from the Treasury Board, which was responsible for managing the government's finances. This allowed banks to access additional funds and maintain liquidity in times of need. Therefore, both options I and II are correct.

Question 4

Whereas deposit insurance began in _____ in the United States,it was not until _____ that it started in Canada.

Accepted Answer

Deposit insurance started in the United States in 1933 with the establishment of the Federal Deposit Insurance Corporation (FDIC). In Canada, deposit insurance began much later, in 1967, with the creation of the Canada Deposit Insurance Corporation (CDIC). Therefore, the best choice is D, with the correct years for both countries.

Question 5

A financial institution that finances its investments through borrowing is said to engage in ________.

Accepted Answer

When a financial institution finances its investments through borrowing, it is said to engage in leverage. Leverage involves using borrowed funds to increase the potential return on investments. This can increase the profits of the institution but also increases the risk as there is a cost to borrowing the funds.

Question 6

If the Bank of Canada wants to increase the money supply,it could:

Accepted Answer

Lowering the reserve requirement means that banks are required to hold less money in reserve and can therefore lend more, increasing the money supply. Selling Canadian Treasury bills would decrease the money supply, cutting taxes would have little effect on the money supply, and increasing the bank rate would make loans more expensive and decrease borrowing, also decreasing the money supply.

Question 7

Which of the following entities may be involved in shadow banking activities?

Accepted Answer

Insurance companies can be involved in shadow banking activities as they may engage in credit intermediation outside the traditional banking system.

Question 8

The Bank of Canada:

Accepted Answer

The Bank of Canada was established in 1935 in response to the Great Depression. Its primary role is to oversee monetary policy and regulate Canada's financial system.

Question 9

The banking crisis of World War I was primarily caused by:

Accepted Answer

The banking crisis of World War I was primarily caused by large demands for conversion of currency and deposits into gold. This was because during the war, countries had to finance their wartime expenses by printing more money, which led to inflation and a decrease in the value of currency. As a result, people began to demand their deposits be converted to gold, which put a strain on the banking system and led to bank failures.

Question 10

The bank runs of the late 1910s were caused primarily by:

Accepted Answer

The bank runs of the late 1910s were caused primarily by large demands for currency conversion into gold. This was due to concerns over the stability of the banking system and the value of currency during World War I. Many people wanted to withdraw their funds and convert them into gold, leading to a shortage of currency in the banks and worsening the economic crisis.

Question 11

A financial institution engages in leverage when:

Accepted Answer

Leverage refers to the use of borrowed funds to finance investments. Therefore, option C is the correct choice because a financial institution engages in leverage when it finances its investments with borrowed funds. Option A is incorrect because the issuance of currency by national banks does not involve leveraging. Option B is incorrect because the addition of trust memberships to the list of institutional investors does not necessarily relate to leveraging. Option D is incorrect because excessive investment in collateralized debt obligations is not the same as leveraging.

Question 12

When the Bank of Canada was established in 1935,it was granted the authority to:
I.require all depository institutions to hold reserves.
II.inspect all deposit-taking institutions.
III.issue currency.

Accepted Answer

The Bank of Canada was granted the authority to require all depository institutions to hold reserves, inspect all deposit-taking institutions, and issue currency when it was established in 1935. Therefore, all three choices are correct.

Question 13

What type of bank accepts deposits and is covered by deposit insurance?

Accepted Answer

Commercial banks are the type of bank that accepts deposits and is covered by deposit insurance. Investment banks do not generally accept deposits from individuals, and private banks are not covered by deposit insurance. The Bank of Canada is Canada's central bank and does not accept deposits from individuals.

Question 14

A(n)_________ bank accepts deposits and is covered by deposit insurance.

Accepted Answer

Commercial banks are the most common type of bank that accept deposits and are covered by deposit insurance. They offer services such as checking accounts, savings accounts, and loans to both individuals and businesses. Investment banks, on the other hand, do not accept deposits and typically provide services to corporations and governments in areas such as underwriting securities and mergers and acquisitions. Public and private banks are not distinct types of banks but refer to the ownership structure of a bank (i.e. publicly traded or privately owned).

Question 15

A(n)________ is a private investment partnership open only to wealthy individuals and institutions.

Accepted Answer

Hedge funds are private investment partnerships that are only open to wealthy individuals and institutions. They are not regulated in the same way as other types of investment funds and typically have high minimum investment requirements. Hedge funds are known for their use of complex investment strategies and can offer higher potential returns but also carry a higher level of risk.

Question 16

One of the main reasons against creating a central bank in Canada during the Great Depression was:

Accepted Answer

There were several reasons against creating a central bank in Canada during the Great Depression, but the main one was the fear that profits of domestic banks might fall once a central bank became the sole issuer of domestic banknotes. This concern was related to the fact that the central bank would have significant control over the money supply and the ability to influence interest rates, which could affect the profitability of banks. Canada did have the expertise to operate a central bank, and the proper domestic money market could have been developed over time. Therefore, option C is the best choice.

Question 17

When it was established in 1935,the Bank of Canada was NOT granted the authority to:

Accepted Answer

The Bank of Canada was not granted the authority to prepare the federal budget. Its main functions were to issue and manage the country's currency, regulate the money supply, and provide loans to chartered banks. It was also given the responsibility to advise the government on economic policies, but not to prepare the federal budget.

Question 18

The main problem with the Wall Street stock market crash,which saw the Canadian economy shrink significantly,was that:

Accepted Answer

The money supply was not sufficiently responsive to economic changes, which exacerbated the economic downturn during the Wall Street stock market crash, leading to a significant shrinkage in the Canadian economy.

Question 19

In what year was the Bank of Canada established?

Accepted Answer

The Bank of Canada was established in 1935 under the Bank of Canada Act, which gave it the role of regulating and overseeing the country's monetary policy and issuing currency.

Question 20

Before the creation of the Bank of Canada,who was the official lender of last resort in Canada?

Accepted Answer

The answer of Before the creation of the Bank of...

Quiz 14: Money, Banking, and the Federal Reserve System