1. A bank

A) obtains funds by borrowing and by issuing liabilities.

B) makes profits by charging an interest rate on their asset holdings of securities and loans that is lower than the interest and other expenses on their liabilities

C) both A and B

D) neither A nor B

E) both C and D

2. Bank capital

A) is raised by sellihng new equity

B) is a cushion against a drop in the value of its assets

C) comes from retained earnings

D) neither A nor B

E) both C and D

3. Which of the following statements concerning the mutual form of ownership of savings banks are true?

A) The mutual form of ownership accentuates the principal-agent problem that exists in corporations.

B) More capital is available, contributing to the safety of mutual savings banks compared to other banking organizations.

C) Managers of mutual savings banks are more risk averse than in the corporate form, because the value of their ownership does not increase if the firm does well.

D) All of the above are true.

E) Only A and B of the above are true.

4. Politicians have _________ incentives to act in their own interests rather than in the interest of taxpayers.

A) no

B) strong

C) weak

D) low

E) Zorro

5. The type of open market operation intended to offset movements in other factors that affect reserves and the monetary base is

A) the dynamic open market operations.

B) the defensive open market operations.

C) the reserve requirements.

D) market equilibrium.

E) None or all of the above

6. What goals are continually mentioned by central bank officials when discussing the objectives of monetary policy?

A) High unemployment

B) Instability in foreign exchange markets

C) Interest-rate stability

D) All of the above

E) None of the above

7. Inflation targeting involves

A) public announcement of medium-term numerical targets for inflation.

B) increased accountability of the central bank for attaining its inflation objectives.

C) an information-inclusive approach in which many variables are used in making decisions about monetary policy.

D) all of the above.

E) None of the above