d) Developing an equity portfolio of start-up companies. 15) The banking industry's attempts to solve adverse selection and moral hazzard problems help explain which of the following loan management principles? a) Credit rationing. b) Collateral and compensating balances. c) Screening and monitoring of loan applicants. d) It helps explain all of the above. 16) The seller of an option contract has the the buyer of an option contract has the to buy or sell the underlying asset while to buy or sell the underlying asset a) right; obligation b) obligation, right c) right, right d) obligation; obligation 17) What are the three major tools which the Federal Reserve Bank can use to implement the objectives pertaining to bank reserves established under the FOMC directive? a) Reserve requirements, open market operations, the federal funds rate b) The federal funds rate, reserve aggregates, the discount rate c) Reserve requirements, open market operations, the discount rate d) Money aggregates, reserve aparegates, long term interest rates 18) An exchange rate policy which pegs a country's currency is know as an a) Fixed exchange rate policy. Cross-Currency exchange rate policy. Floating exchange rate policy. d) Managed floating exchange rate policy. 19) The marginal propensity to save can be calculated as propensity to consume can be calculated as while the marginal D) (1-b); b c) a b d) b; (1-b) 20) Which of the following bank assets would be considered the most liquid? a) U.S. government securities. b) Reserves. c) Cash items in the process of collection