The Banking System Quiz DIRECTIONS This quiz covers topics from today's lesson and is divided into three sections. In the first section, match the correct letter from each definition with each vocabulary word. Then, select the best answer for each question or incomplete statement. Finally, correctly calculate each formula (show your work). MATCHING Deposit Insurance a) A certain percentage of all checkable deposits must be held as currency by the bank at all times. 2) Capital Requirements ) Banks must hold assets over and above the value of their loans, which ensures they will experience any losses first. 3) Reserve Requirements c) This is a guarantee from the government that some or all money kept in a bank will be reimbursed if the bank fails. 4) Discount Window To satisfy a rush of withdrawals, a bank can get a loan from the Federal Reserve instead of having to sell off its assets. MULTIPLE CHOICE 5) According to economists, the primary function 8) Banks are able to "create" money because they of the banking system is to a ) control the printing of new money a) ensure people have a safe place to keep their money. b ) can always get another loan from the Federal Reserve. b) keep enough bank reserves on hand to satisfy demand c) make interest on the loans they issue to customers. C) provide customers with an easy way to access deposits. d) loan out their excess reserves. 1) serve as a financial intermediary between savers and borrowers. 9) A $500 deposit is made at a bank with a reserve requirement of 20%. How much money can the 6) If a bank has a reserve ratio of 20%, the bank bank initially loan out? a) can loan out 20% of its reserves. 3 ) $20. can loan out 80% of its reserves. b) $50. can only hold onto a maximum of 20% of its reserves. C) $100 d) can only hold onto a maximum of 80% of its reserves. d) $400 7) Once one bank run occurs, it is very likely that 10) The MI money supply and the monetary base another bank run will occur. both include a ) b ) people will stop withdrawing money from banks. a) checkable deposits. C) the bank will be able to satisfy its depositors. b ) bank reserves. d) the economy is experiencing strong growth. currency in circulation. d) reserves held by the Federal Reserve