BNK601 Quiz 1 Solution and Discussion

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@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

All below mentioned are the disadvantages of nationalization EXCEPT:

The disadvantages
By the late 1970s it became increasingly apparent that many of the industries nationalised between 1945 and 1951 were running into difficulties. The major problems that the industries faced were:

They were being managed ineffectively and inefficiently. The principal-agent problem is highly relevant to public sector activities given that the managers of the utilities were generally not required to meet any efficiency objectives set by the state. There was growing criticism that, because these industries were protected from competition, they had become increasingly ‘X’ inefficient.
Nationalised industries were also prone to suffer from moral hazard, which occurs whenever individuals or organisations are insured against the negative consequences of their own inefficient behaviour. For example, if a particular nationalised industry made operating losses, the government would simply cover those loses with subsidies. Knowing that the taxpayer would come to the rescue meant that the inefficient behaviour could continue. This is, perhaps, the most significant criticism of the recent ‘bail out’ of failing banks. Given that they know the taxpayer will bail them out this may be an encouragement to continue with their inefficient and highly risky lending activities.
In addition, the nationalised industries had limited scope to raise capital for long term investment and modernisation because they would have to compete with other government spending departments, like education, health and defence. The result was a prolonged period of under-investment in these industries.

[cyberian]

@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

The most liquid and secured money market instrument is:

Repurchase Agreements
These agreements are the most liquid of all money market investments, ranging from 24 hours to several months. In fact, they are very similar to bank deposit accounts, and many corporations arrange for their banks to transfer excess cash to such funds automatically.

[cyberian]

@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

Because of the diversified portfolio, banks can provide ------------- service to its customer.

Portfolio Risk Reduction
A Higher Rate of Return
Good Portfolio Performance during Market Downturns
Market Share Expansion

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@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

All of the following are included in the financial intermediaries, EXCEPT:

Functions and Examples of Financial Intermediaries. A financial intermediary is a financial institution such as bank, building society, insurance company, investment bank or pension fund. … The bank raises funds from people looking to deposit money, and so can afford to lend out to those individuals who need it.

[cyberian]

@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

Banking companies provide the following services except________________:

Business constancy

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@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

All of the following are demerits of Nationalization of banks, EXCEPT:

Nationalisation of banks aimed at all of the provision of adequate credit, for agriculture and small industry and export only, but not big industries.

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@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

Which of the following refers to “U.S. dollars deposited in foreign branches of U.S. banks or in foreign banks outside the United States”?

Eurodollar

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@zaasmi said in BNK601 Quiz 1 Solution and Discussion:

The strong financial system helps in ---------- the spread between banks lending and borrowing rate.

Spreads in Lending
For any business that lends money, the interest rate spread is what the company charges on a loan compared to its cost of money. A bank runs on interest rate spreads, paying a certain rate on savings and CD deposits and making loans at higher rates than it pays to savers.