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In accordance with the Coursera Honor Code, I (KK Fong) certify that the answers here are my own work.

Question 1

What was the central function of “shiftability” in the American system?

Shiftability allowed banks to raise funds by using the real bills discount mechanism

Shiftability allowed banks to use their assets to raise cash as needed to meet short term liquidity calls

Shiftability made monetary policy, and hence markets, more transparent

Shiftability prevented instability in financial markets

Question 2

Which of the following is NOT correct about the role of banking for development finance?

Development finance involves mobilizing unused resources, thereby creating new economic activity.

The role of banking for development finance is very limited because safety requires banks to limit lending to short term real bills

As Schumpeter emphasized, banks lend by creating new purchasing power for entrepreneurs who do not have it

A development bank mobilizes deposits for long-term capital loans to finance new development projects.

Question 3

All of the following statements about futures and forwards are true EXCEPT… ?

A forward loan is generally more profitable for a bank than a spot loan. .

It is generally more expensive for a firm to lock in a forward rate of interest than to wait and pay the spot rate.

Futures and forwards are much the same in terms of cash flow, but not in terms of value since futures are marked to market whereas forwards are not.

Banks and firms both use forwards and futures in order to hedge against price risk.

Question 4

Which of the following BEST characterizes the distinction between direct and indirect finance?

Direct finance involves the ultimate lender holding the promises to pay of the ultimate borrower

Indirect finance reduces risk, whereas direct finance simply transfers it

Banking provides direct finance, whereas capital markets provide indirect finance

Direct finance involves more intermediation.

Question 5

Which of the following statements about shadow banking is NOT true?

Regulations on traditional banking create incentives for shadow banking.

Shadow banking involves money market funding of capital market lending.

Shadow banking is illegal

Shadow banking in the US is a recent phenomenon.

Question 6

Which of the following statements about banking during Bagehot’s time is NOT accurate?

Banks in Britain generally held shorter-term assets than banks in the US.

US banks safeguarded their liquidity by refusing to lend long term

The money market and capital market were more separated in Britain compared to the US.

British banks relied more heavily on the timing of cash flows to provide liquidity, while US banks relied more heavily on money market funding and liquidity in the bond markets.

In accordance with the Coursera Honor Code, I (KK Fong) certify that the answers here are my own work.

You cannot submit your work until you agree to the Honor Code. Thanks!

Economics of Money and Banking, Part Two

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by Perry G Mehrling

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Economics of Money and Banking, Part Two

Economics of Money and Banking, Part Twoby Perry G Mehrling

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Economics of Money and Banking, Part Two
by Perry G Mehrling