Question

1- Changes in the ________ probably do not affect the required rate of return by investors.

a. risk-free rate

b. money supply

c. risk premium

d. budget deficit

e. All of these choices affect the required rate of return.

2- Which of the following is not a reason for bank failures?

a. fraud

b. liquidity crisis

c. increased competition

d. a low loan default percentage

e. All of these choices are reasons for bank failures.

3- The risk premium on a commercial bank is most likely to changes in response to a change in ________.

a. the budget deficit

b. the money supply

c. economic growth

d. inflation

e. None of these choices are correct.

Answer 1

1)

All the choices risk free rate, risk premium, money supply and budget deficit affect the required rate of return by investors.

Answer is E)

2)

Low loan default percentage is a good sign for banks as they get their loans repaid, and makes the asset performing.

Answer is d) Low loan default percentage

3)

The risk premium for a commercial bank is most likely to change with change in money supply as money supply directly affects the business of the bank

Answer is b) Money supply