FIN364
Money & Banking
Comprehensive Test Review (Qns & Ans)
2025
1. Which of the following is a primary function of a central
bank?
A) Regulation of individual banks
B) Safety deposit box services
C) Providing loans to businesses
D) Foreign exchange trading
Correct ANS: A) Regulation of individual banks
©/2025
, Rationale: Central banks are primarily responsible for
regulating the banking system to ensure stability and integrity
within the financial system.
2. What is the primary tool used by central banks to control
money supply?
A) Open market operations
B) Reserve requirements
C) Discount rate
D) All of the above
Correct ANS: D) All of the above
Rationale: Central banks can utilize a variety of tools,
including open market operations, reserve requirements, and the
discount rate, to manage monetary policy.
3. In which monetary policy regime does the central bank keep
its currency value pegged to another currency?
A) Floating exchange rate
B) Fixed exchange rate
C) Managed float
D) Currency board
©/2025
, Correct ANS: B) Fixed exchange rate
Rationale: A fixed exchange rate regime establishes a direct
exchange rate between two currencies, maintaining that value
over time.
4. Which of the following best defines "liquidity risk"?
A) The risk of default by a borrower
B) The risk that assets cannot be quickly converted to cash
without significant loss
C) The risk of rapid inflation
D) The risk associated with interest rate changes
Correct ANS: B) The risk that assets cannot be quickly
converted to cash without significant loss
Rationale: Liquidity risk pertains to how easily an asset can
be sold in the market without impacting its price.
5. What does the term "moral hazard" refer to in banking?
A) The inability to repay a loan
B) Increased risk-taking behavior after receiving insurance
C) A type of financial fraud
©/2025
Money & Banking
Comprehensive Test Review (Qns & Ans)
2025
1. Which of the following is a primary function of a central
bank?
A) Regulation of individual banks
B) Safety deposit box services
C) Providing loans to businesses
D) Foreign exchange trading
Correct ANS: A) Regulation of individual banks
©/2025
, Rationale: Central banks are primarily responsible for
regulating the banking system to ensure stability and integrity
within the financial system.
2. What is the primary tool used by central banks to control
money supply?
A) Open market operations
B) Reserve requirements
C) Discount rate
D) All of the above
Correct ANS: D) All of the above
Rationale: Central banks can utilize a variety of tools,
including open market operations, reserve requirements, and the
discount rate, to manage monetary policy.
3. In which monetary policy regime does the central bank keep
its currency value pegged to another currency?
A) Floating exchange rate
B) Fixed exchange rate
C) Managed float
D) Currency board
©/2025
, Correct ANS: B) Fixed exchange rate
Rationale: A fixed exchange rate regime establishes a direct
exchange rate between two currencies, maintaining that value
over time.
4. Which of the following best defines "liquidity risk"?
A) The risk of default by a borrower
B) The risk that assets cannot be quickly converted to cash
without significant loss
C) The risk of rapid inflation
D) The risk associated with interest rate changes
Correct ANS: B) The risk that assets cannot be quickly
converted to cash without significant loss
Rationale: Liquidity risk pertains to how easily an asset can
be sold in the market without impacting its price.
5. What does the term "moral hazard" refer to in banking?
A) The inability to repay a loan
B) Increased risk-taking behavior after receiving insurance
C) A type of financial fraud
©/2025
