SIE Knowledge of Capital Markets Question 22: Answer and Explanation

Question: 22

Which of the following statements is true regarding banks in relationship to the stock market?

• A. During and immediately after the stock market crash of 1929, liquid assets in banks were safe, as contrasted with the stock that lost value in the stock market crash.
• B. After the stock market crash of 1929, many banks were not able to provide depositors their money upon request.
• C. Making bank depositors' funds safe was the only purpose for establishing the Federal Reserve.
• D. The stock market crash of 1929 was the only time in American history when depositors had significant concerns because of their inability to withdraw their funds upon demand.

Correct Answer: B

Explanation:

B: Choice B is correct and that led to the formation of the FDIC to help assure bank customers that they could have confidence in their bank deposits up to a stated limit. Choice A is incorrect because many banks were not able to satisfy depositors' requests for withdrawals of their account balances. Choice C is incorrect because the Federal Reserve was also established to moderate the fractional reserve rate to encourage or discourage banks from making loans, which affects the money supply. Choice D is incorrect because in the late nineteenth century many banks were unable to satisfy their customers' request to withdraw funds.