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WAEC Economics 1995 Question 14

Question 14

Financial Institutions

Credit creation by banks is limited by

  1. A.an increase in bank deposits
  2. B.the establishment of specialized banks
  3. C.the non-availability of collateral security
  4. D.the use of cheques for all transactions of the banks
  5. E.abolishing the reserve ratio
Show the answer and explanation

Answer: C (the non-availability of collateral security)

Explanation

Banks lend only against adequate security, so lack of collateral limits the loans they can create.