1. Holding large amounts of bank capital helps prevent bank failures because

a. It means that the bank has a higher income

b. It makes loans easier to sell

c. It can be used to absorb the losses resulting from bad loans

d. It makes it easier to call in loans

2. The spread between the interest rates on bonds with default-free bonds is called

a. Bond margin

b. Junk margin

c. Default premium

d. Risk premium

3. When yield curves are steeply upward sloping.

a. Short-term interest rates are above long-term interest rates

b. Medium-term interest rates are above both short-term and long-term interest rates.

c. Long-term interest rates are above short-term interest rates

d. Short-term interest rates are about the same as long-term interest rates