Question

This chapter has explained that "one of the most economically destructive effects of exchange rate fluctuations can happen through the banking system," if banks borrow from abroad to lend domestically. Why is this less likely to be a problem for the U.S. banking system?

a) U.S. banks have strict regulations preventing foreign borrowing.
b) U.S. banks are more reliant on domestic lending than international borrowing.
c) U.S. banks have less impact on the global financial market.
d) U.S. banks have unlimited foreign reserves to cover borrowing.

Answer 1

The correct answer is b) U.S. banks are more reliant on domestic lending than international borrowing. The U.S. banking system is less likely to be affected by exchange rate fluctuations because it is heavily focused on domestic lending rather than international borrowing.

Step-by-step explanation:

The correct answer is b) U.S. banks are more reliant on domestic lending than international borrowing. The U.S. banking system is less likely to be affected by exchange rate fluctuations because it is heavily focused on domestic lending rather than international borrowing.

Unlike some other countries, U.S. banks have strict regulations and policies in place that prevent excessive foreign borrowing. This reduces the vulnerability of U.S. banks to exchange rate fluctuations and their potential negative impact on the economy.