Looking for the answer to the question below related to Financial Management ?
Regulation _________ of federal Reserve Act imposed a ceiling on interest rates that could be paid on deposits by Banks in the US.
The Correct Answer Is:
- B. Q
The correct answer is B. Q. Regulation Q, which was a key component of the Federal Reserve Act, imposed a ceiling on interest rates that could be paid on deposits by banks in the United States.
This regulation played a significant role in the U.S. banking and financial system for many years, and it was implemented to control and regulate interest rates on deposits in order to stabilize the banking sector and the economy.
Here’s a detailed explanation of why the answer is correct (B. Q), as well as why the other options are not correct:
Correct Answer (B. Q – Regulation Q):
Regulation Q was a federal regulation implemented under the authority of the Federal Reserve Act. It was established in the United States during the 1930s and remained in effect until the early 1980s. Regulation Q set maximum interest rates that banks and other financial institutions were allowed to pay on various types of deposits, including savings accounts and time deposits.
The regulation was a response to the banking and financial crises of the Great Depression and was intended to stabilize the financial system by preventing excessive competition for deposits, which could lead to higher interest rates and financial instability. Regulation Q was enforced by the Federal Reserve and aimed to control interest rates and maintain financial stability.
Option A (P):
There is no specific federal regulation or component of the Federal Reserve Act referred to as Regulation P that imposed a ceiling on interest rates for deposits in the United States. Regulation P is not a known or recognized regulation associated with banking or finance in the United States. Therefore, option A is not correct.
Option C (R):
While the Federal Reserve Act does include various regulations and provisions, there is no specific Regulation R that imposed interest rate ceilings on bank deposits in the United States. Regulation R generally pertains to rules governing relationships between banks and their affiliates. It does not address interest rate ceilings on deposits. Therefore, option C is not correct.
Option D (M):
Regulation M, which is primarily associated with the Federal Reserve, deals with consumer leasing and consumer protection. It focuses on disclosures and requirements related to consumer leases and does not have any connection to the imposition of interest rate ceilings on bank deposits.
Regulation M is unrelated to the question regarding interest rate regulation in the context of bank deposits. Therefore, option D is not correct.
In summary, the correct answer to the question is B. Q (Regulation Q), as it was a crucial part of the Federal Reserve Act that imposed interest rate ceilings on bank deposits in the United States for several decades. Options A (P), C (R), and D (M) are not correct as they do not pertain to interest rate regulation on deposits and do not correspond to known regulations under the Federal Reserve Act.