Evolution and Role of Digital Currencies in Finance BFC Practice Questions (Page 3)

Questions 11–15

1. 11expert · hard

   A remittance company operates in a country with a volatile local currency. The company wants to offer a service that allows customers to send money abroad quickly and cheaply. The company must also comply with local regulations that require all financial transactions to be reported. Which approach best meets the company's operational and regulatory needs?

   • AUse a private cryptocurrency to hide the transaction details from the regulator
   • BUse a stablecoin for the transfer and convert to the destination currency, while reporting all transactions to the regulator
   • CUse a traditional bank wire transfer, which is already compliant
   • DUse Bitcoin and rely on its decentralized nature to avoid reporting
   Reveal Solution Discussion Select an answer first
2. 12expert · hard

   A central bank is considering issuing a CBDC that would allow citizens to hold accounts directly with the central bank, bypassing commercial banks. Commercial banks warn that this would reduce their deposit base and lending capacity. The central bank wants to preserve financial stability while still providing a digital currency. Which design should the central bank choose?

   • AA direct CBDC where the central bank holds all retail accounts
   • BA CBDC that pays a higher interest rate than commercial bank deposits
   • CA CBDC with no limit on individual holdings
   • DA two-tier CBDC where the central bank issues the currency and commercial banks manage customer accounts
   Reveal Solution Discussion Select an answer first
4. 13foundation · easy

   How do digital currencies primarily challenge traditional financial intermediaries?

   • ABy enabling peer-to-peer transactions that can bypass banks and payment processors.
   • BBy increasing the cost of cross-border payments.
   • CBy requiring all transactions to be approved by a central clearinghouse.
   • DBy eliminating the need for any form of regulation.
   Reveal Solution Discussion Select an answer first
5. 14application · medium

   A central bank is designing a digital currency and wants to avoid the volatility seen in early cryptocurrencies while still enabling peer-to-peer transfers without a commercial bank intermediary. Which design principle should the central bank adopt?

   • APeg the digital currency to a basket of other cryptocurrencies
   • BIssue the digital currency as a direct liability of the central bank with a fixed nominal value
   • CAllow the digital currency's value to float freely based on market demand
   • DUse a proof-of-work consensus mechanism with a capped supply
   Reveal Solution Discussion Select an answer first
6. 15application · medium

   A non-profit organization in a developing country wants to use digital currencies to provide microloans to unbanked individuals. The organization's goal is to ensure that loans are used for productive purposes and repaid on time. Which digital currency feature would be most helpful?

   • ASmart contracts that automate loan disbursement and repayment
   • BA high transaction throughput blockchain to process many loans quickly
   • CA stablecoin to avoid volatility in loan values
   • DA privacy coin to protect borrower identities
   Reveal Solution Discussion Select an answer first