Evolution and Role of Digital Currencies in Finance BFC Practice Questions (Page 4)

Questions 16–20

1. 16expert · hard

   A central bank is evaluating whether to issue a CBDC that would pay interest. The bank wants to use the interest rate as a monetary policy tool, but it is concerned about the impact on commercial bank deposits. Which policy design would allow the central bank to use the CBDC for monetary policy while minimizing the risk of bank disintermediation?

   • ASet a tiered interest rate that is lower than the rate on comparable bank deposits and impose a holding limit
   • BSet a high interest rate to encourage adoption of the CBDC
   • CAllow unlimited holdings with a market-determined interest rate
   • DPay no interest on the CBDC and rely solely on quantity limits
   Reveal Solution Discussion Select an answer first
2. 17expert · hard

   A large bank is considering whether to offer custody services for digital assets. The bank's risk committee is concerned about regulatory uncertainty and operational risk. The bank's clients are increasingly asking for digital asset exposure. Which approach best addresses the risk committee's concerns while meeting client demand?

   • AOffer custody services directly on the bank's balance sheet
   • BRefuse to offer custody services until regulations are fully clear
   • CPartner with an unregulated crypto custodian without additional controls
   • DOffer custody services through a regulated subsidiary with robust insurance and cold storage
   Reveal Solution Discussion Select an answer first
4. 18application · medium

   A fintech startup wants to launch a digital wallet that lets users hold and transfer a stablecoin. The startup plans to operate in the European Union and must comply with the Markets in Crypto-Assets Regulation (MiCA). Which requirement is most directly imposed by MiCA on the startup?

   • AObtaining approval from each individual EU member state's financial regulator
   • BEnsuring all transactions are processed through a centralized clearinghouse
   • CRegistering as a bank with the European Central Bank
   • DObtaining a license as a crypto-asset service provider and meeting capital and governance requirements
   Reveal Solution Discussion Select an answer first
5. 19expert · hard

   A developing country is considering adopting a digital currency to improve financial inclusion. The country has limited internet connectivity and a large unbanked population. The central bank wants to learn from the historical evolution of digital currencies to avoid past failures. Which approach should the central bank take?

   • AAdopt a purely internet-based cryptocurrency that requires a smartphone and data connection
   • BDesign a digital currency that can be used offline through prepaid cards or mobile phones with SMS-based transactions
   • CCopy the design of a successful cryptocurrency from a developed country
   • DUse a digital currency that relies on a centralized ledger maintained by a single bank
   Reveal Solution Discussion Select an answer first
6. 20application · medium

   A cryptocurrency exchange is expanding into a new country that has recently enacted a comprehensive digital asset regulatory framework. The exchange must comply with the new rules. Which action is most critical for the exchange to take?

   • AMove its headquarters to a more favorable jurisdiction
   • BHire a local legal advisor to review the regulatory framework
   • CImmediately suspend all trading until the exchange is fully compliant
   • DConduct a gap analysis between the exchange's current practices and the new regulatory requirements
   Reveal Solution Discussion Select an answer first