I use Stefanie's option 3. The Cons are definitely real. However, there's a Pro to bringing the questions inline: Often I don't want to randomly draw from every question in a bank.
My question banks are often organized by task (e.g., identify whether this morpheme is inflectional or derivational) or by textbook exercise (e.g., all the questions from Smith ch. 3 exercise 22). I use the same question banks in the same courses year after year. Sometimes I want to use very similar questions on quizzes and then on higher-stakes tests.
So, one year I might put questions 1-5 from a bank into my quiz question group and have the quiz randomly pick 2 of them. I might use questions 6-10 the next year. And I might use questions 11-15 for the final. I don't want the exact same questions showing up on the quiz and on the final, but I do want them all saved in the same question bank so that when I'm building my assessments I can find the right kinds of questions easily.
If you link to a question bank, I believe your quiz will always draw from the whole bank, not from a subset of that bank. If you put specific questions from the bank into a question group on the quiz, the quiz will draw only from the questions in that group.
Also, I like being able to regrade questions automatically. I just have to be sure that when I edit questions, I edit them in the bank as well as in the quiz.
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