Quiz 1-3

A significant move by the Fed toward a "tight" money policy is likely to enhance exports

False

Callable bonds are bonds that can be redeemed at par at the option of their bond holders.

False

Capital market securities are more liquid than money market securities

False

Dealers brings buyers and sellers together, brokers make a market

False

Deposits should expand when reserve requirements increase

False

Deposits should expand when the Fed sells securities

False

Easy monetary policy strengthens the dollar

False

Federal Funds are the funds provided by the federal government for domestic corporations for long term growth

False

Finance companies take small consumer deposits and make large consumer loans

False

INcreasing interest rates increases wealth and encourages spending

False

If the FOMC wished to slow down economic growth and slow growth in the price level, they could issue a policy directive to the Federal Reserve Board Trading desk to purchase US government securities

False

Most state and local government bonds are sold to investors in low tax brackets

False

Secondary markets are important because they provide funds directly to deficit spending units(DSUs)

False

TIPS are designed to primarily protect investors from default risk

False

The Fed's most commonly used tool is reserve requirements.

False

The Federal Reserve was created in 1933 as a result of the Great Depression

False

The conversion feature of a bond is designed to give the issuer the opportunity to repurchase bonds at a stated price prior to maturity

False

Treasury Bills are sold on an add-on basis, with interest paid separately at maturity

False

Which on of the following is NOT a characteristic of money market instruments?

Small denominations

A state turnpike authority is more likely to issue revenue bonds than a city that issues bonds to finance a school expansion

True

Capital Market interest rates tend to be higher than money market rates for a given issuer.

True

Decreasing interest rates tend to increase financial wealth and encourage consumer spending

True

Fed funds are short term unsecured loans while repos are short term secured loans

True

Pension funds transfer spending power from the work period to the retirement period

True

Quantitative easing consists of the Fed buying bonds even when interest rates are low.

True

Stable or growing employment is one of the objectives of monetary policy

True

The Fed can change the level of member bank reserves as well as reserve requirements.

True

The federal reserve decreases the monetary base whenever it sells government securities

True

The money market is a dealer market, not an exchange, and has no specific location

True

The seven member of the Board of Governors of the Federal Reserve System serve 14 year nonrenewable terms. Each board member is appointed by the President and confirmed by the senate.

True

There are 12 Federal Reserve District Banks today.

True

Bonds issued by foreign entities in the United States are called:

Yankee bonds

Which of the following money market instruments would typically be used to finance international trade?

a banker's acceptance

A repurchase agreement calls for

a firm to sell securities with the agreement to buy them back later at a higher price

A sale of an entire security issue to one investor or a small group of investor is

a private placement

There are _________ members of the Federal Reserve Board of Governors and ______ Federal Reserve Banks

7;12

Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?

AA rated callable corporate bond without a sinking fund.

Which of the following is not a money market security?

Ba-rated corporate bonds

Which Fed action directly increases total reserves in the banking system?

Buying US government securities on the open market

Federal Agencies issue high quality securities and invest primarily in claims issued by

agricultural or housing related sectors which have limited access to private credit

A contraction in the US money supply should

all of the above

Money market securities have very little

all of the above

Ordinarily the money supply will decrease if

all of the above

A customer wishes to sell stock they own and comes to a dealer. which of the following would a securities dealer engage in?

buying the securities and adding them to their own inventory.

The tools of monetary policy include all of the following except

changes in the government budget deficit

Which of the following is NOT an example of capital market securities?

commercial paper

All of the following are financial claims except

commodities

Which of the following is not a debt security?

common stock

The only "deposit type" institutions that do no operate for profit are

credit unions

A putable bond give he bondholders the right

to sell the bond back to the corporation at par

Bankers acceptances are used primarily for financing international trade

true

Money market instruments are a form of short term debt

true

Mortgages are capital market debt securities

true

Reserve requirements are not useful for fine tuning the economy

true

Revenue bonds are generally considered more risky than general obligation bonds

true

restrictive monetary policy in the United states may slow down nominal GDP

true

An expansion in the US money supply

will cause US exports to increase

Credit rating agency ratings are associated with which of the following investor risks?

default risk

Credit unions are _______ institutions; pension fund are ______ institutions

depository; contractual

a surplus spending unit's

income for the period exceeds expenditures

Fiscal policy refers to ____________ designed to stimulate growth

increases in government spending

Match the financial institutions with the characteristic that best describes its function

look at quiz 1 (Answer: C. 5,2,1,4,3)

Federal Funds are typically

overnight interbank loans settled in immediately available funds

Which of the following money market securities is backed by specified collateral?

repurchase agreements

The diagram below is a diagram of the

look at quiz 1 (Answer: B- primary markets)

A household is a surplus spending unit when income for the period exceeds spending

True

Purchasing a T bill via a computerized account without actually receiving the securities achieved through a ______ Account

Treasury Direct

The least used tool of monetary policy by the Fed is

adjusting reserve requirements

To increase the money supply immediately but just slightly, the Fed would most likley

buy securities on the open market

The fed funds rate is the rate that

banks charge each other on loans of excess reserves

A conditional contract granting the right to buy assets in the future is a

call

The existence of each of the following bond terms will result in a lower required yield except

call provision

An increase in teh money supply should ultimately cause security prices to decrease all else equal

false

Which of the following does not take deposits?

finance companies

A standardized, exchange backed contract to deliver assets 3 months from today is a :

futures contract

Everything else being equal, a bond will sell at a higher yield if it

has a call provision

Pension funds tend to invest in

higher yielding long - term securities

If the US dollar increases in value then US

imports will rise and exports will fall

TIPS have less _____ risk thank regular treasury securities of the same maturity

inflation

If the Fed decreases interest rates through open market operations then

investors and consumers are encouraged to invest and spend more

A repurchase agreement is like a secured loan because

it involves collateral, in this case the sale of a security under agreement to repurchase

In the 1980s, low credit quality businesses were able to first issue their new bond securities in which market?

junk bond market

Issuers of commercial paper tend to be

large financial and non financial firms

Surplus spending units (SSUs) are also called

lenders

Which one of the following is a contractual institution?

life insurance company

Money market instruments and capital market instruments differ appreciably in

maturity

All but one of the following is associated with investment banking:

taking deposits