Financial Institutions Chapter 4 MVP's
An increase in Treasury securities held by the Fed leads to a decrease in the money supply
false
Federal Reserve interest rate decisions can be vetoed by the U.S. president or the Congress.
false
The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.
false
The Fed changes reserve requirements from 10 percent to 7 percent, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be
$12,857 million., (1/0.07) × $900 million
A $2 million jumbo CD is paying a quoted 3.55 percent interest rate on 180-day maturity CDs. How much money will you have at maturity if you invest in the CD?
$2,035,500, 2,000,000 × [1 + (0.0355 × 180/360)]
Bank A has an increase in deposits of $20 million dollars and all bank reserve requirements are 10 percent. Bank A loans out the full amount of the deposit increase that is allowed. This amount winds up deposited in Bank B. Bank B lends out the full amount possible as well and this amount winds up deposited in Bank C. What is the total increase in deposits resulting from these three banks?
$54.20 million, 20 + (20 × 0.90) + (18 × 0.90)
What is the price of 182-day money market security with face value of $7,000 if the BEY is 3.574%?
$6,877.44, (7,000 − P)/P × 365/182 = 0.03574 (7,000 − P)/P = 0.01782 P = $6,877.44
If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity, what is the price of the T-bill to the nearest dollar?
$9,906., 10,000 × [1 − (0.0375 × 90/360)] = 9,906
You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?
6.52 percent, (9,675/9,575)(365/60) − 1 = .06524 = 6.52%
Currently the Fed sets monetary policy by targeting: A. the Fed funds rate B. The prime rate C. The level of nonborrowed reserves. D. The level of borrowed reserves E. The stock market
A.
If the Fed wishes to stimulate the economy, it could: I. Buy U.S government securities II. Raise the discount rate III. Lower reserve requirements A. I and III only B. II and III only C. I and II only D. II only E. I, II, and III.
A.
The major asset of the Federal Reserve is: A. U.S Treasury securities B. Depository institution reserves C. Currency outside banks D. Vault cash of commercial banks E. Gold and foreign exchange
A.
Which of the following is the major monetary policy-making of the U.S Federal Reserve System? A. FOMC B. OCC C. FRB bank presidents D. U.S Congress E. Group of Eight
A.
Which of the following is not a goal of monetary policy? A. Moderate long-term interest rates B. Stable interest rates C. High employment D. Stable prices E. All of these choices are correct
B.
A decrease in reserve requirements could lead to an: A. Increase in bank lending B. Increase in the money supply C. Increase in the discount rate D. Increase in bank lending and an increase in the money supply. E. Increase in bank lending and an increase in the discount rate.
D
Assume oil prices rise in the United States, generating concerns that inflation may increase. If the Fed wishes to ensure that inflation does not get out of hand, the Fed could: A. Intervene in the currency markets to push the value of the dollar down. B. Decrease the discount rate C. Lower the target Fed funds rate D. Lower the target money supply growth rate. E. Reduce reserve requirements at banks.
D.
In the aftermath of the 2007 Financial crisis, the Fed used several programs to increase liquidity, including ________. A. Expansion of the discount window. B. Setting up the Term Auction Facility C. Lending to investment banks D. Purchase of long-term treasury bonds E. All of these choices are correct.
E.
The Federal Reserve System is charged with: A. Regulating securities exchanges B. Conducting monetary policy C. Providing payment and other services to a variety of institutions D. Setting bank prime rates E. Conducting monetary policy and providing payment and other services to a variety of institutions.
E.
The discount rate is the rate that: A. Banks charge for loans to corporate customers. B. Banks charge to lend foreign exchange to customers. C. Banks charge each other on loans of excess reserves. D. Banks charge securities dealers to finance their inventory. E. The Federal Reserve charges on loans to commercial banks.
E.
The major monetary policy-making arm of the Federal Reserve is the: A. Board of Governors B. Council of Federal Reserve Bank presidents C. Office of the Comptroller of the Currency D. Federal Reserve Bank of New York E. None of these choices are correct.
E.
The primary policy tool used by the Fed to meet its monetary policy goals is: A. Changing the discount rate B. Changing reserve requirements C. Devaluing the currency D. Changing bank regulations E. Open market operations
E.
An increase in Treasury securities held by the Fed leads to a decrease in the money supply.
FALSE
Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.
FALSE
Countries with independent central banks are subject to political pressure to conduct monetary policies with short-term expectations.
FALSE
The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.
FALSE
The majority of money market securities are low-denomination, low-risk investments designed to appeal to individual investors with excess cash.
FALSE
Which of the following is the major monetary policy-making body of the U.S. Federal Reserve System?
FOMC
Federal Reserve interest rate decisions can be vetoed by the U.S president or the Congress.
False
T/F: Quantitative Easing program initiated by the Federal Reserve during the 2010-2014 period, involved the purchase of long-term corporate bonds.
False
The discount yield on a T-bill differs from the T-bill's bond equivalent yield (BEY) because I. the discount yield is the return per dollar of face value and the BEY is a return per dollar originally invested. II. a 360-day year is used on the discount yield and the BEY uses 365 days. III. the discount yield is calculated without compounding, and the BEY is calculated with compounding.
I and II only
If the Fed wishes to stimulate the economy, it could I. buy U.S. government securities. II. raise the discount rate. III. lower reserve requirements.
I and III only
Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows
I, III, and IV
The Federal Reserve does all but which one of the following?
Insures deposits
Commercial paper, Treasury bills, and banker's acceptance rates are all quoted as discount yields.
TRUE
If the FOMC wished to generate faster economic growth, they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities.
TRUE
T/F: About 34 percent of all U.S banks are members of the Federal Reserve System.
True
T/F: Nationally chartered banks are required to become members of the Federal Reserve System.
True
T/F: One of the objectives of the FOMC is to formulate policies to promote 100 percent employment
True
T/F: The monetary base is the amount of coin and currency in circulation plus reserves.
True
T/F: The seven members 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
T/F:Federal Reserve Board members are appointed by the U.S president and confirmed by the Senate for a nonrenewable 14-year term.
True
Before 2003 the discount window loan rate was set A. below the target Fed funds rate. B. above the target Fed funds rate. C. equal to the target Fed funds rate. D. equal to the repurchase rate.
a
Currently the Fed sets monetary policy by targeting A. the Fed funds rate. B. the prime rate. C. the level of non-borrowed reserves. D. the level of borrowed reserves. E. the stock market.
a
If the Fed wishes to stimulate the economy, it could I. buy U.S. government securities. II. raise the discount rate. III. lower reserve requirements. A. I and III only B. II and III only C. I and II only D. II only E. I, II, and III
a
The _____________ is a network linking over 9,000 banks with the Federal Reserve that is used to transfer deposits and make loan payments between participants. A. Fedwire B. ACH C. CHIPS D. NASDAQ E. SWIFT
a
The major asset of the Federal Reserve is A. U.S. Treasury securities. B. depository institution reserves. C. currency outside banks. D. vault cash of commercial banks. E. gold and foreign exchange.
a
Which of the following is the major monetary policy making body of the U.S. Federal Reserve System? A. FOMC B. OCC C. FRB bank presidents D. U.S. Congress E. Group of Eight
a
From October 1983 to July 1993, the Federal Reserve targeted A. the Fed funds rate. B. borrowed reserves. C. nonborrowed reserves. D. M1. E. M3.
b
Bank A has an increase in deposits of $20 million dollars and all bank reserve requirements are 10 percent. Bank A loans out the full amount of the deposit increase that is allowed. This amount winds up deposited in Bank B. Bank B lends out the full amount possible as well and this amount winds up deposited in Bank C. What is the total increase in deposits resulting from these three banks? A. $48.00 million B. $54.20 million C. $56.33 million D. $57.10 million E. $60.00 million
b
Ceteris paribus, if the Fed was targeting the quantity of money supplied and money demand dropped, the Fed would likely ______________. If the Fed was instead targeting interest rates and money demand dropped, the Fed would likely _______________. A. increase the money supply; do nothing B. do nothing; decrease the money supply C. decrease the money supply; do nothing D. do nothing; increase the money supply E. increase the money supply; decrease the money supply
b
In the area of bank supervision, which of the following are functions of the Federal Reserve Banks? I. Examinations of state member banks II. Approval of member bank and bank holding company acquisitions III. Deposit insurance A. I only B. I and II only C. II and III only D. I and III only E. I, II, and III
b
The _______________ is a nationwide network jointly operated by the Fed and private institutions that electronically process credit and debit transfers of funds. A. Fedwire B. ACH C. CHIPS D. NASDAQ E. SWIFT
b
The major liability of the Federal Reserve is A. U.S. Treasury securities. B. depository institution reserves. C. currency outside banks. D. vault cash of commercial banks. E. gold and foreign exchange.
b
The Fed funds rate is the rate that
banks charge each other on loans of excess reserves.
If the Fed is targeting interest rates and money demand increases, an appropriate policy response would be to A. increase reserve requirements. B. increase the discount rate. C. buy U.S. Treasury securities from government bond dealers. D. increase government spending. E. none of the options
c
The Fed changes reserve requirements from 10 percent to 14 percent, thereby eliminating $750 million in excess reserves. The total change in deposits (with no drains) would be (rounded) A. $7.917 billion. B. $6.630 billion. C. $5.357 billion. D. $4.934 billion. E. none of the options.
c
The Fed changes reserve requirements from 10 percent to 7 percent, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be A. $3,000 million. B. $15,625 million. C. $12,857 million. D. $3,795 million. E. none of the options.
c
The Fed increases bank reserves in the system by $75 million. If there are no drains, the expected change in bank deposits is A. $82.5 million. B. $945 million. C. $750 million. D. $1,500 million. E. $655 million.
c
A decrease in reserve requirements could lead to an A. increase in bank lending. B. increase in the money supply. C. increase in the discount rate. D. increase in bank lending and an increase in the money supply. E. increase in bank lending and an increase in the discount rate.
d
Recently, oil prices have risen in the United States, generating concerns that inflation may increase. If the Fed wishes to ensure that inflation does not get out of hand, the Fed could A. intervene in the currency markets to push the value of the dollar down. B. decrease the discount rate. C. lower the target Fed funds rate. D. lower the target money supply growth rate. E. reduce reserve requirements at banks.
d
The Check 21 Act, effective in October 2004, does which of the following? A. Allows bank customers to better take advantage of bank float B. Requires banks to immediately clear all customer deposits C. Prohibits the Fed from being involved in check clearing to prevent unfair competition with private check clearing agencies D. Authorizes the use of an electronic image to facilitate paperless check clearing E. Eliminates all fees on checking
d
The Fed funds rate is the rate that A. banks charge for loans to corporate customers. B. banks charge to lend foreign exchange to customers. C. the Federal Reserve charges on emergency loans to commercial banks. D. banks charge each other on loans of excess reserves. E. banks charge securities dealers to finance their inventory.
d
The Fed offers three types of discount window loans. ______________ credit is offered to small institutions with demonstrable patterns of financing needs, _____________ credit is offered for short-term temporary funds outflows, and _____________ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems. A. Seasonal; extended; adjustment B. Extended; adjustment; seasonal C. Adjustment; extended; seasonal D. Seasonal; primary; secondary E. Adjustment; seasonal; extended
d
Ceteris paribus, if the Fed was targeting the quantity of money supplied and money demand dropped, the Fed would likely ______________. If the Fed was instead targeting interest rates and money demand dropped, the Fed would likely _______________.
do nothing; decrease the money supply
A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are _____________ and its excess reserves are _____________. A. $85 million; $0 B. $770 million; $85 million C. $89 million; $21 million D. $685 million; $8.5 million E. $77 million; $8 million
e
The Federal Reserve System is charged with A. regulating securities exchanges. B. conducting monetary policy. C. providing payment and other services to a variety of institutions. D. setting bank prime rates. E. conducting monetary policy and providing payment and other services to a variety of institutions.
e
The Federal Reserve does all but which one of the following? A. Conducts monetary policy B. Supervises and regulates bank activities C. Serves as the commercial bank for the U.S. Treasury D. Operates check clearing and wire transfer facilities E. Insures deposits
e
The discount rate is the rate that A. banks charge for loans to corporate customers. B. banks charge to lend foreign exchange to customers. C. banks charge each other on loans of excess reserves. D. banks charge securities dealers to finance their inventory. E. the Federal Reserve charges on loans to commercial banks.
e
The major monetary policy-making arm of the Federal Reserve is the A. Board of Governors. B. Council of Federal Reserve Bank presidents. C. Office of the Comptroller of the Currency. D. Federal Reserve Bank of New York. E. none of the options
e
The primary policy tool used by the Fed to meet its monetary policy goals is A. changing the discount rate. B. changing reserve requirements. C. devaluing the currency. D. changing bank regulations. E. open market operations.
e
A decrease in reserve requirements could lead to an
increase in bank lending and an increase in the money supply.
The discount rate is the rate that
the Federal Reserve charges on loans to commercial banks.
About 34 percent of all U.S. banks are members of the Federal Reserve System
true
Federal Reserve Board members are appointed by the U.S. president and confirmed by the Senate for a nonrenewable 14-year term.
true
Four seats on the Federal Open Market Committee (FOMC) are allocated to Federal Reserve Bank presidents on an annual rotating basis.
true
If the FOMC wished to generate faster economic growth, they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities.
true
Nationally chartered banks are required to become members of the Federal Reserve System.
true
The monetary base is the amount of coin and currency in circulation plus reserves.
true
The seven members 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
