Chapter 15 Quiz
A bank's only liabilities are $13 million in transactions deposits. The bank currently meets its reserve requirement, and it holds no excess reserves. The required reserve ratio is 0.080.08. Assuming that its only assets are legal reserves, loans, and securities, calculate the value of loans and securities held by the bank. The value of loans and securities held by the bank is $____ million.
$11.96 million Transaction deposit x required reserve ratio 13 x 0.08
M2
All of M1 + savings and money market + small denomination + non instatution
Which of the following statements is true when considering national banking structures around the world?
U.S. businesses only obtain approximately 30% of their funds from bank loans compared to 65% for European firms.
Money serves as a standard of value, which is another way of saying that money functions as
a unit of accounting.
Required reserves
are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits
During the late 1970s, prices quoted in terms of the Israeli currency, the shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation. Thus, the U.S. dollar functioned as money in Israel during this period
as a unit of accounting
A highly liquid asset
can be disposed of easily without loss of value.
The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is
financial intermediation.
The process in which financial institutions accept savings from businesses, households, and governments and lend the funds to other businesses, households, and governments is called
financial intermediation.
Which of the following is NOT a function of the Federal Reserve System?
implement fiscal policy
Bank examinations by the FDIC help reduce the ________ problem, by preventing bank managers from allocating funds already obtained from depositors to non-creditworthy loans
moral hazard
If you have auto insurance, you might be willing to drive more recklessly. This is an example of
moral hazard
Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The bank, as a financial intermediary, is facing a problem of
moral hazard.
The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears,
reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed.
An interest-earning account that can be withdrawn at any time without payment of a penalty is a
savings deposit
All of the following are functions of the Federal Reserve System EXCEPT
to provide national health insurance.
The reserve requirement is 10%. Suppose that the Fed sells $200,000 worth of U.S. government securities from a bond dealer, electronically debiting the dealer's deposit account at Reliable Bank. What is the maximum potential change in the money supply from this transaction, assuming that there are no leakages and that all rounds of deposit expansion have taken place?
The money supply can decrease by $2,000,000.
Which of the following statements is true when considering liquidity?
The most liquid assets typically earn no or little interest.
M1
currency, demand deposits, traveler's checks, and other checkable deposits
If the FOMC decides that the Fed should buy bonds it
instructs the New York Federal Reserve Bank's trading desk to buy them.
A currency will cease to function as money if
people think that they will not be able to use it to exchange for goods and services later.