Econ Exam 3
How can an investment bank be subject to a run? A. It can be subject to a run when counterparties want to cash out their investments. B. It can be subject to a run if investors renew their repurchase agreements. C. It can be subject to a run when the Federal Reserve provides additional protection to commercial banks. Your answer is not correct. D. It can be subject to a run when large sums are invested in bonds.
A
In describing the work of hedge funds, financial journalist Sebastian Mallaby has observed: [Research] showed that the unglamorous "value" stocks were underpriced relative to overhyped "growth" stocks. This meant that capital was being provided too expensively to solid, workhorse firms and too cheaply to their flashier rivals. . . . It was the function of hedge funds to correct inefficiencies like this. Explain what the first two sentences in this excerpt mean: What is the connection between the relative prices of these two types of firms and their cost of raising capital? A. Growth stocks had a higher price-to-earnings ratio than value stocks. The cost of raising new capital falls with an increase in the stock price. B. Growth stocks had a higher book value than market value. Increasing of book value, rather than market make less difficult to attract new capital. C. Growth stocks had a h
A
In what sense is an investment bank that engages in underwriting acting as a financial intermediary? A. Underwriting is financial intermediation because the bank brings together savers and the issuers of securities. B. The statement is not correct and an investment bank that engages in underwriting does not act as a financial intermediary. C. Underwriting is financial intermediation because the bank gains profit from the procedure. D. Underwriting is financial intermediation because the bank creates the financial instruments.
A
What are the key problems that investment banks can encounter in borrowing short and investing long that commercial banks don't? A. Investment banks face counterparty risk since there are no federal guarantees like commercial banks have on deposits, and the repo market can be volatile. B. Investment banks earn lower profits than commercial banks, since they are not able to take advantage of leverage when investing, and they face higher costs due to regulations. C. Investment banks have stricter regulations on borrowing since they are required to have greater levels of FDIC insurance than commercial banks. D. The interest rate on borrowing for investment banks is higher than the return on long-term investments, which requires them to take on more risk than commercial banks.
A
What is a "run" on a financial firm? A. A run on a financial firm is an attempt by investors to get their money out before the firm fails. B. A run on a financial firm is the freezing of all current investing activities by investors. C. A run on a financial firm is a rush to invest money before everyone else does. D. A run on a financial firm is not possible thanks to a government safety net.
A
What is the argument in favor of believing that repealing the Glass-Steagall Act did not play a role in the financial crisis? A. Large banks that combine commercial and investment banking activity were not at the center of the financial crisis. B. The financial crisis was primarily caused by a change in economic conditions in the United States. C. The financial crisis could not have been avoided, regardless of whether Glass-Steagal was in place or not. D. The financial crisis was caused by the level of transactions possible by electronic exchanges.
A
What is the difference between a defined contribution pension plan and a defined benefit plan? A. In a defined contribution pension plan, the firm invests contributions for the employees, who own the value of the funds in the plan. In a defined benefit plan, the firm promises employees a particular dollar benefit payment based on each employee's earnings and years of service. B. In a defined benefit pension plan, the firm invests contributions for the employees, who own the value of the funds in the plan. In a defined contribution plan, the firm promises employees a particular dollar benefit payment based on each employee's earnings and years of service. C. A defined benefit plan is more profitable for employees than a defined contribution pension plan. D. There are no differences between a defined contribution pension plan and a defined benefit plan.
A
What "government guarantees" did commercial banks receive 75 years ago? A. This would refer to the FDIC. B. This would refer to the SEC. C. This would refer to TARP. D. This would refer to the CFTC.
A
Which one of the following factors can cause the value of mutual fund shares owned by households to increase? A. An increase in household net worth. B. A decrease in home equity. C. Higher levels of credit card debt. D. An increased need for cash by households.
A
Why is the money market mutual fund industry so important? A. The money market mutual fund industry is important because many firms rely on the access to commercial paper to meet payroll and other operating costs, and the elimination of this market would hurt access to this source of funding and have severe adverse consequences for the real economy. B. The money market mutual fund industry is important because long-term debt is held by these institutions. C. The money market mutual fund industry is important because there is a high likelihood that the failure of the money market mutual fund industry would lead depositors to withdraw their money from commercial banks. D. The money market mutual fund industry is not large enough to cause a severe impact on the entire financial system.
A
Why might too much leverage be a problem for an investment bank? A. Leverage magnifies profit, but it also magnifies loss. B. Too much leverage increases the book value against the market value of assets. C. Too much leverage cannot be a problem for an investment bank. D. Too much leverage decreases the number of clients.
A
Why was the Federal Reserve System split into 12 districts? A. The Federal Reserve System was split into 12 districts because there was opposition in Congress to establishing a single, unified central bank. B. The Federal Reserve System was split into districts based on state borders. C. The Federal Reserve System was split into 12 districts because communications among regions was so poor that having a single central bank was not feasible. D. The Federal Reserve System was split into 12 districts so that the 12 states with the largest populations would each have a district bank.
A
Money market mutual fund
A mutual fund that invests exclusively in short-term assets, such as Treasury bills, negotiable certificates of deposit, and commercial paper
What are the disadvantages of defined benefit pension plans for employees? (Check all that apply.) A. The worker has no control on how the money is invested and some plans do not adjust future payouts to keep pace with inflation. B. The return may be higher, and the worker often has some control over how the money is invested. C. A worker could lose some pension benefits if the plan is underfunded or if the employer goes out of business. D. A worker's retirement payout is determined by a formula so that the worker bears no direct risk. E. The implicit return to the plan may be fairly low if plan managers do not invest well.
A, C, E
"Tension between the [Federal Reserve] Board and the reserve banks began before the System opened for business. . . . [Paul] Warburg described the problem. Dominance by the Board would allow political considerations to dominate decisions about interest rates. Dominance by the reserve banks "would . . . reduce the Board to a position of impotence." Paul Warburg was one of President Wilson's initial appointments when the Federal Reserve Board began operations in 1914." Why did Congress set up a system that had this tension between the Reserve Banks and the Federal Reserve Board? (Check all that apply.) A. This was all part of the organizational plan to prevent one faction of the banking system from having too much power. B. Tension was necessary to improve the competitiveness of the U.S. banking system. C. Tension was created in order to make the Fed more centralized. D. Tension was created to
A, D
As an employee of a large firm, you are given the choice between a defined benefit pension plan and a defined contribution pension plan. What are the advantages of defined benefit pension plans for employees? A. The return may be higher, and the worker often has some control over how the money is invested. B. A worker's retirement payout is determined by a formula so that the worker bears no direct risk. C. The implicit return to the plan may be fairly low if plan managers do not invest well. D. The worker's retirement payout depends on the performance of the invested monies, so it is riskier.
B
Do investment banks borrow short term and invest the funds long term? A. Yes, they borrow short term by issuing commercial paper and invest long term by buying repurchase agreements. B. Yes, they borrow short term by issuing commercial paper and invest long term by buying mortgage-backed securities. C. Yes, they borrow short term by buying repurchase agreements and invest long term by issuing commercial paper. D. No, they are not allowed by regulation to have a mismatch in maturity dates between their assets and liabilities.
B
Do vesting periods have any advantages to employees relative to a system where new hires are eligible to participate in a pension plan right away? A. In the long run, vesting periods have some advantages to employees relative to a system where new hires are eligible to participate in a pension plan right away. B. Vesting periods do not have any advantages to employees relative to a system where new hires are eligible to participate in a pension plan right away. C. Vesting periods increase the amount of future payments relative to a system where new hires are eligible to participate in a pension plan right away. D. There is not enough information given to answer the question.
B
If becoming a public corporation increases the risk in investment banking, how do publicly traded investment banks succeed in selling stock to investors? A. Publicly traded investment banks succeed in selling stock to investors regardless to the high risk because of backing by the Federal Reserve. B. Investors desire investment banks' stocks because of the potentially high profits of these banks due to their access to high leverage. C. Investors love to take high risks, hence they are willing to take the high risk of investing in highly-leveraged investment banks. D. Publicly traded investment banks have difficulty selling their stocks to investors.
B
If money market mutual funds have problems, can't savers just deposit their money in banks? A. No, they cannot because if money market mutual funds have problems, legal restrictions limit the depositing of money in banks. B. Yes, they can, but doing so will severely impact the financial system because the funds make up a large fraction of the market for commercial paper and because many firms have become heavily dependent on sales of commercial paper to finance their operations. C. Yes, they can, but the transaction costs will result in huge losses, thus making this a poor decision. D. No, they cannot because banks also invest in money market mutual fund shares and therefore have the same problems as the whole money market mutual fund industry.
B
What benefits do employees receive from saving for retirement using 401(k) plans? A. Employees are not taxed on their contributions to 401(k) plans. This lowers employees' tax rates and increases their disposable income. B. Employees are not taxed on their contributions to 401(k) plans, or the earnings on those investments, until they are withdrawn during retirement. C. Employees receive a higher interest rate on their contributions to 401(k) plans, thus increasing their retirement benefits. D. There are no benefits from saving for retirement using a 401(k) plan.
B
Which of the following is not an advantage automobile dealers might gain from using a finance company, rather than a bank, to finance their purchases of cars from the manufacturer and their customers' purchases of cars from the dealers? A. Finance companies can offer a greater variety of financing options than commercial banks. B. Finance companies are more reliable during recessions than commercial banks since they raise money from long-term savers and only loan to those with high credit scores. C. Finance companies are better at evaluating the value of collateral than are commercial banks. D. Finance companies allow dealers to offer loans to less creditworthy car buyers.
B
Which of the following reasons might explain why repealing the Glass-Steagall Act may have been a bad idea? A. The repeal of Glass-Steagall protected the investment banking industry from competition. B. The repeal of Glass-Steagall increased the risk to the financial system. C. The repeal of Glass-Steagall led to the break-up of big banks. D. The repeal of Glass-Steagall forced firms to pay more for underwriting and other investment banking services.
B
Why have runs on commercial banks become rare, while several shadow banking firms experienced runs during both 2008 and 2020? A. Commercial banks do not typically have bank runs because they deal primarily with other financial firms, institutional investors, or wealthy private investors. The shadow banking industry usually deals with private investors who are not able to look after their own interests. B. Commercial banks do not typically have bank runs because their deposits are insured by the FDIC. The shadow banking industry does not have an equivalent to the FDIC, so there were runs on some shadow banking firms in both 2008 and 2020. C. Policymakers and regulators did not believe that the failure of shadow banking firms would damage the financial system, so they allowed several shadow banking firms to experience runs in 2008 and 2020 while protecting commercial banks from the same incidents. D.
B
Why might relying too much on short-term borrowing be a problem? A. Relying too much on short-term borrowing reduces profitability of investment banks due to increased transaction costs. B. Too much short-term borrowing exposes the firm to high rollover risk in addition to high credit risk. C. Short-term borrowing could be a problem because of the high interest rates usually charged by such loans. D. Relying too much on short-term borrowing cannot be a problem.
B
Suppose Congress were to amend the Federal Reserve Act and set up a new commission to reexamine the Federal Reserve district boundaries. What considerations should the commission use in drawing the boundaries? (Check all that apply.) A. The commission should look to divide the number of banks, taking into consideration the total number of clients of each bank. B. The commission should look to divide the number of banks, taking into consideration the market capitalization of each bank. C. The commission would want to consider the total population of the different divided regions. D. The commission should look to divide the number of banks, taking into consideration the total deposits of each bank.
B, C, D
What are the changes to the Fed under the Dodd-Frank Act? (Check all that apply.) A. Requiring the Fed to be more transparent about its monetary policy targets. B. Designating a Fed vice chairman for regulatory supervision. C. Ordering the Government Accountability Office to audit the emergency lending programs the Fed carried out during the financial crisis. D. Making the Fed a member of the new Financial Stability Oversight Council. E. Requiring class A directors of the Federal Reserve banks to participate in the election of bank presidents.
B, C, D
Do commercial banks borrow short term and invest the funds long term? A. Yes, commercial banks borrow by buying short-term securities and invest by making long-term loans. B. Yes, commercial banks borrow by buying short-term securities and invest by selling CDs to consumers. C. Yes, commercial banks borrow by taking in short-term deposits and invest by making long-term loans. D. No, they are not allowed by regulation to have a mismatch in maturity dates between their assets and liabilities.
C
In describing the work of hedge funds, financial journalist Sebastian Mallaby has observed: [Research] showed that the unglamorous "value" stocks were underpriced relative to overhyped "growth" stocks. This meant that capital was being provided too expensively to solid, workhorse firms and too cheaply to their flashier rivals. . . . It was the function of hedge funds to correct inefficiencies like this. How can hedge funds correct this inefficiency? A. Hedge funds correct this inefficiency by buying value stocks and putting upward pressure on their price. B. Hedge funds correct this inefficiency by selling growth stocks and putting downward pressure on their price. C. A and B are correct. D. Neither A, nor B are correct.
C
Is an investment bank that buys securities with its own capital acting as a financial intermediary? A. By buying securities with its own capital the bank expects to get profit from the yield or the changes in price. B. An investment bank that buys securities with its own capital is not acting as a financial intermediary. C. A and B are correct. D. Neither A, nor B is correct.
C
Suppose that insurance companies in Ohio are reluctant to offer fire insurance to firms in low-income neighborhoods because of the prevalence of arson fires in those neighborhoods. Suppose that the Ohio state legislature passes a law stating that insurance companies must offer fire insurance to every business in the state and may not take into account the prevalence of arson fires when setting insurance premiums. What will be the likely effect on the market for fire insurance in Ohio? A. Insurance companies are likely to respond to the law by raising premiums. B. This may exacerbate adverse selection problems enough that some companies might withdraw from offering fire insurance policies in that state. C. A and B are correct. D. Neither A, nor B is correct.
C
What are the disadvantages of defined contribution pension plan for employees? A. A worker's retirement payout is limited to his/her contribution. B. A worker's retirement payout is determined by a formula so that the worker bears no direct risk. C. The worker's retirement payout depends on the performance of the invested monies, so it is riskier. D. The return may be higher, and the worker often has some control over how the money is invested.
C
What basket of services does a medical insurance policy guarantee? A. A basket of services reflecting "state of the art" practices and procedures, irrespective of cost. B. A basket of services deemed appropriate by government. C. A basket of "covered" services, i.e., specific practices and procedures as outlined by the insurance policy. D. A basket of services designated as sufficient by a medical authority board. E. None of the above.
C
What incentives would the partners in an investment bank have to turn it into a public corporation? A.Going public provides more access to capital and leverage. B. Going public eliminates the risk involved to the top executives, as it is not solely their money that is being risked. C. A and B are correct. D. Neither A, nor B is correct.
C
What is underwriting? A. Underwriting is the first time a firm sells stock to the general public. B. Underwriting is the creation of sophisticated financial instruments. C. Underwriting is an activity in which an investment bank guarantees to the issuing corporation the price of a new security and then resells the security for a profit. D. Underwriting is the signing of contract for buying or selling debt.
C
Currency-to-deposit ratio
C/D -the ratio of currency held by the nonbank public, C, to checkable deposits, D
Auto finance companies are ________. A. commercial banks that raise money primarily through deposits and use the funds to make car loans available B. investment banks that raise money through long-term savers and use the funds to produce and sell cars C. retail funding banks that raise money primarily through deposits and use the funds to buy asset-backed securities D. nonbank financial intermediaries that raise money through sales of commercial paper and other securities and use the funds to make car loans available
D
Does it matter as much today as it did in 1914 where the district boundaries lie? A. It does not matter at all where the district boundaries lie. B. It matters as much today as it did in 1914 where the district boundaries lie. C. Today it does not matter where the district boundaries lie, because the US boundary has changed tremendously since 1914. D. Today it does not matter where the district boundaries lie, given the information technologies available to the financial system.
D
Has the tension been resolved in the modern Fed? A. The tension has been resolved by the Consumer Protection Act. B. The tension has been resolved by the FOMC. C. The tension has been resolved by the Dodd-Frank Act. D. The board has much more power today, but the tension remains.
D
How did these government guarantees halt commercial bank runs? A. The government prevented deposit withdrawals by using extra taxation policy. B. In case of bankruptcy, the government promised to cover all losses with T-bills. C. Under the FDIC, all commercial banks become nationalized. D. The FDIC eliminated the incentive of a bank run because a depositor's money was insured if the bank failed.
D
Small savers can usually receive a higher interest rate from money market mutual funds than from bank savings accounts. So, how are banks able to attract small savers? A. Commercial banks attract small savers by offering additional services, such as consulting and advising. B. The lower degree of regulation allows commercial banks to provide loans tailored to match the needs of borrowers more closely than do the loans that money market mutual funds can provide. C. Commercial banks are not able to compete with money market mutual funds in attracting small savers. D. Although the assets held by money market mutual funds tend to be short term, and therefore relatively secure, deposits are not insured. People put money in lower yielding bank accounts because they want the security that an insured deposit offers.
D
Suppose Congress were to amend the Federal Reserve Act and set up a new commission to reexamine the Federal Reserve district boundaries. Would the boundaries be likely to be much different than the original boundaries? A. The boundaries would be the same because both political and economic variables haven't change significantly since 1913. B. The boundaries would be the same because recent research showed that economic variables could correctly predict the cities chosen, and economic factors haven't changed since 1913. C. The boundaries would be different because recent research showed that political variables could correctly predict the cities chosen, and certainly political factors have changed since 1913. D. The boundaries would be different, since, for example, California, Texas, and Florida are much larger in population than they were in 1913.
D
What are the advantages of defined contribution pension plans for employees? A. The implicit return to the plan may be fairly low if plan managers do not invest well. B. A worker's retirement payout is determined by a formula so that the worker bears no direct risk. C. The worker's retirement payout depends on the performance of the invested monies, so it is riskier. D. The return may be higher, and the worker often has some control over how the money is invested.
D
Who is "providing" capital to these firms? (workhouse firms and flashier rivals) A. US Treasury. B. The Federal Reserve. C. Commercial banks. D. Buyers of stocks.
D
Why do pension funds have vesting periods? A. Pension funds have vesting periods in order to increase turnover among employees who are not yet vested. B. Pension funds have vesting periods in order to increase the amount of future payments. C. Pension funds have vesting periods in order to reduce transaction costs. D. Pension funds have vesting periods in order to reduce turnover among employees who are not yet vested.
D
Why might the fact that medical services are always improving and getting more expensive create difficulties for companies offering medical insurance policies? A. Cost uncertainties make difficult the determination of appropriate policy premiums. B. Policies must be kept affordable while meeting consumer expectations of the highest standard of care. C. Government imposed price controls on policy premiums force companies offering medical insurance to take losses or scale back covered services. D. All of the above. E. A and B only.
E
A passively managed fund that raises money by selling shares to individual savers and invests the funds in a portfolio of financial assets. Its price fluctuates throughout the day based on the underlying assets' prices.
ETF (exchange-traded funds)
A financial firm that collects money from individual savers. It is organized as a partnership of wealthy investors who make relatively high-risk, speculative investments.
Hedge fund
An actively managed fund that raises money by selling shares to individual savers and invests the funds in a portfolio of financial assets. Its price remains constant throughout any given day.
Mutual fund
Dodd-Frank Act
Wall Street Reform and Consumer Protection Act -legislation passed during 2010 that was intended to reform regulation of the financial system -main provisions of the bill that affect the Fed: --The Fed was made a member of the new Financial Stability Oversight Council, which was charged with preventing the failure of large financial firms --One member of the Board of Governors will coordinate the Fed's regulatory actions --The Government Accountability Office (GAO) was ordered to perform an audit of the Fed's emergency lending programs --Class A directors will no longer participate in elections of the bank presidents --The Fed was ordered to disclose the names of financial institutions to which it makes loans and with which it buys and sells securities --A new Consumer Financial Protection Bureau was established at the Fed to write rules concerning consumer protection with financial firms
Quantitative easing
a central bank policy whose goal is to stimulate the economy by buying long-term securities
Federal Reserve Bank
a district bank of the Federal Reserve system that, among other activities, conducts discount lending
Financial intermediary
a financial firm, such as a bank, that borrows funds from savers and lends them to borrowers -mutual funds, finance company, contractual saving institution, pension fund, insurance company
Mutual fund
a financial intermediary that raises funds by selling shares to individual savers and invests the funds in a portfolio of stocks, bonds, mortgages, and money market securities
Discount loan
a loan made by the Fed to a commercial bank
Hedge fund
a partnership of wealthy investors that make relatively high-risk, speculative investments -largely unregulated and free to make risky investments
What is a "standing repo facility"? A standing repo facility _______________ when firms cannot obtain short-term loans from other firms. This makes the problems associated with the mismatch of maturities for investment banks _________, since it would _________________.
allows the Fed to engage in repos better provide more stability for short-term borrowing
Underwriting
an activity in which an investment bank guarantees to the issuing corporation the price of a new security and then resells the security for a profit, or spread
Bank reserves
bank deposits with the Fed plus vault cash
Multiple deposit creation is caused by an increase in __________ and causes an increase in _________
bank reserves the money supply
Vault cash
currency held by banks
Currency in M1
currency held by the nonbank public
If banks repay $1 million in discount loans to the Fed, discount loans __________ bank reserves by $1 million
decrease
A decrease in banks' demand for reserves (demand curve shift left) causes the Fed to offset this by an open market sale (shifting supply left), causing the level of reserves to __________ and the equilibrium funds rate to _________
decrease be unchanged
An increase in open market sales ______ the money supply
decreases
If the supply of reserves increases, the discount rate and the equilibrium federal funds rate __________
decreases
Financial intermediaries increase ______ and lower _________
efficiency costs of doing business
Excess reserves provide _________
extra liquidity and safety for the banking system
Investment bank
financial activities that involve underwriting new security issues and providing advice and financial services to clients, particularly with respect to mergers and acquisitions -these bankers are involved in the following activities: providing advice on issuing new securities, underwriting new securities, providing advice and financing for mergers and acquisitions, financial engineering, including risk management, research, and proprietary trading and market making
Monetary base
high-powered money -sum of bank reserves and currency in circulation
Increase in currency-to-deposit ratio causes the money multiplier and the money supply to _______
increase
A one-dollar increase in the monetary base causes the money supply to _________
increase by more than 1 dollar
$1 million of discount loans ________ bank reserves and the monetary base by $1 million
increases
An increase in open market purchases __________ the money supply, bank reserves, and the monetary base
increases
Increasing vault cash __________ reserves
increases
Demand for commercial paper goes up... Interest rate ____________
interest rate goes down
Money market mutual funds yields raise as the Fed raises ________
interest rates
Raising the discount rate ________ the supply of available money, which ________ the short-term interest rates
lowers increases
In early 2020, 72 months was the most popular loan term, with many borrowers taking out 84-month loans. What are the implications of long loan terms for the likelihood that a borrower will default on a loan? Why would auto finance companies have been willing to make such long loans? Why would people be willing to borrow for such a long term? The longer the car loan, the _____ likely the borrower will default, since longer loans result in ___________________ final payout for the car. Finance companies are willing to make such long loans because _________________. People who are willing to borrow for such long terms are likely to have _________________ and value the low monthly payments that come with the longer term.
more more interest payments on the loan and a higher they are able to sell more cars low incomes and poor credit
Currency in circulation
paper money circulating outside the Fed
Multiple deposit creation
part of the money supply process in which an increase in bank reserves results in rounds of bank loans and creation of checkable deposits
Excess reserves
reserves that banks hold above those necessary to meet reserve requirements
Required reserves
reserves that the Fed requires banks to hold against demand deposit and now account balances -as of 2020, banks are no longer required to hold reserves; all bank reserves are excess reserves
What is the difference between retail and wholesale funding? Using deposits to finance investments is called ________ funding. Another source of funds is short-term borrowing primarily from other financial firms. This type of financing is called __________ funding. __________ banks rely on wholesale funding of their investments as opposed to the retail funding that ________ banks rely on.
retail wholesale Investment Commercial
Based on economic theory we'd expect to see the value of mutual fund shares owned by households to exhibit the following behavior: In general, you'd expect to see values _________ before a recession, then _______ during the recession, and finally start to ______ again.
rise decline rise
Commercial paper
short-term unsecured debt issued by large corporations -commonly issued by companies to finance their payrolls, payables, inventories, and other short-term liabilities -maturities on commercial paper range from 1-270 days, with an average of around 30 days
Federal Open Market Committee
the 12-member Federal Reserve committee that directs open market operations
Open market purchase
the Fed's purchase of securities
Open market operations
the Fed's purchases and sales of securities, usually U.S. Treasury securities, in financial markets
Open market sale
the Fed's sale of securities
Board of Governors
the governing board of the Federal Reserve System, consisting of seven members appointed by the president of the United States
Federal funds rate
the interest rate that banks charge each other on very short-term loans -determined by the demand and supply for reserves in the federal funds market
Discount rate
the interest rate the Fed charges on discount loans -differs from most interest rates because it is set by the Fed, whereas most interest rates are determined by demand and supply in financial markets
Mutual funds decrease when the market ____ or the securities held by the fund ________
the market goes down go down
Discount window
the means by which the Fed makes discount loans to banks. This serves as the channel for meeting the liquidity needs of banks
Required reserve ratio
the percentage of checkable deposits that the Fed specifies that banks must hold as zero -required reserve ratio is 0
Discount policy
the policy tool of setting the discount rate and the terms of discount lending
Systemic risk
the risk to the entire financial system rather than to individual firms or investors
More money in circulation means
the value of money decreases
The Fed's open market purchases causes the supply of reserves to shift to the right, causing the level of reserves ___________ and the equilibrium federal funds rate ________
to increase is unchanged
