Financial Systems FIN 3113 Test#2 Learn Smart/HW Mississippi State University Whitledge

The twelve members of the Federal Open Market Committee (FOMC) consist of which of the following?

-The president of the New York Fed -Four of the presidents of the twelve Fed districts -The seven members of the Board of Governors

The supervisory and regulatory activities of each Federal Reserve Bank in its district includes the authority to do what?

-approve expanded activities -performs examinations and inspections -issue warnings

Three tools that the federal reserve bank can use to implement monetary policy are:

-executing open market operations -adjusting the discount rate -adjusting bank reserve requirements

What are the 3 primary sources The Federal Reserve Banks generate their income from?

-fees from provision of services to banks -interest earned on gov' securities held -interest earned on bank reserves

When the Federal Reserve wants to slow down the economy, it can

-increase reserve requirements -use open market operations to sell Treasury bills -raise the discount rate

What are the responsibilities of the Federal Reserve Banks?

-issue U.S. Treasury securities -issue and redeem U.S. savings bonds -deliver government securities to investors

The supervisory and regulatory activities of each federal reserve bank in its district includes the authority to do what?

-issue warnings -perform examinations and inspections -approve expanded activities

When the Federal Reserve want to stimulate the economy, it can

-lower the discount rate -lower reserve requirements -use open market operations to buy Treasury bills

The main responsibilities of the FOMC are to formulate policies to

-promote price stability -promote full employment -promote economic growth -maintain a sustainable pattern of international trade

The 4 major functions of the federal reserve banks are to

-supervise and regulate depository institutions -provide payment and other financial services -conduct monetary policy -manage the stability of the financial system

What are the two approaches available to the Federal Reserve for implementing monetary policy?

-target the quantity of reserves in the market based on the FOMC's objectives for growth in the monetary base -set a large for the federal funds rate and adjust the level of excess reserves to meet that target

What are the primary responsibilities of the Federal Reserve Boards

-the supervision and regulation of banks -the formulation and conduct of monetary policy

When was the Federal Reserve Banks founded by Congress?

1913

The President designates two board members to be the chairman and vice chairman for how many year terms?

4

What is the major monetary policy-making body of the U.S. Federal Reserve System?

FOMC

T/F A large portion of the mortgage payment goes towards the principal, during the early life of a mortgage loan.

False

Rank the following types of mortgages by amount outstanding from largest to smallest. I. Home mortgages II. Multifamily mortgages III. Farm mortgages IV. Commercial mortgages

Home Commercial Multifamily Farm

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

I & II

Depository institutions currently hold large balances of excess reserves at the Fed. As a result, the Fed intends to move the federal funds rate primarily by setting the _____ to the top of the desired target range for the federal funds rate

IOER

On Oct. 1, 2008 the Fed was authorized to start payment of interest on required and excess reserves. The interest paid on required reserves is called the _____ and the interest paid on excess reserves is called _____

IORR; IOER

The most important of the Federal Reserve Banks is generally considered to be

New York

independent central bank

The Federal Reserve System

T/F During the 2010-2014 period, the Federal Reserve purchased long-term treasury securities as part of the Quantitative Easing program.

True

T/F Four seats on the FOMC are allocated to Federal Reserve Bank presidents on an annual rotating basis.

True

T/F 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

The major asset of the Federal Reserve is

U.S. Treasury securities

The _____ creates federal laws intended to protect consumers in financial transactions, and the _____ implement and enforce those laws

US Congress; Federal Reserve Banks

The Federal Reserve Trading desk at the NY Fed implements the FOMC policy directive by buying or selling _____ on the over the counter market

US Treasury securities

The largest asset on the balance sheet of the Federal Reserve Bank is

US Treasury securities

When The Federal Reserve implements monetary policy by targeting interest rates, movement of the demand curve. for money requires that The Federal Reserve respond by _____ to keep interest rates at their target value

adjusting the money supply

The Fed funds rate is the rate that

banks charge each other on loans of excess reserves

What are the intended consequences from charging an interest on excess reserves by Central banks?

banks lend more money

One of the problems with using the discount rate as a monetary policy tool is that it is difficult to predict _____ when the discount rate changes.

changes in discount window borrowing

The _____ allowed banks to destroy checks after taking a digital image which can be processed electronically

check 21 Act

The Federal Reserve serves as the _____ for the US Treasury, holding the deposit accounts and collateral for gov't agencies

commercial bank

Federal Reserve Banks are responsible for the collection and replacement of _____ from circulation

currency

Lowering domestic interest rates can cause the dollar's foreign exchange rate to _____, resulting in a(n) _____ in U.S. exports

decrease; increase

When the Federal Reserve sells U.S. Treasury securities from over the counter market, it _____ the supply of excess reserves and places _____ pressure on the federal funds rate

decreases; upward

The single largest liability on the Federal Reserve Bank's balance sheet

depository institution reserves

On the Fed balance sheet, reserves consist of what?

depository institution reserves and vault cash

Each of the 12 Federal Reserve banks sets and changes the _____ that they charge on loans to financial institutions in their district

discount rate

the rate at which financial institutions can borrow funds directly from the Fed

discount rate

Mortgage payments are ____________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage, and ____________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus

higher; less interest

When the federal reserve wants to decrease the supply of bank deposits in the system and hence the money supply, they _____ the level of required reserves

increase

A ___________ placed against mortgaged property ensures that the property cannot be sold (except by the lender) until the mortgage is paid off.

lien

When the Fed _____ the discount rate, they are sending a signal to the market that they would like to see _____ interest rates and _____ borrowing.

lowers; lowers; more OR raises; higher; less

The Federal Reserve Bank carries a large balance of securities issued or guaranteed by US gov't agencies, such as _____ backed by Fannie Mae, Freddie Mac, and Ginnie Mae

mortgage-backed securities

The repeated issuing of new loans and creation of new deposits triggered by a change in the reserve requirement results in bank deposits that is many times different than the original change in reserves

multiplier effect

Banks chartered by the office of the comptroller of the currency _____ become members of The Federal Reserve, while state-chartered banks _____ become members if they qualify

must; may

The purchase and sale of US government securities by the trading desk at the NY Fed under the direction of the FOMC

open market operations

Depository institutions since 2008 have been motivated to hold large balances of excess reserves at the Fed rather than lend them to other banks. This is because in 2008 the Fed began to

pay interest on excess reserves

What does the "money base" consist of?

reserves and currency in circulation

When The Federal Reserve implements monetary policy by targeting the money supply (currency and bank reserves), it fixes the _____ while letting the _____ fluctuate

supply curve; demand curve

Federal Reserve Banks operate under the general supervision of what

the board of governors of The Federal Reserve

Who is the chair of the Federal Open Market Committee

the chair of the Board of Governors

Currently the Fed sets monetary policy by targeting

the fed funds rate

T/F On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding

true

By increasing banks use of the discount window as a source of funding, the Federal Reserve hopes to reduce _____ in the _____

volatility; federal funds market