SIE Unit 13 Qbank

To arrive at M3, one would add to M2 which of the following? A) Gold and silver bars held on reserve at the FR B) Savings and checking accounts C) $100,000 and larger time deposits and repurchase agreements D) All currency in circulation, including coins

$100,000 and larger time deposits and repurchase agreements

The Federal Reserve sets which of these rates? A) Discount B) Prime C) Broker call D) Federal funds

Discount Only the discount rate is set by the Fed. The others are set by the banks.

Which of the following benchmark interest rates is considered a barometer of the direction of short-term interest rates? A) Federal funds rate B) Prime rate C) Broker call loan rate D) Discount rate

Federal funds rate The federal funds rate is the rate that commercial money center banks charge each other for overnight loans of $1 million or more. Overnight, representing the shortest of loans, makes this rate a good indicator of the direction short-term interest rates are taking.

The Federal Reserve's dual mandate includes which of these? Maintaining maximum employment Enforcement of price controls Control the value of the dollar versus other currencies Price stability

I and IV The dual mandate is to maintain maximum employment while keeping inflation in check (price stability). They do not enforce price controls. They may takes steps to manage the value of the dollar, but this is not a part of the dual mandate.

First Amalgamated Bank of Buffalo, a large commercial bank, is a member of the Federal Reserve System. Should the bank need to increase its reserves, it could do which of these? Borrow from the FRB and pay the discount rate. Borrow from the FRB and pay the federal funds rate. Borrow from another member bank and pay the discount rate. Borrow from another member bank and pay the federal funds rate.

I and IV When a bank needs to borrow money to increase its reserves, it can borrow from the Federal Reserve Bank or it can borrow from another member bank like itself. When borrowing from the FRB, the banks pay the discount rate. When borrowing from another member bank, the banks pay the federal funds rate.

Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans? A) Prime rate B) Federal funds rate C) Discount rate D) Broker call loan rate

Prime rate

A bank is likely to do which of the following when the Federal Reserve Board (FRB) tightens the money supply? A) Lower its broker call loan rate B) Raise its prime rate C) Lower its prime rate D) Raise the hypothecation loan rate

Raise its prime rate The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB tightens the money supply (makes less money available to lend), banks will need to charge more for loans and will raise their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply.

Of the standard Federal Reserve tools, which of these is considered the most powerful and used infrequently? A) FOMC activities B) Quantitative easing C) Discount rate D) Reserve rate

Reserve rate The reserve rate (i.e., the amount member banks keep on deposit at the Federal Reserve for liquidity) has the most dramatic impact when changed. It is rarely changed.

The monetarist theory proposes which of the following? A) The federal government can impact the economy by raising and lowering the federal funds rate. B) The federal government impacts the economy through repurchase and reverse repurchase agreements. C) The Federal Reserve has a major impact on the economy by raising and lowering taxes. D) The Federal Reserve may impact the economy by raising and lowering the discount rate.

The Federal Reserve may impact the economy by raising and lowering the discount rate. The Federal Reserve controls the discount rate and repurchase and reverse repurchase agreements. The federal government controls taxes and spending.

A customer of a Financial Industry Regulatory Authority (FINRA) member firm buys securities on margin. The customer is expected to pay a rate of interest on the margin loan based on which of the following? A) The broker call loan rate B) The prime rate C) The discount rate D) The federal funds rate

The broker call loan rate The broker call loan rate is the interest rate banks charge broker-dealers on money they borrow to lend to margin account customers. Margin accounts permit customers to purchase eligible securities without paying in full. Typically, an investor is required to deposit only 50% of the purchase price of eligible common stock with the balance being borrowed. The amount borrowed, as with any loan, is subject to interest payments.

Which of the following is the rate of interest charged by the Federal Reserve Bank (FRB) for short-term loans to its member banks? A) The discount rate B) The prime rate C) The federal funds rate D) The broker call loan rate

The discount rate

Which benchmark interest rate indicates the direction of the Federal Reserve Board's monetary policy? A) The federal funds rate B) The broker call loan rate C) The prime rate D) The discount rate

The discount rate The discount rate, being the rate the Federal Reserve Bank (FRB) charges for short-term loans to its member banks, is generally considered a good indication of the FRBs policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers.

Which benchmark interest rate indicates the direction of the Federal Reserve Board's monetary policy? A) The prime rate B) The broker call loan rate C) The federal funds rate D) The discount rate

The discount rate The discount rate, being the rate the Federal Reserve Bank (FRB) charges for short-term loans to its member banks, is generally considered a good indication of the FRBs policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers.

When engaging in open-market operations, taking actions to either expand or contract the money supply, the Federal Reserve Board (FRB) will buy or sell A) U.S government agency securities. B) Treasury securities. C) corporate bonds. D) corporate equity securities.

Treasury securities.

M1 is a measure of the value of A) cash, cash equivalents, and DDAs. B) M2 plus retail CDs and money markets. C) retail CDs and money markets. D) cash and funds held in DDAs.

cash and funds held in DDAs. M1 is the tightest of the money supply measures, including only actual cash in circulation and funds in demand deposit accounts (DDAs) (e.g., checking and savings accounts).

Under the dual mandate, the Federal Reserve is most concerned with achieving A) federal spending and debt. B) minimum unemployment and maximum money supply. C) maximum employment and controlling inflation. D) maximum employment and managing taxation.

maximum employment and controlling inflation. The dual mandate is designed to give this independent government agency two goals: maintain a healthy economy that supplies jobs enough for job seekers and keep prices from fluctuating aggressively. Some inflation is considered healthy. The Federal Reserve has inflation and unemployment targets.

The Federal Reserve Board (FRB) might impact the money supply by using all of the following except A) prime rate. B) reserve requirements for member banks. C) buying or selling securities in open market. D) discount rate.

prime rate The prime rate is set by money center banks, not the FRB. The remaining three answer choices are the tools available to the FRB to be used to impact the money supply.

To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board (FRB) can A) lower the discount rate. B) raise the federal funds rate. C) lower the federal funds rate. D) raise the discount rate.

raise the discount rate. Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the FRB can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another.

The rate at which banks lend to broker-dealers for the purpose of lending money for margin loans is typically A) slightly below (a percentage point or so) other short-term lending rates. B) notably below (several percentage points) other short-term lending rates. C) notably above (several percentage points) other short-term lending rates. D) slightly above (a percentage point or so) other short-term lending rates.

slightly above (a percentage point or so) other short-term lending rates. The broker call loan rate is the rate at which banks lend to broker-dealers for the purpose of lending money for margin loans. This rate is usually slightly above, by a percentage point or so, other short-term lending rates.

Federal Reserve member banks needing to borrow money can borrow from A) member firms at the discount rate. B) the Federal Reserve Bank at the discount rate. C) nonmember banks at the federal funds rate. D) the Federal Reserve Bank at the federal funds rate.

the Federal Reserve Bank at the discount rate.

A registered representative has a customer buying securities, but rather than paying in full, the customer wants to borrow some of the money needed for the purchase from the broker-dealer. It is explained to the customer that in order to borrow the money, there will be interest payable based on A) the federal funds rate. B) the prime rate. C) the discount rate. D) the broker call loan rate.

the broker call loan rate The broker call loan rate is the interest rate banks charge broker-dealers on money they borrow to relend to margin account customers.

The broker loan rate charged by banks is also known as A) the call loan rate. B) prime rate. C) federal funds rate. D) discount rate.

the call loan rate.

The rate that commercial money center banks charge each other for overnight loans is A) the broker call loan rate. B) the discount rate. C) the prime rate. D) the federal funds rate.

the federal funds rate The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more.

It is generally agreed upon that the most volatile interest rate in the U.S. economy is A) the prime rate. B) the federal funds rate. C) the call money rate. D) the discount rate.

the federal funds rate The federal funds rate is the rate the commercial-money-center banks charge each other for overnight loans of $1 million or more. It is considered a barometer of the direction of short-term interest rates, which fluctuate constantly. Therefore, the federal funds rate can be considered the most volatile rate in the economy.

Considered the most volatile of the benchmark interest rates in the economy would be A) the prime rate. B) the broker call loan rate. C) the discount rate. D) the federal funds rate.

the federal funds rate. The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.

The interest rate negotiated for an uncollateralized overnight loan between two money center banks is known as A) the discount rate. B) the federal funds rate. C) the prime rate. D) the repo rate.

the federal funds rate. The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.