4500 Final Exam
Government deficits can complicate monetary policy because government borrowing can lead to "crowding out," which leads to lower interest rates. "crowding out," which leads to higher interest rates. "crowding in," which leads to lower interest rates. "crowding in," which leads to higher interest rates.
"crowding out," which leads to higher interest rates.
Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of excess reserves for this economy? $1 billion $10 billion $75 billion $76 billion
$1 billion With a required reserve ratio of 10% and the level of deposits equal to $750 billion, the level of required reserves is 0.1 × $750 billion = $75 billion. With actual reserves of $76 billion, excess reserves are equal to $76 billion - $75 billion = $1 billion.
After finals, you have decided to take a trip to Cancun MX. At the airport you stop at the Travelex office to buy 15,000 Mexican pesos for spending money on the Trip. Travel ex is quoting MXN at 21.43 Ask/20.27 Bid. How much will it cost in USD to buy the 15,000 pesos? $700 $740 $3,214 $3040
$740
Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of required reserves for this economy? $50 billion $75 billion $76 billion $100 billion
$75 billion With a required reserve ratio of 10% and the level of deposits equal to $750 billion, the level of required reserves is 0.1 × $750 billion = $75 billion.
Upon returning home from your Cancun vacation you still have 2,000 MXN in your wallet. Again at the airport you stop by the TravelEx office to convert these back into dollars. Today Travelex is quoting the MXN at 21.50 Ask and 20.00 Bid. How many USD will you receive if you exchange your pesos back into dollars? $93.02 $430 $100 $400
$93.02
You have $100,000 to invest for the next year. The Euro is currently trading at 1.18USD/Euro. The 1 year forward rate on the Euro is 1.20 USD/Euro. A one year bank CD in USD is paying 2%. What would the one year Euro CD rate be if interest rate parity holds? 3.7% 1% .3% .1%
.3%
Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the currency ratio in this economy? 0.10 0.50 0.75 1.33
1.33 The currency ratio is the ratio of currency to deposits, or $1 trillion/$750 billion = 1.33.
Today, the typical amount of cash needed for a down payment for a conventional home mortgage is what percentage of the purchase price? 10% 15% 20% 25%
20%
A Big Mac is selling for $5 in the US. If the USD/GBP exchange rate is 1.33, how much should the Big Mac sell for in London if Purchasing Power Parity Holds? $3.76 3.76 GBP $6.65 6.65 GBP
3.76 GBP
If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of money? 2 5 16 80
5 The velocity of money is the number of times each unit of money would be used in a year; $20 trillion/$4 trillion = 5.
The Federal Reserve notices an increase in the public's desire to hold cash and fears that it may cause an increase in interest rates. To keep interest rates steady, the Federal Reserve would likely execute which of these plans? A repurchase agreement to provide a short-term reduction in the money supply A reverse repurchase agreement to provide a short-term reduction in the money supply A repurchase agreement to provide a short-term boost to the money supply A matched-sale purchase agreement to provide a short-term boost to the money supply
A repurchase agreement to provide a short-term boost to the money supply
Which of these statements accurately describes home ownership in the United States prior to World War II? A typical down payment on a house was 25% or more, and home ownership rates were a little less than 20%. A typical down payment on a house was about 35%, and home ownership rates were about 30%. A typical down payment on a house was 50% or more, and home ownership rates were a little less than 50%. A typical down payment on a house was 75%, and home ownership rates were about 40%.
A typical down payment on a house was 50% or more, and home ownership rates were a little less than 50%.
A loan with real estate used as collateral and where the terms of the contract allow the lender to change the interest rate is known as a(n) fixed-rate mortgage. ARM. LIBOR. balloon mortgage.
ARM.
The housing industry today is a significant part of the US economy. Between housing services and residential investment spending, the housing sector accounts for what percentage of the US GDP? About 6% About 9% About 10% to 13% About 15% to 18%
About 15% to 18%
Which of these statements best describes why the required reserve ratio is no longer relevant in most cases today? Sweep accounts eliminated the need for the required reserve ratio. Changes in the required reserve ratio can affect the size of the money multiplier. About 70% of banks already have reserves that exceed their level of required reserves. The required reserve ratio rarely had a positive effect in most situations
About 70% of banks already have reserves that exceed their level of required reserves.
Which of these statements is the most accurate description of a liquidity trap? Borrowers are willing to borrow, and expansionary policy is used to stimulate the economy as needed. Lenders are willing to lend, but high interest rates keep borrowing slightly lower than needed. Borrowers are unwilling to borrow, and lenders are unwilling to lend due to pessimism about the future. Lenders are willing to lend, but borrowers borrow too much due to increased optimism about the future.
Borrowers are unwilling to borrow, and lenders are unwilling to lend due to pessimism about the future.
Which of the following demonstrates an arbitrage opportunity? Buying and selling the same (or similar) goods until a profit is made Buying a currency with the belief that its value will appreciate in the near future Investing in an economy that is experiencing rapid economic growth Buying a good in one market and selling the exact same good in another market at a higher price
Buying a good in one market and selling the exact same good in another market at a higher price
In acting to help create a secondary mortgage market, how was the size problem initially solved—the problem that mortgages are usually too small to be of interest to institutional investors? By pooling mortgages together, Fannie Mae created a new financial instrument called a mortgage pass-through. By functioning as the loan servicer, Ginnie Mae collected the payments from various mortgages and created a nice, even, steady stream of payments to the institutional investors. By requiring loan originators to make sure only FHA, VA, or other government-qualified mortgages were included in mortgage pools, Freddie Mac attracted institutional investors. Ginnie Mae and Freddie Mac were created to service bundled loans for institutional investors.
By pooling mortgages together, Fannie Mae created a new financial instrument called a mortgage pass-through.
The first mortgage-backed asset was known as a mortgage pass-through. What are two similar pooled assets now called? Collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs) Collateralized mortgage obligations (CMOs) and pooled, unbacked mortgage obligations (PMOs) Mortgage pass-throughs (unbacked pooled mortgages) and collateralized mortgage obligations (CMOs) Collateralized debt obligations (CDOs) and pooled mortgage obligations (PMOs)
Collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs)
Which of these are among the primary responsibilities of the Federal Reserve? Conducting monetary policy and printing US currency Conducting monetary policy and acting as the fiscal agent of the US Treasury Repaying the federal government debt and setting market interest rates Repaying the federal government debt and enforcing financial market regulations
Conducting monetary policy and acting as the fiscal agent of the US Treasury
A German automobile maker wants to buy land in China to build a manufacturing facility. This will most likely require the automaker to do what? Exchange dollars for renminbi (Chinese currency) Exchange euros (German currency) for renminbi Exchange euros for dollars and exchange dollars for renminbi Become a foreign tourist to acquire renminbi
Exchange euros (German currency) for renminbi
The Federal Reserve is part of the US Treasury. True False
False
You work for a British company that is expanding its operations into continental Europe. In order to pay for the expenses of operations in Europe, your company will sell British pounds to purchase euros. Therefore, your company is a demander of pounds in the foreign exchange market. True False
False
You work for a firm that exports toys to retail customers around the world. In fact, 75 percent of your sales revenue comes from exports. Because you work for a firm that relies heavily on exports, you want to see your home country currency strengthen or appreciate and gain value in the foreign exchange markets. True False
False
In order to be able to create mortgage pools with conventional loans as Fannie Mae did with FHA and VA loans, in 1970 Congress created the Bankers Home Loan Mortgage Corporation (Bobbie Mac). Treasury National Mortgage Facility (Tina McFay). Government National Mortgage Association (Ginnie Mae). Federal Home Loan Mortgage Corporation (Freddie Mac).
Federal Home Loan Mortgage Corporation (Freddie Mac).
The federal agency created during the Great Depression to establish a secondary mortgage market by purchasing FHA-insured loans at par and accrued interest was the Federal Home Loan Bank (FHLB) System. Home Owners' Loan Corporation (HOLC). Federal Housing Administration (FHA). Federal National Mortgage Association (FNMA).
Federal National Mortgage Association (FNMA).
When a bank repays a loan at the discount window to the Federal Reserve, which of the following will happen? It will decrease bank reserves and decrease the monetary base. It will increase the monetary base by decreasing bank reserves. It will decrease bank reserves but have no effect on the monetary base. It will decrease bank reserves and immediately raise interest rates.
It will decrease bank reserves and decrease the monetary base.
When the Federal Reserve makes a loan at the discount window to a bank, which of the following will happen? It will increase bank reserves and immediately lower the interest rate. It will increase bank reserves and decrease the monetary base. It will increase bank reserves but have no effect on the monetary base. It will increase bank reserves and increase the monetary base.
It will increase bank reserves and increase the monetary base.
Which of these is the most often used and the most flexible monetary tool used by the Federal Reserve? Discount window lending Dynamic transactions Open market operations Quantitative easing
Open market operations
When a central bank wants to pursue an expansionary monetary policy, it can do which of these things? Raise interest rates Increase the required reserve ratio Pump excess reserves into the banking system Loan money to banks only if they promise to loan it to consumers
Pump excess reserves into the banking system
A rapid depreciation of a country's home currency can lead—and has led—to serious consequences, including which of the following as a most serious consequence? Imports will become more expensive. Imports will become more scarce. Cheap, imported goods will flood the home market. Rapidly increasing costs for basic needs will lead to social unrest.
Rapidly increasing costs for basic needs will lead to social unrest.
Which of these categories is the largest asset on the Federal Reserve's balance sheet—by far? Gold Repurchase agreements Gold, silver, and bitcoin Securities
Securities
The European Central Bank (ECB), the central bank of the Eurozone, has determined that the euro is overvalued relative to various other important currencies around the world. In order to help stabilize the euro, which of these actions might the ECB take? Sell euros in the foreign exchange market Buy euros in the foreign exchange market Sell most of the noneuro currencies it holds and keep the euros Sell the currencies it holds that compete most directly with the euro
Sell euros in the foreign exchange market
Which of these entities and/or groups can directly affect the monetary base? The Federal Reserve, commercial banks, and the cash-holding public The Federal Reserve and commercial banks Commercial banks, the Fed, and members of Congress Commercial banks and the cash-holding public
The Federal Reserve, commercial banks, and the cash-holding public
When there is a high degree of trust in a country's banking system, the amount of cash held out of banks relative to deposits in banks would tend to be what? The amount of cash held out of banks would be close to zero. The amount of cash held out of banks would be relatively low. The amount of cash held out of banks would likely be unaffected. The amount of cash held out of banks would be relatively high.
The amount of cash held out of banks would be relatively low.
Which of these statements is true of the board of governors of the Fed? The board of governors consists of six members; the term length is four years. The board of governors is elected once every eight years by the citizens of the United States. The board of governors is appointed by the chair and serves a four-year term. The board of governors consists of six members plus the chair; the term length for members is fourteen years.
The board of governors consists of six members plus the chair; the term length for members is fourteen years.
The position of chair of the Federal Reserve is filled in what way? The chair of the Fed is elected by a vote of the members of Congress. The chair of the Fed is appointed by the president of the United States and confirmed by the US Senate. The chair of the Fed is appointed by the president of the United States and confirmed by the House of Representatives and the Senate. The chair of the Fed is elected by a congressional committee of economic experts.
The chair of the Fed is appointed by the president of the United States and confirmed by the US Senate.
Which of these is currently true for the chair of the Federal Reserve? The chair position requires a background in banking or finance; the two-year term is nonrenewable. The chair position has no formal qualifications; the four-year term is renewable. The chair position is a term of just two years and is nonrenewable. The chair position requires a background in economics or finance; the four-year term is renewable.
The chair position has no formal qualifications; the four-year term is renewable.
The anchor currency in the Bretton Woods System was the US dollar. What did this mean? The dollar was convertible into any other currency at varying rates, but within a fixed range. The dollar was fully convertible into gold at a fixed price, while other currencies in the system had a stable exchange rate with the dollar. The dollar was fully convertible into gold at a fixed price, but other currencies in the system had variable exchange rates with the dollar. The dollar was convertible into gold but at varying rates, depending on the state of the US economy.
The dollar was fully convertible into gold at a fixed price, while other currencies in the system had a stable exchange rate with the dollar.
The sum of Federal Reserve notes in circulation, plus US coins, plus bank reserves is collectively referred to by which of these designations? M1 M2 The money base The monetary base
The monetary base
Christopher buys a US Treasury security from the Federal Reserve in the secondary market. He pays cash. What is the result of this transaction? The monetary base will increase, and the Federal Reserve will have a new asset. Both the monetary base and bank reserves will increase. The monetary base will decrease, and bank reserves will stay the same. Both the monetary base and bank reserves will decrease.
The monetary base will decrease, and bank reserves will stay the same.
Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result? The monetary base will increase but bank reserves will stay the same. Both the monetary base and bank reserves will increase. The monetary base will decrease, but bank reserves will stay the same. The monetary base will increase, and the Fed will have a new liability.
The monetary base will increase but bank reserves will stay the same.
Suppose the US Treasury engages in a foreign exchange intervention to lower the value of the dollar relative to the euro. The Fed sells dollars and buys euros in the foreign market. How will this affect the monetary base? There will be no impact on the monetary base. The monetary base will increase. The monetary base will decline. The composition of the monetary base will change with no impact on the overall size of the monetary base.
The monetary base will increase.
Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base? The monetary base will increase with the increase in currency in circulation. The monetary base will decline as bank reserves fall. The monetary base will remain unchanged with the increase in the currency in circulation being exactly offset by a decrease in bank reserves. The monetary base will increase by less than the size of the withdrawal as the increase in the currency in circulation will not be completely offset by a decrease in bank reserves.
The monetary base will remain unchanged with the increase in the currency in circulation being exactly offset by a decrease in bank reserves.
The economy is experiencing a decrease in excess reserves relative to the level of bank deposits. What effect will this have on the money supply multiplier? The money supply multiplier will be twice as strong. The money supply multiplier will be unchanged. The money supply multiplier will increase; it will be strengthened. The money supply multiplier will decrease; it will be weakened.
The money supply multiplier will increase; it will be strengthened.
Tori has a home mortgage where the lender is providing 100% of the purchase price of the house. What is this type of loan called, and what is the risk from the perspective of the bank? This is a zero-down mortgage, and it has a significantly higher risk of default. This is a zero-down mortgage, and it will take longer to recoup the investment. This is a negative amortization mortgage, and there is no significant risk to the bank. This is a no documentation mortgage, and it has a significantly higher risk of default.
This is a zero-down mortgage, and it has a significantly higher risk of default.
The Bretton Woods Conference took place in 1944, with the leaders of forty-four countries in attendance. What was the central reason for this meeting? To bring WWII to an immediate end, with the hopes of stabilizing many economies To avoid another significant, global depression like the Great Depression To argue either for or against a return to the gold standard To create the International Monetary Fund
To avoid another significant, global depression like the Great Depression
Which of these is a reason a central bank might sell its domestic currency? To help lower the price of imports in the home country To help exporters in their home country sell goods overseas To speculate, using all available market information, to make a profit To discourage excessive tourism in the home country
To help exporters in their home country sell goods overseas
When the Federal Reserve was created in 1913, what were its two primary purposes? To regulate the financial sector of the US economy and maintain the gold standard To print money (real bills) and lend only to banks committed to investment in "real" economic activity To regulate the financial sector and be a "lender of last resort" to commercial banks To maintain the gold standard and be a "lender of last resort" to commercial banks
To regulate the financial sector and be a "lender of last resort" to commercial banks
John Maynard Keynes argued that people demand money for three reasons. What are these three reasons? Transactions motive, precautionary motive, and speculative motive Quantity motive, speculative motive, and philanthropic motive Transactions motive, precautionary motive, and familial motive Precautionary motive, speculative motive, and wealth motive
Transactions motive, precautionary motive, and speculative motive
In the conduct of monetary policy, the Federal Reserve has greater control over open market operations than it does over the results of quantitative easing. True False
True
One of the Federal Reserve's most used tools of monetary policy is the buying and selling of US government securities in the secondary market. True False
True
The Consumer Financial Protection Bureau (CFPB), launched in 2011, is housed under the Federal Reserve. True False
True
The money supply multiplier is equal to (1 + k)/(k + rr + re). True False
True
Times of financial uncertainty tend to cause an increase in the overall demand for money. True False
True
With a negative amortization home mortgage, the borrower can actually see an increase in the total mortgage balance over the first several years of the loan. True False
True
The securities that the Federal Reserve holds on its balance sheet include privately issued stocks, US Treasury securities, and federal agency debt. municipal bonds, privately issued stocks, and US Treasury securities. US Treasury securities, municipal bonds, and federal agency debt. US Treasury securities, federal agency debt, and privately issued mortgage-backed securities.
US Treasury securities, federal agency debt, and privately issued mortgage-backed securities.
Between yesterday and today, the US dollar has appreciated against the yen. One of the impacts of this will be US-made goods that sell in Japan will be more expensive. US-made goods that sell in the United States will be more expensive. Japanese-made goods that sell in the United States will be more expensive. nothing; there will be no impact on goods flowing overseas between the United States and Japan.
US-made goods that sell in Japan will be more expensive.
Irving Fisher's equation of exchange is expressed as MS × PL = V × T. MS/V = PL × T. MS × T = PL × V. V = (PL × T)/MS.
V = (PL × T)/MS.
Which of the following events brought an end to the gold standard? Industrial Revolution, as the value of gold in Europe has decreased as there was more gold than currency. World War I, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created. 1926 general strike, as the value of gold in Europe has decreased as there was more gold than currency. World War II, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created.
World War I, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created.
When the Federal Reserve began its policy of quantitative easing in November 2008, there was __________ in the monetary base. no change a dramatic increase a slight increase a decline
a dramatic increase
From 1880 to 1914, the gold standard was maintained because the three major economic powers (the United Kingdom, the United States, and France) allowed interest rates to change in response to flows of gold. used their fiscal policy to maintain the gold standard. used floating exchange rates. increased their level of trade with each other.
allowed interest rates to change in response to flows of gold.
Initially, quantitative easing was not much help in creating economic growth because banks did not lend out the excess reserves that were created by quantitative easing. the Federal Reserve also increased the required reserve ratio so additional reserves were not available for lending. the Federal government began to cut spending, which counteracted the expansionary monetary policy. the expansion of the monetary base was inflationary.
banks did not lend out the excess reserves that were created by quantitative easing.
The four types of foreign exchange market participants are buyers, sellers, traders, and manufacturing companies. banks, brokers, customers, and central banks. banks, brokers, traders, and financial companies. banks, brokers, bond underwriters, and securities companies.
banks, brokers, customers, and central banks.
You are a manager of a hedge fund that has a trading strategy based on picking which currencies you believe will change in value in a significant way in a short period of time. If you believe that the value of the British pound will appreciate in the near future against the euro, you will buy euros. sell euros. buy British pounds, and possibly sell euros. sell British pounds, and buy euros with dollars.
buy British pounds, and possibly sell euros.
The Federal Reserve district banks are primarily responsible for interacting with the state governments within their districts, tracking the flow of money in and out of their districts, and tracking the flow of commerce in and out of their districts. check-clearing system, supervising and examining banks in their districts, and keeping track of the economy in their districts. the check-clearing system, supervising and examining banks in their districts, and interacting with the state governments within their districts. supervising and examining banks in their districts, keeping track of the economy in their districts, and tracking the flow of money in and out of their districts.
check-clearing system, supervising and examining banks in their districts, and keeping track of the economy in their districts.
The initial solution to the challenges in the development of a secondary mortgage market was to pass regulation to standardize mortgages. provide guarantees on mortgages through the Government National Mortgage Association (Ginnie Mae). create the Federal National Mortgage Association (Fannie Mae) to buy FHA mortgages. encourage smaller investors to buy into mortgage pools.
create the Federal National Mortgage Association (Fannie Mae) to buy FHA mortgages.
Graham has moved abroad to pursue his career after college. Unfortunately, the country where he is now living is experiencing a period of very high inflation. Graham can expect the currency of his newly adopted country to decrease in value due to a decrease in demand as potential investors are no longer interested in investing in an inflationary economy. increase in value due to a domestic increase in demand for more and more currency. increase in value due to an increase in supply as investors who hold the country's currency rush to sell the currency as inflation fears grow. either increase or decrease in value, depending on whether or not increased domestic demand is offset by decreased foreign demand.
decrease in value due to a decrease in demand as potential investors are no longer interested in investing in an inflationary economy.
Banks that have some financial difficulty and borrow from the Federal Reserve in what is known as secondary credit will pay an interest rate equal to the discount rate. discount rate plus a penalty. federal funds rate. federal funds rate plus a penalty.
discount rate plus a penalty.
The US dollar-to-euro exchange rate was $1 = 0.921384 euro yesterday. Today, the US dollar-to-euro exchange rate is $1 = 0.891560. This means that between yesterday and today, the dollar has appreciated against the euro. dollar has gained in value against the euro. dollar has depreciated against the euro. euro has weakened against the dollar.
dollar has depreciated against the euro.
If you work for a company that __________, you do not want the home currency to __________. depends on sales in foreign markets; depreciate faces a lot of foreign competition in the local market; appreciate faces a lot of foreign competition in the local market; depreciate imports a lot of goods; appreciate
faces a lot of foreign competition in the local market; appreciate
A big advantage to the borrower of a 15-year mortgage loan compared to a 30-year mortgage loan is that the monthly payments will be less over the life of the loan. far less interest will be paid over the life of the loan. it may be obtained with a smaller down payment. the borrower will be eligible for an ARM.
far less interest will be paid over the life of the loan.
In acting to help create a secondary mortgage market, Fannie Mae solved the standardization problem by pooling mortgages together and creating a new financial instrument called a mortgage pass-through. functioning as the loan servicer, collecting the payments from various mortgages and creating a nice, even, steady stream of payments to the institutional investors. requiring loan originators to make sure only FHA, VA, or other government-qualified mortgages were included in mortgage pools. creating Ginnie Mae and Freddie Mac to service bundled loans for institutional investors.
functioning as the loan servicer, collecting the payments from various mortgages and creating a nice, even, steady stream of payments to the institutional investors.
When the economy is caught in a liquidity trap, expansionary monetary policy will result in inflation. result in a significant contraction in economic activity. result in a significant expansion of economic activity. have little impact on the economy.
have little impact on the economy.
Often as part of a mortgage payment, banks will allow borrowers to "escrow" funds to pay for homeowners' insurance and property taxes. home maintenance and homeowners' insurance. electricity and heating expenses. home repairs and property taxes.
homeowners' insurance and property taxes.
If the goal of monetary policy is to keep interest rates stable, the Federal Reserve's response to increases in the demand for money will be to decrease the supply of money. increase the supply of money. hold the supply of money constant. decrease the demand for money
increase the supply of money.
When an economy sees higher real, risk-adjusted interest rates, it will most likely experience a(n) __________ in demand for its currency in the foreign exchange market, and the value of its currency will __________. decrease; depreciate decrease; appreciate increase; depreciate increase; appreciate
increase; appreciate
In addition to the need for a hefty down payment, buying a home prior to WWII was challenging because there were an insufficient number of homes available. instead of 15-30 years to repay the loan, borrowers had only five years. mortgage interest rates were very high. banks had insufficient reserves to make mortgage loans.
instead of 15-30 years to repay the loan, borrowers had only five years.
The disadvantage to the borrower of an adjustable-rate mortgage is that a much larger down payment is usually required. the borrower is only partly in control of how much the monthly payments might change. the borrower is expected to pay discount points at the closing. interest rates and monthly payments can rise, sometimes by a great deal.
interest rates and monthly payments can rise, sometimes by a great deal.
The biggest change in the Federal Reserve's balance sheet between March 2007 and May 2013 was the __________ on the __________ side of the balance sheet. increase in currency outstanding; liability jump in depository institution deposits; liability decrease in repurchase agreements; asset increase in gold; asset
jump in depository institution deposits; liability
One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. This entity was set up to lend up to $50 billion of Treasury securities to primary securities dealers for a fee. lend up to $200 billion of Treasury securities to primary securities dealers for a fee. lend funding to the Money Market Investor Funding Facility lend funding to any commercial bank that needed it.
lend up to $200 billion of Treasury securities to primary securities dealers for a fee.
Federal Reserve notes are considered to be assets of the US Treasury. liabilities of the US Treasury. liabilities of the Federal Reserve. assets of the Federal Reserve.
liabilities of the Federal Reserve.
When the Federal Reserve buys US Treasury securities on the open market, it is attempting to lower interest rates. raise interest rates. reduce inflation. slow economic growth.
lower interest rates.
Exchange rates are simply another price of __________, similar to __________. lending; interest rates doing business; inventory costs money; interest rates borrowing; bond issue costs
money; interest rates
Lucy has a mortgage where the initial monthly payments are less than the monthly interest charges so that the mortgage balance will increase over the first few years. Lucy's mortgage is a zero-down home mortgage. teaser-rate ARM. negative amortization home mortgage. no documentation home mortgage.
negative amortization home mortgage.
Alistair tells a friend that he likes to deposit his entire paycheck into his checking account just in case prices fall. This is an example of the __________ demand for money. inflationary transactions speculative precautionary
precautionary
A financially healthy bank borrowing overnight from the Federal Reserve is known as seasonal credit. secondary credit. primary credit. discount window borrowing.
primary credit.
The purchase of direct debt and mortgage-backed securities by the Federal Reserve in November 2008 is referred to as qualitative easing. quantitative easing. a repurchase agreement. liquidity easing.
quantitative easing.
Actual bank reserves are equal to deposits at the Fed + excess reserves. required reserves + excess reserves. vault cash + required reserves. deposits at the Fed + required reserves.
required reserves + excess reserves.
In acting to help create a secondary mortgage market, Fannie Mae solved the "difficult to evaluate" problem by pooling mortgages together and creating a new financial instrument called a mortgage pass-through. functioning as the loan servicer, collecting the payments from various mortgages and creating a nice, even, steady stream of payments to the institutional investors. requiring loan originators to make sure only FHA, VA, or other government-qualified mortgages were included in mortgage pools. creating Ginnie Mae and Freddie Mac to service bundled loans for institutional investors.
requiring loan originators to make sure only FHA, VA, or other government-qualified mortgages were included in mortgage pools.
Donna is in the business of buying houses, fixing them up, and then reselling them quickly (flipping). Donna might be interested in a zero-down home mortgage. teaser-rate ARM. conventional mortgage. no documentation home mortgage.
teaser-rate ARM.
Jamal has a mortgage with an extremely low initial interest rate that will increase dramatically in a few years. Jamal's mortgage is a zero-down home mortgage. teaser-rate ARM. negative amortization home mortgage. no documentation home mortgage.
teaser-rate ARM.
Currently, the power of the Federal Reserve rests with the chair of the Federal Reserve and a board of six governors. an elected board of governors of the Federal Reserve. the chair of the Fed and the board of the New York Federal Reserve Bank. 24 member banks.
the chair of the Federal Reserve and a board of six governors.
The concept of purchasing power parity refers to the decrease in the market value of a currency relative to another currency. consumers' preferences for imports over exports or goods produced at home. the exchange rate between currencies that equalizes the purchasing power of each currency by eliminating the differences in price levels in each economy. the exchange rate between currencies that equalizes the purchasing power of each currency by increasing the differences in price levels in each economy.
the exchange rate between currencies that equalizes the purchasing power of each currency by eliminating the differences in price levels in each economy.
The board of governors of the Federal Reserve has three primary responsibilities, which are maintenance of the gold standard, the operations of the Fed, and monetary policy. oversight of the printing of money, commercial bank regulation, and the operations of the Fed. monetary policy, fiscal policy, and the operations of the Fed. the operations of the Fed, commercial bank regulation, and monetary policy
the operations of the Fed, commercial bank regulation, and monetary policy
In order to overcome the stigma that might come from borrowing from the Federal Reserve following the 2007 financial crisis, the Federal Reserve first created the discount window. quantitative easing. the Federal Open Market Committee (FOMC). the term auction facility (TAF).
the term auction facility (TAF).
Participants in the foreign exchange market trade for all of the following reasons EXCEPT to earn short-term profits from fluctuations in exchange rates. to protect themselves from loss resulting from changes in exchange rates. to acquire the foreign currency necessary to buy goods and services from other countries. to acquire the currency necessary to buy imports in their home country.
to acquire the currency necessary to buy imports in their home country.
In the early stages of the 2007 financial crisis, the Fed introduced term auction lending to decrease the amount of liquidity in the financial system. to increase market interest rates. to increase the amount of liquidity in the financial system. to stabilize inflation rates.
to increase the amount of liquidity in the financial system.
When the currency ratio increases, the impact of changes in the monetary base on the money supply is reversed. unchanged. strengthened. weakened.
weakened.
At its inception and during its early days, the power of the Federal Reserve bank lay mostly with the board of governors housed in the Treasury Department. with the 12 independent regional Federal Reserve banks. in the New York Federal Reserve Bank. in the commercial banks that became members of the Federal Reserve system.
with the 12 independent regional Federal Reserve banks.