Chapter 15 Quiz

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A​ bank's only liabilities are ​$13 million in transactions deposits. The bank currently meets its reserve​ requirement, and it holds no excess reserves. The required reserve ratio is 0.080.08. Assuming that its only assets are legal​ reserves, loans, and​ securities, calculate the value of loans and securities held by the bank. The value of loans and securities held by the bank is $____ million.

$11.96 million Transaction deposit x required reserve ratio 13 x 0.08

M2

All of M1 + savings and money market + small denomination + non instatution

Which of the following statements is true when considering national banking structures around the​ world?

U.S. businesses only obtain approximately​ 30% of their funds from bank loans compared to​ 65% for European firms.

Money serves as a standard of​ value, which is another way of saying that money functions as

a unit of accounting.

Required reserves

are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits

During the late​ 1970s, prices quoted in terms of the Israeli​ currency, the​ shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with​ dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using​ shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation.​ Thus, the U.S. dollar functioned as money in Israel during this period

as a unit of accounting

A highly liquid asset

can be disposed of easily without loss of value.

The process by which financial institutions accept savings from​ businesses, households and governments and lend the savings to other​ businesses, households and governments is

financial intermediation.

The process in which financial institutions accept savings from​ businesses, households, and governments and lend the funds to other​ businesses, households, and governments is called

financial intermediation.

Which of the following is NOT a function of the Federal Reserve​ System?

implement fiscal policy

Bank examinations by the FDIC help reduce the​ ________ problem, by preventing bank managers from allocating funds already obtained from depositors to​ non-creditworthy loans

moral hazard

If you have auto insurance, you might be willing to drive more recklessly. This is an example of

moral hazard

Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The​ bank, as a financial​ intermediary, is facing a problem of

moral hazard.

The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check​ clears,

reserves have fallen by the amount of the check because the Fed clears the check by reducing the​ bank's deposits at the Fed.

An​ interest-earning account that can be withdrawn at any time without payment of a penalty is a

savings deposit

All of the following are functions of the Federal Reserve System EXCEPT

to provide national health insurance.

The reserve requirement is​ 10%. Suppose that the Fed sells ​$200,000 worth of U.S. government securities from a bond​ dealer, electronically debiting the​ dealer's deposit account at Reliable Bank. What is the maximum potential change in the money supply from this​ transaction, assuming that there are no leakages and that all rounds of deposit expansion have taken​ place?

The money supply can decrease by ​$2,000,000.

Which of the following statements is true when considering​ liquidity?

The most liquid assets typically earn no or little interest.

M1

currency, demand deposits, traveler's checks, and other checkable deposits

If the FOMC decides that the Fed should buy bonds it

instructs the New York Federal Reserve​ Bank's trading desk to buy them.

A currency will cease to function as money if

people think that they will not be able to use it to exchange for goods and services later.


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