ECO 305 Final

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When was the most recent​ recession? Over the past 40​ years, when did the most prolonged recession​ occur?

2008-09 1980-82

According to the​ text, the most important goal of monetary policy is thought to​ be: A. eliminating deflation B. low interest rates C. price stability D. high economic growth rates

C

Examples of off-balance-sheet activities​include: A. borrowing from other banks B. selling negotiable CDs C. selling loan portfolios D. extending loans to depositors

C

The free rider​ problem: A. makes it easier for an investor to continue to buy securities at less than the true value B. will make more people willing to provide information services C. results from the production of information being much like a public good where exclusion is not possible D. will only occur if information costs are zero

C

During the subprime financial crises of​ 2007-2008, why did Canadian banks fare better than banks in other​ countries? A. Canadian banks held a large proportion of their mortgages on their balance​ sheets, rather than selling them off. B. Canadian banks had more incentive to ensure mortage loans were good loans. C. If a Canadian consumer walks away from a​ mortgage, Canadian law permits a bank to go after that​ consumer's other assets in addition to the mortgaged asset. D. All of the above.

D

How can a bursting of an​ asset-price bubble in the stock market trigger a financial crisis ​? A. A reduction in asset prices causes lenders to become more cautious and reduce the amount of loans they make B. A reduction in asset prices causes a serious deterioration in borrowing​ firms' balance sheets C. A reduction in asset prices causes borrowing firms to have less to lose so they are willing to take on additional risk D. All of the above are correct

D

You are given the following series of​ one-year interest​ rates: 4​%, 6​%, 11​%, 15​% Assuming that the expectations theory is the correct theory of the term​ structure, calculate the interest rates in the term structure for maturities of one to four​ years, and plot the resulting yield curve. How would your yield curve change if people preferred​ shorter-term bonds over​ longer-term bonds?

it would become steeper. See chap 6 #1 for graph answer

$1000 invested at interest rate 7.2% per year takes approximately how many years to quadruple to $4000? a. 14½ years b. 10 years. c. 20 years. d. 30 years.

c

Assume that the equilibrium real overnight rate is​ 2.0% and the target for inflation is 2.0​%. Suppose that the inflation rate is at 2.0​%, leading to an inflation gap of 0.0​% ​(equal to 2.0​%-2.0​%), and real GDP is 2.0​% above its​ potential, resulting in a positive output gap of 2.0​%. The Taylor rule suggests that the federal funds rate should be set​ at: A. 3.00​%. B. 1.00​%. C. 3.75​%. D. 5.00​%.

5.00%

If higher inflation is​ bad, then why might it be advantageous to have a higher inflation​ target, rather than a lower target closer to​ zero? A. A higher inflation target leads to increased communication with the public and thus reduces uncertainty. B. A higher inflation target is less binding than a target closer to zero. C. It is easier to stabilize the economy with a higher inflation target than a target closer to zero. D. Central banks are more accountable with a higher inflation​ target, thus solving the​ time-inconsistency problem.

B

Does inflation targeting help reduce the​ time-inconsistency of discretionary​ policy? A. ​No, inflation targeting decreases the accountability of monetary policymakers. B. ​Yes, it decreases the transparency of monetary policy strategy and hence the​ public's expectations of inflation. C. ​Yes, it is a mechanism of​ self-discipline, which effectively ties the hands of policymakers to commit to a policy path. D. ​No, there is no direct relationship between inflation targeting and solving the​ time-inconsistency problem.

C

During economic contractions​ (recessions), the velocity of money tends​ to: A. move unpredictably. B. remain constant. C. decrease. D. increase slightly.

C

Pronounced increases in asset prices that depart from fundamental values and eventually burst resoundingly are known​ as: A. the real bills doctrine. B. ​exchange-rate bubbles. C. ​asset-price bubbles. D. ​stock-price fluctuations.

C

If the relationship between the monetary aggregate and the goal variable is​ weak, then monetary targeting A. will not be a good guide for assessing central bank accountability. B. will not help fix inflation expectations. C. no longer provides an adequate signal about the stance of monetary policy. D. all of the above. E. only A and B.

D

Disadvantages of the​ Fed's "just do​ it" approach​ include: A. low accountability that may make the Fed more susceptible to the​ time-inconsistency problem. B. a lack of​ transparency, which creates doubt about the future course of inflation and​ output, and makes it hard to hold the Fed accountable. C. the strong dependence on the​ preferences, skills, and trustworthiness of the individuals in charge of the central bank. D. Only A and B are correct. E. All of the above are correct.

E

Which of the following criteria must be satisfied when selecting a policy​ instrument? A. The instrument must be observable and measurable. B. The instrument must be controllable by the central bank. C. The instrument must have a predictable impact on the policy goal. D. Only B and C are correct. E. All of the above are correct.

E

If credit cards were made illegal by government​ legislation, what would happen to​ velocity? Explain your answer.

Velocity would fall because a greater quantity of the money supply ​(M​) would be needed to carry out the same level of transactions ​(PY​).

A bank finds it has too little capital. Which of the following would increase bank capital? a. invest earnings in assets b. buy back some its shares from earnings c. increase the amount of its assets by issuing bank bonds d. sell securities to repay maturing bank bonds rather than issue new bank bonds

a

A bank finds it return on equity (ROE) is too low because it has too much bank capital. Which of the following would not raise its ROE? The bank can a. payout dividends b. buy back some its shares c. increase the amount of its assets, financed by selling bank bonds to the public d. reduce the value of loans, by making fewer new loans than old loans maturing

a

If borrowers with the most risky investment projects are more likely to seek bank loans as compared to those borrowers with the safest investment projects, banks are said to face the problem of a. adverse selection. b. moral hazard. c. gambling. d. principal agent

a

All of the following are true about a coupon bond except: a. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. b. When the coupon bond is priced at its face value, the current yield is equal the coupon rate. c. The yield to maturity is greater than the coupon rate when the bond price is above the face value. d. The price of a coupon bond and the yield to maturity are negatively related.

c

By taking advantage of economies of scale and developing expertise, financial intermediaries overcome the problem of a. moral hazard. b. adverse selection. c. high transaction costs. d. the principal-agent problem.

c

The recent subprime financial crisis demonstrates a ? bubble ​, while the​ tech-stock bubble of the 1990s demonstrates an ? bubble . Irrational exuberance bubbles appear to have ? on the economy compared to​ credit-driven bubbles.

credit driven irrational exuberance smaller impacts

During the Great Depression all of the following occurred except: a. The Dow Jones stock index collapsed by 90% from its peak in 1929. b. There was deflation in Canada and the United States. c. International commodity prices plunged. d. There were widespread banking panics and bank failures in both Canada and the United States.

d

If the economy experiences prolonged increases in productivity growth while actual output growth is unchanged​, what does the Taylor rule imply that policymakers should do to the overnight interest​ rate? Based on this​ scenario, policymakers should ? the overnight interest rate​ because: A. the output gap would increase. nbsp B. potential output would increase and the output gap would decrease. C. actual output and the output gap would increase. nbsp D. changes in productivity growth do not influence the overnight interest rate.

decrease B

All of the following are true about the TED Spread except: a. it is the difference between the 3-month LIBOR and 3-month T-Bill interest rate. b. it uses the LIBOR rate which refers to the London Inter-bank Offer Rate. c. it is a measure of the riskiness of loans made between banks. d. the (absolute) TED Spread peaked in late 2008 at almost 600 basis points. e. the relative TED Spread peaked in 1983 during a recession.

e

How does the operating band affect interest rates and the money supply in the​ economy? A rise in the operating band ? short-term interest rates in the economy. This ? the monetary base and the money supply.

increases decreases

If velocity ​(V) and aggregate output ​(Y) remain constant at ​$4 and ​$1250 billion​, ​respectively, what happens to the price level ​(P) if the money supply​ (M) declines from ​$500 billion to ​$425 ​billion?

original is 1.6 new is 1.36

If velocity and aggregate output are reasonably constant​ (as the classical economists​ believed), what happens to the price level when the money supply increases from​ $1 trillion to​ $4 trillion?

the price level quadruples

Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do​ so? A. Decisions made by financial intermediaries are public​ knowledge, while investments made with financial instruments are not. B. The​ free-rider problem reduces gains for financial intermediaries more than it does for investors in financial instruments. C. Banks make private​ loans; their conclusions on who is creditworthy are not made public. D. Credit information is asymmetric for investors but not for financial intermediaries.

C

You often read in the newspaper that the Bank of Canada has just lowered the target overnight rate. Does this signal that the Bank is moving to a more expansionary monetary​ policy? Why or why​ not? A. No. The Bank usually lowers the target overnight rate when market rates fall regardless of the direction of monetary policy. B. No. The Bank usually lowers the target overnight rate to signal contractionary policy. C. Yes. Declines in the bank rate usually occur because the operating band for the overnight rate has been increased. D. Yes. Declines in the bank rate usually occur because the operating band for the overnight rate has been lowered.

D

As a real estate​ speculator, you are planning and able to buy a house that costs​ $200,000, borrowing the full amount with no money down with the goal of selling this same property in exactly one year. Mortgage interest rates are​ 5%, and the expected increase in housing prices is​ 2%.​ (All rates and percentages are annual​ values.) What is your expected capital​ gain/loss when you flip the house in one​ year? What is your real rate of​ return?

4000 -3%

Relate the following flow variables to its corresponding stock​ variable: Investment Deficit Spending Quantity Supplied Profits Savings per month 1. ​(Owner's) Equity 2. Debt 3. Inventory 4. Wealth 5. Capital stock

5 2 3 1 4

Transformation of assets can be accomplished​ by: A. borrowing short and lending long B. borrowing and lending only for the long term C. borrowing and lending only for the short term D. borrowing long and lending short

A

What happens to chequable deposits in the banking system when the Bank of Canada sells​ $2 million of bonds to the First​ Bank, assuming that the desired reserve ratio on chequable deposits is​ 10%, banks do not hold any excess​ reserves, and the​ public's holdings of currency do not​ change? A. Chequable deposits decline by​ $20 million. B. Chequable deposits decline by​ $2 million. C. Chequable deposits increase by​ $20 million. D. Chequable deposits increase by​ $2 million.

A

What political realities might explain the creation of the Bank of Canada in​ 1934? Select the best​ answer: A. The Great Depression undermined faith in the existing market economy. B. Election promises were made regarding the creation of a central bank. C. The banking industry was too widely dispersed. D. The recession created inflationary woes in the economy.

A

Currency​ includes: A. paper​ money, coins,​ cheques, and savings deposits. B. paper money and coins. .C. paper​ money, coins, and cheques. D. paper money and cheques.

B

In​ 2008, as a financial crisis began to unfold in the United​ States, the FDIC raised the limit on insured losses to bank depositors from​ $100,000 per account to​ $250,000 per account. How would this help stabilize the financial​ system? A. It would attract new foreign depositors and rapidly increase the cash amounts available to banks. B. It would reassure depositors that their money was safe in banks and prevent a possible bank panic. C. It would enable banks to lower interest rates​ (as money is more​ safe) and decrease future interest payments. D. It would decrease​ banks' reserve requirements and thus increase their available assets.

B

In order to reduce the​ ________ problem in loan​ markets, banks often insist on collateral from potential borrowers. A. adverse lending B. asymmetric information C. moral hazard D. ​principal-agent

C

The U.S. economy borrowed heavily from the British in the nineteenth century to build a railroad system. Did this make both countries better​ off? A. ​Yes, the Americans gained because they now had access to capital to start up profitable businesses such as railroads. B. ​Yes, the British gained because they were able to earn higher interest rates as a result of lending to Americans. C. Choices A and B are both correct. D. Choices A and B are both incorrect.

C

The principal-agent problem A. is a type of adverse selection. B. eliminates costly state verification. C. occurs because owners have incomplete information about the motives and behaviour of managers. D. is not related to asymmetric information.

C

Which of the following is a disadvantage of using fiat money ? A. Fiat money is not portable or widely accepted B. Fiat money is not easily divisible or suitable for small purchases C. Public authorities may be tempted to produce too much of it

C

ow did the​ "Coyne Affair" motivate the current system of joint responsibility for monetary​ policy? Select the best​ answer: A. Louis​ Rasminsky, the third governor of the Bank of​ Canada, issued an ultimatum for the Bank of Canada to have the sole hand in monetary policy. It was overturned by the government at that time. B. Mr. Coyne and policy analysts at that time failed to recognize how fiscal policy might be amplified and undercut the effects of monetary policy. C. A royal​ commission, resulting in part from the Coyne​ affair, recommended a system of joint responsibility. In​ 1967, the bank act was amended to confirm this system. D. All of the above

C

A purchase of government bonds from the nonbank public by the Bank of​ Canada: A. increases reserves directly and may increase the monetary base. B. has the effect of pulling wealth and therefore money out of the private sector. C. reduces the wealth of the public. D. increases the monetary base directly and may increase reserves. E. decreases the monetary base.

D

Banking institutions in the European Monetary Union can borrow​ (against eligible​ collateral) overnight loans from national central banks at​ the: A. discount rate. B. overnight cash rate. C. target financing rate. D. marginal lending rate

D

Financial markets improve economic welfare​ because: A. they allow consumers to time their purchases better B. they channel funds from savers to investors C. they eliminate the need for financial intermediaries D. both A and B are correct E. all of the above are correct

D

How can economies of scale help explain the existence of financial intermediaries LOADING...​? A. Financial intermediaries have exclusive access to communications technology in the financial sector. B. Financial intermediaries with their vault technology can specialize in keeping deposits safe. C. Financial intermediaries are relatively large institutions. D. Financial intermediaries are able to operate with lower transaction costs relative to individual lenders or borrowers.

D

Is it better for bondholders when the yield to maturity increases or​ decreases? Bondholders are better off when the yield to​ maturity: A. ​increases, since this represents a decrease in the price of the bond and a potential capital gain. B. ​increases, since this represents a decrease in the bond maturity and a potential capital loss. C. ​decreases, since this represents an increase in the coupon payment and a potential capital gain. D. ​decreases, since this represents an increase in the price of the bond and a potential capital gain.

D

The foreign exchange rate​ is: A. where imports and exports are traded for one another B. the amount of loans made from one​ country's bank to another​ country's bank C. where the currency of one country is converted into the currency of another country D. the price of one​ country's currency in terms of another​ country's currency

D

The management of expectations is a strategy best defined​ by: A. keeping the bank rate at zero for an extended period to lower the​ market's expectations of future​ long-term interest rates. B. lowering the​ market's expectations of future​ long-term interest rates by decreasing excess settlement balances. C. lowering the​ market's expectations of future​ short-term interest rates by paying interest on reserves. D. keeping the overnight interest rate at zero for an extended period to lower the​ market's expectations of future​ short-term interest rates.

D

Why is the​ originate-to-distribute business model subject to the​ principal-agent problem? A. Once the mortgage broker earns his or her​ fee, the broker does not care if the borrower makes good on his payment B. The more volume the broker​ originates, the more he or she makes C. The mortgage broker has little incentive to ensure the borrower is​ credit-worthy, since loans will be sold as​ mortgage-backed securities D. All of the above are correct

D

A corporation working with an investment bank to issue an initial public offering of new shares of stock is engaged in a ________ market, ________ market transaction. a. primary, capital b. secondary, money c. secondary, capital d. primary, money

a

Which of the following statements is​ true? A. The Eurosystem is the most independent central bank in the world B. The​ long-term goal of the European Central Bank​ (ECB) is price​ stability, which means that the goal for the Eurosystem is more clearly specified than it is for the Federal Reserve System C. The​ Eurosystem's charter cannot be changed by​ legislation; it can be changed only by revision of the Maastricht Treaty D. Only B and C are correct E. All of the above are correct

E

Suppose that you are the manager of a bank that has​ $15 million of​ fixed-rate assets,​ $30 million of​ rate-sensitive assets,​ $25 million of​ fixed-rate liabilities, and​ $20 million of​ rate-sensitive liabilities. Conduct a gap analysis for the​ bank, and show what will happen to bank profits if interest rates rise by 5 percentage points. The change in bank profits is?

0.5 million

if the yield on a cad gov bond is 4%, what is the risk premium on bond 4, with a bond rating of AA and a 4.6% annual yield?

0.6%

What is the opportunity cost of holding ​$1 comma 500 in cash for one year if the relevant interest rate is 10 ​percent? If interest rates​ rise, this opportunity cost will ? and individuals will hold ? cash balances

150 increase smaller

A lottery claims its grand prize is ​$20 ​million, payable over 5 installments of ​$4000 comma 000 each. If the first payment is made immediately and the four remaining payments are made​ yearly, what is the grand prize really​ worth? Use an interest rate of 7​%.

17548845

Calculate the yield to maturity \(YTM) for a​ one-year coupon bond with a purchase price of ​$800​, a face value of ​$1000​, and a current yield of 5​% The yield to maturity on the bond given above is ? the YTM of a similar ​$1000 ​20-year bond with a current yield of 10​% selling for ​$800.

30 % greater than

Match​ (by number) each regulatory agency with the regulated​ institutions: Regulatory Agency Bank of Canada Office of the Superintendent of Financial Institutions​ (OSFI) ​P& C Insurance Compensation Corporation ​ (CompCorp) provincial securities and exchange commissions 1. Life insurance companies 2. All federally regulated chartered​ banks, trust mortgage loan​ companies, credit​ unions/caisses populaires, life insurance​ companies, P& C insurance​ companies, and pension plans. 3. Organized exchanges and financial markets 4. Chartered​ banks, trust mortgage loan companies and credit​ unions/caisses populaires 5. Property and casualty insurance companies

4 2 5 3

Which of the following correctly lists a procedure used to reduce asymmetric information problems as well as the type of asymmetric information problem it​ reduces? A. Covenants are used to reduce moral hazard. B. Monitoring is used to reduce adverse selection. C. Screening is used to reduce moral hazard. D. All of the above correctly list a procedure and the type of problem it reduces.

A

Consider five​ bonds, each has a 4 % annual​ coupon, a face value of $1000. The bonds differ as shown in the table​ below: Years to Maturity 2 2% 2 4% 3 4% 5 2% 5 6% Find the Current price of each bond What relationships do you observe between years to​ maturity, yield to​ maturity, and the current​ price?

Current prices 1038.83 1000 1000 1094.27 915.75 When yield to maturity is above the coupon​ rate, the​ bond's current price is below its face value. For a given​ maturity, the​ bond's current price falls as yield to maturity rises . For a given yield to​ maturity, a​ bond's value rises as its maturity increases When yield to maturity equals the coupon​ rate, a​ bond's current price equals its face value regardless of years to maturity.

A share of Air Canada common stock​ is: A. identical to a bond issued by Air Canada. B. an asset for Air Canada because it allows Air Canada to invest in capital equipment or other companies. C. a liability to the shareholder because it must be sold to realize a capital gain. D. an asset for its owner and a liability for Air Canada.

D

Advocates of the Bank of​ Canada's independence fear that subjecting the Bank to direct government control​ would: A. impart an inflationary bias to monetary policy. B. force monetary authorities to sacrifice the​ long-run objective of price stability. C. make the political business cycle more pronounced. D. do all of the above.

D

What methods have​ inflation-targeting central banks used to increase communication with the public and increase the transparency of monetary policy​ making? A. ​Inflation-targeting central banks have used brochures with fancy​ graphics, boxes, and other​ eye-catching design elements to engage the​ public's interest. B. ​Inflation-targeting central banks have frequent communications with the government. C. ​Inflation-targeting central banks take the opportunity to make public speeches on their monetary policy strategy. D. Only B and C are correct. E. All of the above are correct.

E

Properly categorize each of the following​ concepts: (stock vs flow) Debt Money Income Savings Deposits Wealth

Stock Stock Flow Stock Stock

Calculate the yield to maturity (YTM) for a​ one-year coupon bond with a purchase price of ​$800​, a face value of ​$1000​, and a current yield of 5​% The yield to maturity on the bond given above is (<,>) the YTM of a similar ​$1000 ​20-year bond with a current yield of 10​% selling for ​$800.

The yield to maturity is 30.0​% greater than

Which of the following statements are true regarding the comparison of the Federal Reserve System and the European System of Central Banks​ (ECB)? The budgets of the Federal Reserve Banks are controlled by the Board of​ Governors, while the National Central Banks control their own budgets and the budget of the​ ECB; therefore, the ECB has less power. Monetary operations are not as centralized in the ECB but are determined by each​ country's own central bank. The​ long-term goal of the Federal Reserve is price stability while the ECB has multiple competing goals. The ECB is not involved in supervision and regulation of financial institutions.

True True False True

A bank has: $15 million of fixed rate assets, and $5 million of rate sensitive assets; $5 million of fixed rate liabilities, and $ 12 million of rate-sensitive liabilities. Gap analysis predicts that if interest rates rise by 1% then bank profits a. decrease by $70 thousand b. decreased by $100 thousand c. increase by $100 thousand d. stay constant

a

As a corporation's default risk increases, it prices of its bonds _______, and the yields to maturity on its bonds ________. a. decrease, increase b. decrease, decrease c. increase, increase d. increase, decrease

a

Channelling funds from individuals with savings to those desiring funds when savers do not directly purchase the borrowers securities in financial markets is known as a. financial intermediation. b. the initial public offering. c. barter. d. equity.

a

Currently, October 28/16, the 3-month US dollar LIBOR rate is 0.89%, up 57 basis points from a year ago. The 3-month US dollar T-bill yield is 0.28%, up 21 basis points from a year ago. a. The (absolute) TED spread has increased. b. The relative TED spread has increased. c. The expected real rate of return is 0.51%. d. The expected inflation rate is 0.51%

a

Gap analysis predicts that an increase in interest rates will result in a drop in bank profits when a. the quantity of rate sensitive liabilities is greater than the quantity of rate sensitive assets. b. the quantity of rate sensitive assets is greater than the quantity of rate sensitive liabilities. c. the bank borrows short term and lends long term so that duration exposure is large. d. there is an increase in the default risk premium for junk bonds above investment grade bonds.

a

Gresham's Law is best described as the relationship between "good money" (full weight coin) and "bad money" (debased coin or paper money) where a. bad money drives out of circulation good money if they are exchanged at the same price. b. good money drives out of circulation bad money if they are exchanged at different prices. c. bad money drives out of circulation good money if they are exchanged at different prices. d. cigarettes used in New France was a bad money that drove the good money, specie, out of circulation. e. legal tender that exchanged at the same price as good money but was hoarded and not used as a medium of exchange.

a

If you shift $100 from your chequing account to Canadian Savings Bonds a. Both M1+ and M2+ will fall by $100. b. Both M1+ and M2+ will not change. c. M1+ will increase by $100. d. M2+ will increase by $100. e. M1 will fall by $100, and M2+ will not change.

a

In 2008, as financial crisis began to unfold in the United States, the FDIC raised the limit on insured losses to bank depositors from $100,000 per account to $250,000 per account. How would this help stabilize the financial system? It would a. reassure depositors that their money was safe in banks and prevent a possible bank panic. b. decrease banks' equity multipliers and thus reassure depositors of capital adequacy. c. enable banks to lower interest rates (as money is more safe) and future interest payments. d. dissuade foreign depositors from depositing in US banks and thus reduce foreign capital inflows.

a

Regarding mortgage backed securities (MBS), all of the following are true except: a. The highest-rated tranches (super senior tranches) have the least risk and so are paid off last with residual mortgage payments. b. The highest-rated tranches were often insured and hence received a credit rating of AAA. c. The lowest rated tranches (equity tranches), were often not traded but rather kept off balance sheet in tax havens. d. MBS are derived from a special purpose vehicle (SPV).

a

The Coyne Affair motivated the 1967 Bank Act which a. established that the Bank of Canada had operational independence but did not have goal independence b. resulted in the government writing regular directives to the Bank of Canada c. required that the Department of Finance and the Bank of Canada not collude in setting policy d. stipulated that the Bank of Canada was to conduct monetary policy in a way that was not transparent

a

The adverse selection problem results in a. bad credit risks being the majority seeking loans b. good credit risks being the majority seeking loans c. lenders writing debt contracts with restrictive convents d. lenders refusing loans to individuals with high net worth

a

When I purchase ________, I own a portion of a firm and usually have the right to vote on issues important to the firm and to elect its directors. a. stock b. bonds c. commercial paper d. certificate of deposit e. mortgage securities

a

Which of the following best describes the evolution of the payment system (from earliest to latest)? a. commodity money, fiat money, cheques, credit cards, ..., digital currency. b. commodity money, cheques, fiat money, credit cards, ..., digital currency. c. fiat money, commodity money, debit cards, credit cards, ..., bitcoins. d. commodity money, cheques, credit cards, fiat money, ..., bitcoins.

a

15. Suppose the Bank of Canada sells $1 million in bonds to the nonbank public. The nonbank public pays for the bonds by writing cheques drawn on deposits in their chapter banks. a. Chequable deposits increase by $1 million. b. Reserves in the banking system decrease by $1 million. c. The monetary base increases by $1 million. d. Cash in circulation decreases by $1 million.

b

A firm's last dividend was $2. You forecast that dividends will grow at 5% per year and that the required return the firm's equity is 15%. According to the Gordon Growth Model, the current price of the stock should be about a. $29.20 b. $21.00 c. $20.00 d. the stock price is undefined

b

According to the Gordon Growth Model, which of the following accurately describes the effect of tight monetary policy that has the effect of increasing the yield on government bonds. a. The required return on equity and the price of stock both rise. b. The required return on equity rises and the price of stock declines. c. The required return on equity and the price of stock both fall. d. The required return on equity falls and the price of stock rises.

b

According to the formal version of the Fisher hypothesis, an increase in expected inflation rate by 1% will a. decrease the demand for bonds and decrease the supply of bonds, and decrease the interest rate by 1% as well as leave the real interest rate unchanged. b. decrease the demand for bonds and increase the supply of bonds, and increase the interest rate by 1% as well as leave the real interest rate unchanged. c. increase the demand for bonds and decrease the supply of bonds, and decrease the interest rate by 1% as well as increase the real interest rate by 1%. d. increase the demand for bonds and increase the supply of bonds, and increase the interest rate by 1% as well as decrease the real interest rate by 1%.

b

Advocates of Bank of Canada independence fear that subjecting the Bank to direct government control would a. impart an anti-inflationary bias to monetary policy b. force monetary authorities to sacrifice the long-run objective of price stability c. make the so-called political business cycle disappear d. result in Trump insisting that Trudeau raise the overnight rate to appreciate the Canadian dollar.

b

All the of following are true about money except a. It is a stock variable. b. It is the best store of value. c. It is the most liquid of all assets. d. It eliminates the trouble of finding a double coincidence of wants.

b

Bitcoin is a. an object of intrinsic value. b. an encrypted digital currency. c. loose change outside banks not accounted for in M1+. d. the process of hardening the alloy used in gold coin to prevent clipping.

b

CDOs involve all of the following except: a. Collateralized debt obligations. b. Canadian Mortgage and Housing Corporation (CMHC) monoline insurance. c. Mortgage CDOs are referred to as mortgage backed securities (MBS). d. A corporate entity called a special purpose vehicle (SPV), which separates the payment streams from the assets into "tranches".

b

Debt contracts a. never result in a loss for the lender b. are used more frequently to raise funds for firm investment than are equity contracts c. have a higher cost of state verification than equity contracts d. are usually informal agreements between borrowers and lenders

b

Describe two ways in which financial intermediaries help lower transactions costs in the economy. a. They accept only large denomination deposits and only make large loans. b. They pool many small deposits together and specialize in loan risk assessment. c. They lower costs by increasing payment fees and loan application fees. d. They offer safety-deposit box services to depositors and only make a few loans per year.

b

The Royal Bank is expected to pay $.16 at the end of this year. If the required return on their equity is 12% and you anticipate being able to sell their stock (after receiving the dividend) in one year for $60, the price of the current price of their stock is about a. $53.57. b. $53.71. c. $54.33. d. $60.16.

b

Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do so? a. Credit information is asymmetric for investors but not for financial intermediaries. b. Banks make private loans and their conclusions on who is creditworthy is not made public. c. The free-rider problem reduces gains for financial intermediaries more than it does for investors in financial instruments. d. Decisions made by financial intermediaries are public knowledge, while investments made with financial instruments are not.

b

If an individual deposits $100 cash in a fixed-term deposit at his charter bank, a. M2+ will increase by $100. b. M2+ will decrease by $100. c. M1+ and M2+ will not change. d. M1+ will increase by $100. e. M1+ will decrease by $100

e

Evidence from Canada and other foreign countries indicates that a. money growth and inflation are unrelated. b. countries with low monetary growth rates tend to experience higher rates of inflation, ceteris paribus. c. there is a strong positive association between inflation and growth rate of money supply over long periods of time. d. there is little support for Milton Friedman's assertion that "inflation is always and everywhere a monetary phenomenon".

c

If the interest rate on a Real Return Bond is 2% and the interest rate on a Canada bond of the same maturity is 5% then the expected rate of inflation is equal to a. -3%. b. 2%. c. 3%. d. 7%

c

If the yield to maturity on a consol (perpetuity) falls by half. a. The price of the consol halves. b. The return on the consol is less than 100%. c. The return on the consol is at least 100%. d. The current yield doubles.

c

In a barter economy the number of (nontrivial) relative prices with 10 goods is: a. 101. b. 49. c. 45 d. 9

c

Property taxes are 2% of the value of the house every year. What is the present value of all future property tax payments if the house remains worth $300,000 forever and a 5% interest rate is used for discounting. a. $60,000 b. $100,000 c. $120,000 d. $155,000

c

The Bank of Canada serves as a lender of last ________ when a deposit-taking financial institution faces a ________ crisis. a. minute; liquidity b. minute; profitability c. resort; liquidity d. resort; profitability

c

The Globe and Mail article Bank of Canada wants rates back to normal...", explains that a. the overnight rate is likely to move up from 1.75% to a neutral rate of 5.25%. b. the prime rate that banks charge their best commercial costumers is equal to the overnight rate. c. a neutral overnight rate of 3% implies a prime rate of 5.25% and a variable mortgage rate of 4.15%. d. the rise in the overnight rate back to normal levels will results in a decrease in mortgage rates

c

The following are true about open market operations except: a. An open market purchase results in an increase in the monetary base. b. An open market sale of securities to the charter banks reduces reserves. c. They result in shifts from deposits into currency. d. They are controlled by the central bank and hence part of the non-borrowed monetary base.

c

The function of money that distinguishes it from other assets is its function as a. a means of deferred payment b. an object of intrinsic value c. a medium of exchange d. a store of value

c

What is the typical relationship and rationale for the yields on three-month Treasury bills, long-term Canada bonds, and BBB corporate bonds. a. All three rates give virtually the same the same real interest rate because of the Fisher effect. b. They move randomly and independently of each other consistent with Segmented Markets. c. They tend to move together over time with three-month Treasury bills having the lowest yield. because they are default free and have very little interest rate risk. d. They tend to move together over time with BBB corporate bonds having a lower interest rate than the long-term Canada bonds as they are both long-term bonds and the Canada bond is default free.

c

Which of the following is a flow variable? a. debt b. inventory at end of the year c. investment per year d. capital stock

c

Which of the following is not performed by the Bank of Canada? a. Monetary policy management. b. Issue of currency notes. c. Regulating the rate of return on equity. d. Government debt and asset management services.

c

Yields Illustrated makes the case for all of the following except: a. The yields on 30-year US government bonds have tended to decline since 1982. b. The yields on 30-year US government bonds over the last six years are near historic lows. c. Future interest rates will likely increase substantially in the next 30 years. d. Inflation will likely remain relatively low in the next 30 years.

c

A business cycle contraction will decrease the demand for bonds, decrease the demand for money, a. increase the supply of bonds, and decrease the interest rate. b. decrease the supply of bonds, and decrease the price of bonds. c. increase the supply of bonds, and decrease the price of bonds. d. decrease the supply of bonds and decrease the interest rate.

d

If a coupon bond is currently selling at a price less than its face value, then its a. rate of return is greater than its yield to maturity. b. risk premium has increased due to great probability of default. c. yield to maturity is less than the coupon rate. d. yield to maturity is greater than the coupon rate.

d

In (the historic lands that comprise) Canada all of the following have been used as a money and medium of exchange except a. wampum. b. copper shields. c. silver and copper coins d. Yap stones. e. playing cards.

d

One main purpose of regulation of financial markets is to a. increase competition among financial institutions b. encourage profit enhancing practices c. limit the rates of return earned on various financial instruments d. define standards for providing information to shareholders, depositors and the public

d

Suppose the government guarantees today that it will pay creditors if corporations go bankrupt. Then interest rate yields on corporate bond _________and government bonds_________. a. increase, decrease. b. decrease, decrease. c. increase, increase. d. decrease, increase

d

The Financial Times newspaper predicts that stock prices are sure to dramatically rise next week. According to the Efficient Market Hypothesis you should a. buy stocks because the Financial Times is a reputable publication. b. buy stocks because they have already increased in value. c. sell other investments and buy stocks because stocks will earn an immediate capital gain. d. not buy stocks because this is publically available information and is already reflected in stock prices.

d

The Office of the Superintendent of Financial Services (OSFI) regulates a. life insurance and property and casualty companies b. organized exchanges and financial markets (including futures and options exchanges and markets) c. all charter banks, trusts mortgage loan companies and credit unions/caisses populaires d. all federally regulated charter banks, trust mortgage and loan companies, credit unions/caisses populaires, life insurance companies, P & C insurance companies, and pension plans

d

The key to economic development according to Hernandez de Soto is to bring dead capital to life by a. promoting micro credit by those with no net worth b. formation of collectives to overcome the principal agent problem c. financial repression of local money lenders who crowd out banks d. formalizing land title for the poor so they can use their land as collateral to take out productive loans

d

The present value of a lottery prize paying $1 million at the end of each year for twenty years, discounted at a rate of 10 percent, is worth a. between $18 million and $20 million. b. between $20 million and $30 million. c. exactly $20 million. d. less than $15 million.

d

Which of the following was not a policy response by the US Federal Reserve to help prevent the financial crisis of 2007-2009 from becoming a depression? a. The creation of new programs, e.g. lending to investment banks and purchasing commercial paper. b. The use of monetary policy to lower the federal funds rate target. c. The use of nonconventional policy to create term auction facilities. d. The purchase of stock and ownership takeovers of troubled banks.

d

Why is the originate-to-distribute banking model subject to the principal-agent problem? a. The more volume the mortgage broker originates, the more they are paid. b. The broker has little incentive to ensure the borrower is credit-worthy, since loans will be sold as MBSs. c. Once the broker earns their fee, the broker does not care if the borrower makes their payments. d. All of the above

d

Which of the following represent an advantage of using commodity money a. It can never be debased. b. It is lightweight and portable. c. It is highly liquid. d. It is unique as a store of value. e. It has an intrinsic value beyond it use as a medium of exchange.

e

When money is used as acceptance for payment of goods and​ services, it is being used as a When money is used to express the relative value of goods and​ services, it is being used as a When money is used to hold purchasing power for future​ use, it is being used as a

medium of exchange unit of account store of value

Who benefits and who is hurt when interest rates​ rise, as they did from 1997 to​ 2001? Corporations with immediate capital construction needs are Households with little​ debt, saving a significant fraction of annual income for​ retirement, are The federal government running persistent budget deficits is Black-market entrepreneurs operating on a​ "cash-only" basis are

worse off better off worse off worse off

Which of the following represents an advantage of using commodity money for​ transactions? A. It can never be debased dash its​ purity, quantity, and value are easy to verify B. It has an intrinsic value beyond its use as a medium of exchange C. It is easily​ divisible, so that it is easy to​ 'make change' D. It is lightweight and portable

B

Identify the differences between the United​ States' experiences during the Great Depression and the financial crisis of​ 2007-2009. ​(Check all that​ apply.) A. The recent crisis resulted in more significant declines in GDP than the Great Depression. B. No bank panic occurred in 2007 dash 2009 as opposed to the Great Depression. C. Unemployment was a larger factor during the recent financial crisis with only minor implications during the Great Depression. D. The banking system was not hit as hard during the Great Depression as it was during the 2007 minus 2009 financial crisis. E. The source of asset minus price increases was different for both episodes.

B E

The Bank of​ Canada's repurchase transactions as a monetary policy tool have the advantage that A. they occur at the initiative of the Bank of Canada. B. they are easily reversed if mistakes are made. C. the Bank of Canada maintains complete control over their volume. D. all of the above.

D

The ability of a central bank to set monetary policy instruments is​ ___________, while the ability of a central bank to set goals of monetary policy is​ _______. A. policy​ independence; target independence B. goal​ independence; target independence C. target​ independence; policy independence D. instrument​ independence; goal independence

D

​X-Bank reported an ROE of 13.0 % and an ROA of 1.25 %. How well capitalized is this​ bank? The equity multiplier of​ X-Bank is Is this a well capitalized​ bank?

equity multiplier of​ X-Bank is 10.4% Yes because​ X-Bank's equity multiplier is relatively low at 10.40.

The governor of the Bank of Canada announces in a press conference that he will fight the higher inflation rate with a new​ anti-inflation program. As a result of this​ announcement, people expect inflation will ​, which causes the demand for bonds to or shift to the . ​However, the lower expected inflation rate causes the cost of borrowing to . The supply of bonds will or shift to the . The impact of this change in bond demand and supply will cause equilibrium interest rates to .

fall increase right rise decrease left decrease

Suppose that you​ buy, and one year later​ sell, a foreign​ (British) bond under the following​ circumstances: When you buy the bond the exchange rate is ​$1.50 ​= 1 pound. You pay 45 pounds ​($67.50​) for the British bond. You sell the bond for 50 pounds. No interest payment was expected or received. When you sell the​ bond, the exchange rate is​ $1.20 ​= 1 pound. What is your gain or loss in​ dollars?

$-7.50

Why has noninterest income been growing as a source of bank operating​ income? Because​ off-balance sheet activities that generate ? income have become a ? important part of a​ banks' business.

fee more

The demand curve and supply curve for​ one-year discount bonds with a face value of ​$1040 are represented by the following​ equations: Bd​: Price=-0.8Quantity + 1140 Bs​: Price=Quantity + 690 The expected equilibrium quantity of bonds is The expected equilibrium price of bonds is The expected interest rate in this market is

250 940 10.64%

f the interest rate is 15​%, what is the present value of a security that pays you ​$1150 next​ year, ​$1230 the year​ after, and ​$1348 the year after​ that?

2816.39

Match​ (by number) each concept with its​ description: adverse selection assymetric information moral hazard 1. A situation where the borrower might engage in activities that are undesirable from the​ lender's point of​ view, because they make it less likely that the loan will be paid back. 2. Investing in a collection​ (portfolio) of assets whose returns do not always move​ together, with the result that overall risk is lower than for individual assets. 3. Occurs when the potential borrowers who are the most likely to produce an undesirable​ (adverse) outcomelong dashthe bad credit riskslong dashare the ones who most actively seek out a loan and are thus most likely to be selected. 4. A situation where one party often does not know enough about the other party to make accurate decisions. 5. A process of borrowing funds from the​ lender-savers and then using these funds to make loans to​ borrower-spenders.

3 4 1

Financial Market chartered bank trust and mortgage loan company credit union or caisse populaire mutual fund 1. These financial institutions are very small cooperative lending institutions organized around a particular​ group: union​ members, employees of a​ firm, and so forth. They acquire funds from deposits​ (called shares) and primarily make consumer loans. 2. These intermediaries raise funds by selling commercial paper​ (a short-term debt​ instrument) and by issuing stocks and bonds. They lend these funds to consumers and to small businesses. 3. These financial intermediaries raise funds primarily by issuing chequable​ deposits, savings​ deposits, and term deposits. They then use these funds to make​ commercial, consumer, and mortgage loans and to buy Canadian government securities and provincial and municipal bonds. 4. These depository​ institutions, numbering​ 70, obtain funds primarily through chequable and nonchequable saving​ deposits, term​ deposits, guaranteed investment certificates and debentures. In the​ past, these institutions were constrained in their activities and mostly made mortgage loans for residential housing. 5. These financial intermediaries acquire funds by selling shares to many individuals and use the proceeds to purchase diversified portfolios of stocks and bonds.

3 4 1 5

Relate each concept to its corresponding definition Debt Money Income Savings Wealth 1. Earnings received from​ working, property​ rentals, entrepreneurship, or the ownership of financial assets. 2. A tool used to facilitate​ transactions, store​ wealth, or to be used as a yardstick to compare values. 3. What you own - the total collection of assets that serve to store value. This includes not only money but also other assets such as​ bonds, common​ stock, art,​ land, furniture,​ cars, and houses. 4. The difference between what is earned and what is spent. This adds to total wealth. 5. What you owe - the accumulation of spending over and above periodic earnings.

5 2 1 4 3

Consider a coupon bond that has a par value of ​$1100 and a coupon rate of 10​%. The bond is currently selling for ​$1180.67 and has 2 years to maturity. What is the​ bond's yield to maturity​ (YTM)? (If you​ don't have a financial calculator you will have to guess and interate to the correct​ answer.)

6 %

A bank has ​$150000 of chequable deposits and uses a desired reserve ratio of 25 percent. The bank currently holds ​$112500 in reserves. How much of these reserves are excess​ reserves?

7500

Classify the following transaction as affecting either​ assets, or​ liabilities, or neither for each of the​ "players" in the money supply process - the Bank of Canada​ (BOC), banks, and depositors. You deposit $ 400 into your chequing account at the local bank. A. Depositors: Assets are unaffected. Banks: Assets increase and liabilities increase. BOC: Liabilities are unaffected. B. Banks: Assets and liabilities increase. BOC: Assets and liabilities increase. C. Depositors: Assets rise and are offset by a fall in assets due to lower chequing account balances. Banks: Reserve assets decrease and chequable deposit liabilities decrease. D. Assets and liabilities of the banking system as a whole are unaffected comma however comma individual bank balance sheets will change.

A

Debt​ contracts: A. are used more frequently to raise capital than are equity contracts B. have a higher cost of state verification than equity contract C. never result in a loss for the lender D. are informal agreements between borrowers and lenders

A

Which of the following is true about techniques used to reduce asymmetric information​ problems? A. Screening is used before the​ transaction; monitoring is used after the transaction. .B. Monitoring is used before the​ transaction; screening is used after the transaction. C. Both screening and monitoring are used after the transaction. D. Both screening and monitoring are used before the transaction.

A

the economy. A. They pool many small deposits together and specialize in loan risk assessment and other forms of expertise. .B. They accept only​ large-denomination deposits and make only a small number of large loans. C. They attract funds from many depositors and only make loans available to​ large-scale borrowers. D. They offer​ safety-deposit box services to depositors and make only a few loans per year.

A

What role does weak financial regulation and supervision play in causing financial​ crises? A. It helps establish tighter rules and regulations for lending activities. B. It allows financial institutions a better opportunity to engage in excessive​ risk-taking behaviour. C. It reduces the risk that financial institutions will make bad loans. D. It creates higher interest rates because of additional government expenditures.

B

When an individual or institution buys a corporate bond in the primary​ market: A. she is becoming part owner in the corporation. B. she is making a loan to the corporation issuing the bond. C. no new borrowing or lending is taking place. D. she is taking out a loan from the corporation.

B

The maturity of a debt instrument is the number of years​ (term) until that​ instrument's expiration date. Identify the term to maturity of the following financial​ instruments: (short, intermediate or long) A​ 30-year corporate bond A​ money-market instrument with a maturity of 6 months A Government of Canada bond with a maturity of 5 or 10 years A​ 90-day treasury bill

A​ 30-year corporate bond - long A​ money-market instrument with a maturity of 6 months - short A Government of Canada bond with a maturity of 5 or 10 years - intermediate A​ 90-day treasury bill - short

Because of the adverse selection problem A. lenders will write debt contracts that restrict certain activities of borrowers B. bad credit risks with a willingness to pay higher interest rates will be the majority seeking loans C. good credit risks are more likely to seek​ loans, causing lenders to make a disproportionate number of loans to good credit risks D. lenders may refuse loans to individuals with high net worth because of their greater proclivity to​ 'skip town'

B

How do financial intermediaries benefit by providing​ risk-sharing services? A. They are able to turn safe assets into​ high-risk, high-return investments B. They are able to earn a profit on the spread between the returns they earn on risky assets and the payments they make on the assets they have sold C. Customers pay a fee to financial intermediaries for being able to invest in safer assets D. A collection of riskier assets is always more profitable for a bank or intermediary

B

The money multiplier declined significantly during the period​ 1930-1933 and also during the recent financial crisis of​ 2008-2010. Yet the M1 money supply decreased by​ 25% in the Depression period but increased by more than​ 20% during the recent financial crisis. What explains the difference in​ outcomes? A. The excess reserves ratio increased rapidly during the recent financial crisis. B. There was a significant increase in the monetary base during the recent financial crisis. C. There was a minimal increase in the currency ratio during the recent financial crisis. D. The overall level of deposit expansion decreased during the recent financial crisis.

B

The national debt of Canada is best defined​ as: A. the amount the federal government borrows in any one year. B. the accumulated federal budget deficits and surpluses since the​ nation's beginning. C. the claims foreigners have against Canada. D. the quantity of outstanding currency.

B

The overnight interest rate is determined​ by: A. the equilibrium of supply and demand in the bond​ market, within the operating band. B. the equilibrium of supply and demand in the market for​ reserves, within the operating band. C. the equilibrium of supply and demand in the money​ market, within the operating band. D. solely by the Bank of Canada.

B

What does the​ cross-sectional evidence from banking crises in several countries​ indicate? A. Regulatory forbearance never leads to problems B. Deregulation and poor regulatory supervision raise moral hazard incentives C. A government safety net for depositors need not increase moral hazard D. Deposit insurance is to blame in each country

B

Gap analysis measures the difference between a​ bank's: A. assets and liabilities B. ​long-term securities and​ short-term securities C. ​rate-sensitive liabilities and​ rate-sensitive assets D. deposits and loans

C

In what ways can the government influence the conduct of monetary​ policy? Select the best​ answer: A. The governor of the Bank of the Canada and the minister of finance consult regularly about monetary policy. B. There is joint responsibility between the Minister of Finance and the Governor of the Bank of Canada. C. The minister of finance can issue a directive that the Bank must follow. D. All of the above

D

Interest rates were lower in the​ mid-1980s than they were in the late​ 1970s, yet many economists have commented that real interest rates were actually much higher in the​ mid-1980s than in the late 1970s. Does this make​ sense? Do you think that these economists are​ right? A. The economists are right because in the​ mid-1980's the expected inflation rate fell much faster than nominal interest rates. B. The economists are right because interest rates were below expected rates of inflation in the late​ 1970s, making real interest rates negative. C. The economists are right because in the​ mid-1980's the rapidly declining inflation rate meant nominal interest rates were above the expected inflation rate and real rates became positive. D. All of the above.

D

Reserves​ are: A. liabilities for the Bank of Canada. B. assets for banks. C. deposits at the Bank of Canada plus vault cash. D. all of the above. E. none of the above.

D

Risk premiums on corporate bonds are usually anticyclical​; that​ is, they decrease during business cycle expansions and increase during recessions. Why is this​ so? A. As an economy enters a​ recession, business firms are less likely to default on their debt. B. In anticipation of a​ recession, the Bank of Canada will begin to lower interest rates. C. During an economic​ expansion, there is greater inflationary pressure driving interest rates upward. D. As the economy enters into an​ expansion, there is greater likelihood that borrowers will be able to service their debt.

D

Gustavo is a young doctor who lives in a country with a relatively inefficient legal and financial system. When Gustavo applied for a​ mortgage, he found that banks usually required collateral for up to​ 300% of the amount of the loan. Why might banks require that much collateral in a financial system like​ Gustavo's country? A. An inefficient legal system implies strong property​ rights, and under such a strong​ system, collateral is more highly valued and hence more desirable. B. An inefficient legal system implies strong property​ rights, and collateral helps banks recoup some of their loan if the borrower defaults. C. An inefficient legal system implies weak property rights but also high property​ values, making collateral more highly valued and hence more desirable. D. An inefficient legal system implies weak property​ rights, and collateral helps banks recoup some of their loan if the borrower defaults. As a​ result, when compared to other​ countries, we would expect​ Gustavo's nation to​ have: A. more investment and faster economic growth. B. less investment and slower economic growth. C. less investment and faster economic growth. D. more investment and slower economic growth.

D B

What is the maximum you would pay for a consol bond that pays an annual coupon of ​$50 per year and yields on competing instruments are 5​%? Given this​ price, if you believe competing yields are expected to change to 8​%, what is your expected capital gain​ (or loss)?

Price offered​ = ​$ 1000.00 Capital Gain​ / Loss​ = ​$ negative 375.00

In which of the three decades​ (1970-79, 1980-89,​ 1990-99) is the inflation rate the most​ stable? In which of the three decades does the economy experience​ disinflation? n which of the three decades is the real interest rate LOADING...​, on​ average, the​ highest?

The inflation rate is most stable during the 1990s Disinflation is experienced during the 1980s On​ average, the real interest rate is highest during the 1980s .

Suppose that the Bank of Canada made an announcement that it will purchase up to​ $300 billion of​ longer-term Canada securities over the following six months. What effect might this policy have on the yield​ curve? A. The yield curve would steepen at the end and flatten somewhere along the rest of the curve. B. The yield curve would steadily shift​ up, with slightly more increase in​ short-term rates. C. The yield curve would shift​ down, but mostly on​ medium- and​ long-term maturities. D. The yield curve would jump with​ medium- and​ long-term rates and remain unchanged with​ short-term rates

c

Match​ (by number) each money market instrument with its​ description: Money Market Instrument commercial paper government of Canada treasury bills repurchase agreements overnight funds 1. These instruments are typically overnight loans between banks. They are not loans of the federal government or the Bank of Canada. 2. A debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back the original purchase price. 3. A​ short-term debt instrument issued by large banks and​ well-known corporations. 4. These​ short-term debt instruments of the Canadian government are issued in​ three-, six-, and​ 12-month maturities to finance the federal government. 5. These instruments are effectively​ short-term loans​ (usually with a maturity of less than two​ weeks) for which treasury bills serve as​ collateral, which the lender receives if the borrower does not pay back the loan.

commercial paper - 3 gocernment of canada treasury bills - 4 repurchase agreements - 5 overnight funds - 1

In October​ 2008, the Federal Reserve began paying interest on the amount of excess reserves held by banks.​ How, if at​ all, might this affect the multiplier process and the money supply in the United​ States? Holding the monetary base​ constant, paying interest on reserves should ? the excess reserves​ ratio, which ? the money multiplier and ? the money supply.

raise reduces reduces


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