Econ 3229 Final Exam

If a bank has $20 million of checkable deposits, a required reserve ratio of 20% and it holds $5 million reserves, then the maximum deposit outflow it can sustain without running into reserve deficiency is?

$1.25 Million

Suppose in 2019 you buy two-year $1000 face-value 3% coupon bond for $900. In 2020, interest rates decrease to 2%. If you decide to sell your bond in 2020, what will be the selling price and one-year rate of return for you?

$1009.8, 15.5%

If the required reserve ration is 10%, what will be the size of this bank ( as measured by its total assets or liabilities) after $40 Million deposit outflow if it just meets reserve deficiency by borrowing money?

$566 Million

a $100 face value discount bond with an interest rate of 2% has a price of

$98.04

Suppose 1-year, 2 year and 3 -year interest rates today are 1.2%, 1.1% and 0.9%, respectively. What's the expected 1-year interest rate two years from now according to the expectations theory?

0.5 percent

A one year and two year bonds currently pays 1.4% and 1.2% respectively. What is the expected interest rate on a one year bond next year according ti the liquidity premium theory if the two-year premium is 0.1%?

0.8%

Assume Bank Reserves-$800 Billion, Currency= $600 Billion, (R/D)= 0.8 and rrD=0. What is the value of the money multiplier<

1.14

Suppose that your marginal federal income tax rate is 20%, and the yield on thirty-year U.S Treasury bond is 2.5%. You would be indifferent buying a thirty-year municipal bond issued within your state (ignoring differences in liquididty, risk, and costs of information) if the municipal bond has a yield of

2.0%

If the current 2-year interest rate is 4.8% and the expected 1-year interest rate two years from now is 1.2%, what is the interest rate on 3-year bond today according to the expectations theory?

3.6%

If a bank's capital-to-asset ratio is 0.2 and its return on assets is 6%, what is return on equity

30%

If a lender wants to earn a real interest rate of 3% and expects inflation to be 2% he/she should charge a nominal interest rate that:

5%

Which of the following $100 face-value securities has the lowest yield to maturity?

A 5 percent coupon bond selling for $105

____________ in the foreign interest rate causes the demand for domestic assets to ___________ and the domestic currency to appreciate, everything else held constant

A decrease; increase

The Exchange rate systems followed by the United States is known as

A flexible or floating exchange rate system.

If the Fed were to purchase Euros and at the same time sell U.S Treasury securities in the open market, this would be an example of:

A sterilized foreign exchange intervention

a foreign exchange intervention with an offsetting open market operation that leave the monetary base unchanged is called

A sterilized foreign exchange intervention

Reserves are

Assets of the commercial banks and liabilities of the central bank

Everything else held constant, an increase in the excess revenue to checkable deposits ratio causes the M1 money multiplier to ______ and the money supply to __________

Decrease; decrease

If demand for reserves is predicted to decrease temporarily, the manager of the trading desk at the New York Fed bank will likely conduct _________ open market operations to ____________ reserves

Defensive; drain

Deliberate actions by a central bank to influence the exchange rate are known as

Foreign-Exchange Market interventions

Higher expected inflation ________ the supply of bonds and __________ the demand for bonds.

Increases; Reduces

The Trump tax cut reducded the top income tax bracket from 39.6% to 37% over a ten-year period. SUpply and demand analysis predicts the impact of this change was a _______ price on municipal bonds and a _________ price on Treasury Bonds

Lower; Higher

Mariah withdrawals $1,000 from her savings account as currency. Which of the following is true?

M1 increases and M2 stays unchanged

As a result of the 2007-2009 financial crisis, which of the following Big Five investment banks was acquired by Bank of America?

Merrill Lynch

A sale of foreign assets by a central bank has the same effect on the monetary base as

Open Market Sale on Government Bonds

_____________are short term loans in which Treasury bills serve as collateral.

Repurchase Agreements

according to the WSJ article, after steep initial losses in May of 2022, Russian ruble rebounded with the help of Russian central bank and the government. which of the following strategies contributed to the ruble's recovery?

Russian government orders exporters to sell their foreign currency reserves and buy Ruble.

Everything held constant, if a central bank makes an unsterilized __________ of foreign assets, then the domestic money supply will decrease and the domestic currency will _______.

Sale; Appreciate

Which of the following is (are) not a permanent voting member(s) on the FOMC?

The Secretary of the Treasury

if in 2020 exchange rate between dollar and euro was 0.9 euro per dollar and in 2021, exchange rate was 0.81 euros per dollar, then:

The euro appreciated relative to the dollar

One of the unique problems banks face is:

They hold illiquid assets to meet liquid liabilities

which of the following could not be commodity money?

U.S Currency

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ______ of international reserves.

depreciating; loss

Suppose FOMC revises target federal funds rate upwards. If the Federal Reserve wishes to meet the new target then the appropriate action for the Federal Reserve to take is a ____ open market ____, everything else held constant.

dynamic; Sale

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 6% to 5.5%

has no effect on the federal funds rate

when a central bank buys foreign assets

its assets and liabilities rise by the same amount

A primary financial market is:

one in which newly issued securities are sold

Suppose the Big Mac costs 8 Euros in Munich and 20 pesoss in Mexico CIty, If the current exchange rate is 0.1 euros per peso then according to the law of one price, euro is _______ and should __________ in the long run

overvalued; Depreciate

Comparing the European and the U.S. central bank systems, the Governing Council of the European system resembles:

the FOMC

Under a fixed exchange rate regime, if the domestic currency is initially ________ that is, ___________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

undervalued; above