Federal Reserve & Economics

If there is a decline in interest rates, it could be a result of the Federal Reserve Board: [A]Buying securities in the open market. [B]Issuing Treasury Bills. [C]Selling securities in the open market. [D]Calling in outstanding Treasury Bonds in the open market.

[A]Buying securities in the open market.

An announcement in the financial section of the newspaper states that the "money supply" (M1) has dropped for the week. This means that: [A]Demand deposits (checking accounts) and currency in circulation in the banking system have declined. [B]Savings deposits and currency in circulation in the banking system have declined. [C]Stock transactions have declined. [D]U.S. Government bond sales have declined.

[A]Demand deposits (checking accounts) and currency in circulation in the banking system have declined.

An inverted yield curve generally indicated that: [A]Interest rates have increased quickly. [B]Interest rates have declined quickly. [C]Interest rates have remained stable. [D]Interest rates have no effect on yield curves.

[A]Interest rates have increased quickly.

Which of the following is FALSE of the Inter-Bank Market? [A]It has a centralized location. [B]It is essentially free from government regulation. [C]Governments may take actions that affect their own currencies.[D]Trading is generally conducted in large units.

[A]It has a centralized location.

Among the various economic theories, the one that says that economic growth and stability can be promoted by the active intervention of government fiscal policies in the marketplace is referred to as which of the following? [A]Keynesian [B]Supply-side [C]Monetarist [D]Libertarian

[A]Keynesian

The economic theory that states that the economy works best when it is left alone, free from government intervention is called: [A]The Classical Economic Theory [B]The Keynesian Economic Theory [C]The Monetarist Economic Theory [D]The Supply Side Economic Theory

[A]The Classical Economic Theory

Which of the following is generally NOT TRUE in relation to Corporate Commercial Paper? [A]Commercial paper is normally offered in book-entry form.[B]Commercial paper is normally issued in callable form.[C]Commercial paper is normally sold at a discount. [D]Commercial paper is normally unsecured debt of a corporation.

[B]Commercial paper is normally issued in callable form.

When a bank has excess reserves and the bank loans those excess reserves to other banks that need to borrow to meet their reserve requirements, the excess reserves that are loaned are called [A]Discount window funds [B]Federal Funds [C]Excess equity [D]Money market funds

[B]Federal Funds

Which two of the following are true about Bankers Acceptances? I Traded by individual investors II Traded by institutions III Can be called "two name" paper IV Are risky because they involve foreign trade [A]I and II [B]II and III [C]III and IV [D]I and IV

[B]II and III

Commercial paper in the money market: I. is usually priced based on the semi-annual interest payment. II. is a promissory note issued by a major corporation. III. is guaranteed by the FDIC up to $40,000 face amount. IV. is usually priced to yield less than Treasury Bills for the same maturities. [A]I only [B]II only [C]II and IV [D]All

[B]II only

If the U.S. Economy has been experiencing a prolonged period of inflation, which of the following would probably happen? [A]The Federal Reserve would buy government securities [B]The Federal Reserve would sell government securities [C]Government spending would be increased substantially [D]Margin requirements would be decreased by the Federal Reserve

[B]The Federal Reserve would sell government securities

All of the following are true of Eurodollar Bonds EXCEPT: [A]They can be issued by foreign or U.S. corporations [B]They are registered with the SEC and are immediately eligible to be sold in the U.S. [C]Interest and principal are paid in Eurodollars. [D]They can normally be sold at lower than U.S. interest rates.

[B]They are registered with the SEC and are immediately eligible to be sold in the U.S.

Raising capital through use of the Eurodollar Bond market provides all of the following EXCEPT: [A]Interest costs are usually less [B]To provide more legal protection for investors [C]The Eurodollar bond market is less regulated [D]To diversify the sources of obtaining financing

[B]To provide more legal protection for investors

A Jumbo Certificate of Deposit generally has a minimum deposit of: [A]$1,000 [B]$10,000 [C]$100,000 [D]$1,000,000

[C]$100,000

All of the following are functions of the Federal Reserve System except: [A]Auditing member banks [B]Acting as an agent for the U.S. Treasury [C]Fixing the prime rate for commercial banks [D]Lending to commercial banks

[C]Fixing the prime rate for commercial banks

Which of the following is true of Commercial Paper? [A]It is long term. [B]It is illiquid. [C]It is issued for a specific amount and matures on a specific date.[D]It is secured by durable goods owned by the issuing corporation.

[C]It is issued for a specific amount and matures on a specific date.

Which of the following rates would be changed least frequently: [A]Federal funds [B]Prime [C]Passbook savings [D]Discount

[C]Passbook savings

Which of the following statements about REPOs (Repurchase Agreements) is FALSE? [A]Typically REPOs denominations start at a minimum of $1,000,000.[B]REPOs are considered money market instruments. [C]REPOs are often thought of as risk-free investments. [D]REPOs typically have maturities of less than three months.

[C]REPOs are often thought of as risk-free investments.

Gross Domestic Product (GDP) differs from the Gross National Product (GNP) in that the GDP measures: [A]The value of goods and services produced inside and outside the U.S. by Americans. [B]The value of goods and services imported into the U.S. [C]The value of goods and services produced within the boundaries of the United States. [D]The value of goods and services produced exported by the United States.

[C]The value of goods and services produced within the boundaries of the United States.

In the economic cycle a "recession" would be most accurately described as [A]an increase in inflation after a significant decline in stock prices [B]a sustained increase in inflation [C]a negative growth in the gross domestic product for two calendar quarters back to back [D]an increase in the GDP for two calendar quarters back to back

[C]a negative growth in the gross domestic product for two calendar quarters back to back

Monies deposited by commercial banks at Federal Reserve Banks, including monies which are in excess of the bank's reserve requirements, are referred to as: [A]jumbo certificates of deposit [B]time deposits [C]federal funds [D]discount funds

[C]federal funds

Which of the following statements concerning federal funds are true? I The supply of federal funds is affected by changes in member bank reserve requirements. II A rising federal funds rate indicates that excess reserves of member banks are shrinking. III Small regional banks are a source of federal funds. IV The federal funds rate is a very sensitive indicator of monetary conditions. [A]I and II [B]III and IV [C]I, II and IV [D]All

[D]All

The ratio at which one country's currency can be converted into another country's currency is known as the: [A]Federal funds rate [B]Deficit rate [C]European currency rate [D]Exchange rate

[D]Exchange rate

If the Federal Reserve buys government securities in the open market, which of the following will normally occur? I Bond prices will increase. II Bond prices will decrease. III Yields will increase. IV Yields will decrease. [A]I and III [B]II and IV [C]II and III [D]I and IV

[D]I and IV

Which two of the following are correct regarding Eurodollar bonds? I. Interest and principal payments are made in the foreign currency. II. Interest and principal payments are made in Eurodollars. III. The bonds are registered with the SEC. IV. The bonds are not registered with the SEC. [A]I, III [B]I, IV [C]II, III [D]II, IV

[D]II, IV