Money and Banking Exam 3

.An increase in the foreign interest rate causes the demand for domestic assets to ____ and the domestic currency to _____, everything else hold constant. a. decrease; depreciate b. increase; depreciate c. increase; appreciate d. decrease; appreciate

a

. The most important tool that the Fed uses to control the money supply is a. Conducting open market operations b. Setting margin requirements c. Offering discount loans d. Setting reserve requirements

a

During the bank panics of the Great Depression the currency ratio a. increased sharply c. increased slightly b. decreased sharply d. decreased slightly

a

Everything else held constant, a decrease in the required reserve ration on checkable deposits will cause a. The money supply to rise b. The money supply to remain constant c. The money supply to fall d. Checkable deposits to rise

a

If a bank has excess reserves of $50,000 and checkbook deposit liabilities of $500,000 and if the reserve requirement is 10 percent, then the bank has actual reserves of a. $100,000 b. $30,000 c. $50,000 $80,000

a

If the Fed decides to reduce bank reserves, it can a. Sell government bonds b. Purchase government bonds c. Extend discount loans to banks d. Increase reserve requirements

a

If the required reserve ratio is 10 percent, currency in circulation is $200 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is a. 0.25 b. 0.50 c. 0.40 d. 0.20

a

In a world with few impediments to capital mobility, the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency, a situation known as the a. interest parity condition b. purchasing power parity condition c. exchange rate parity condition d. foreign asset parity condition

a

Under the European System of Central Banking, the National Central Bank have the same role as the ______ of the Federal Reserve System a. Federal Reserve Banks b. Federal Open Market Committee c. Board of Governors d. Federal Advisory Council

a

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans, called the a. Funeral funds rate b. Prime rate c. The discount rate d. The interbank interest rate

c

at its inception the fed was initially intended to be a ____

x

if the fed expects currency holding to fall, it conducts open market sales in order to offset the expected ______ in reserves

x

there are two ways in which the fed can provide additional reserves to the banking system, it can _____ or it can extend discount loans to commercial banks

x

. Banks subject to reserve requirements set by the Federal Reserve System Include a. Only nationally chartered banks b. Only banks with assets more than $300,000 million c. Only banks with assets more than $500,000 million d. All banks

D

There are ___ members of the Board of Governors of the Federal Reserve System a. 5 b. 9 c. 12 d. None of the above

D , 7

.According to the law of one price, if the price of Swiss chocolate is 4 Francs per pound and the price of French chocolate is 2 Euros per pound, then the exchange rate between the Swiss Franc and the Euro is a. One Swiss Franc per Euro b. Two Swiss Francs per Euro c. Three Swiss Francs per Euro d. Four Swiss Francs per Euro

b

Both _____ and ______ are Federal Reserve liabilities a. currency in circulation; government securities b. currency in circulation; reserves c. government securities; discount loans d. government securities; reserves

b

If the required reserve is 20%, currency in circulation is $100 billion, and checkable deposits are $600 billion, then the monetary base is a. $120 billion b. $220 billion c. $400 billion d. $700 billion

b

If the required reserve ratio is 10 percent, currency in circulation is $200 billion, checkable deposits are $1,000 billion, excess reserves are 0, then the M1 money multiplier is a. 2.0 b. 4.0 c. 6.0 d. 8.0

b

Total reserves minus vault cash equals a. Excess reserves b. Bank deposits with the Fed c. Required reserves d. Currency in circulation

b

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a _______ demand for dollar assets and a correspondingly ______ demand for foreign assets. a. higher; higher b. higher; lower c. lower; higher d. lower; lower

b

When the exchange rate for the Mexican peso changes from 9 pesos to the U.S dollar to 10 pesos to the U.S dollar, then the Mexican peso has _____ and the U.S dollar has ____ a. appreciated; appreciated b. depreciation; appreciated c. appreciated; depreciated d. depreciated; depreciated

b

. The Federal Open Market Committee usually meets ______ times a year a. Four c. eight b. Six d. twelve

c

.If a bank has excess reserves of $40,000 and checkbook deposit liabilities of $160,000, and if the reserve requirement is 20 percent, then the bank has total reserves of a. $16,000 c. $72,000 b. $20,000 d. 96,000

c

.If reserves in the banking system increase by $1,000, then checkable deposits will increase by $4,000 in the simple model of deposits creation when the required reserve ratio is a. 0.100 b. 0.166 c. 0.250 d. 0.333

c

.If the required reserve ratio is 20 percent, currency in circulation is $500 billion and checkable deposits are $1,000 billion, then the monetary base is a. $575 billion b. $650 billion c. $700 billion d. $1.5 trillion

c

.Total reserves are the sum of ______ and ______ a. excess reserves; borrowed reserves b. required reserves; currency in circulation c. excess reserves; required reserves d. vault cash; excess reserves

c

If the interest rate is 7 percent on a euro-denominated assets and 5 percent on a dollar denominated assets and if the dollar is expected to appreciate 4 percent, then the expected rate of return on the dollar denominated assets is a. 3 percent c. 9 percent b. 5 percent d. 11 percent

c

Suppose that from a new check book deposit, a bank hold ten million dollars in vault cash, eight million dollars on deposits with the Federal Reserves and five million dollars in excess reserves. Given this information we can say the bank has _____ million dollars in required reserves a. Five b. Ten c. Thirteen d. Fifteen

c

The Central bank which is generally regarded as the most independent in the world is the a. US Federal Reserve Bank b. Bank of England c. European Central Bank d. Bank of Canada

c

The Federal Open Market Committee consists of the a. Five senior members of the seven-member Board of Governors b. Seven members of the Board of Governors and seven presidents of the regional Fed c. Seven members of the Board of governors and five presidents of the regional Fed d. Twelve regional Fed bank presidents and the chairman of the Board of Governors

c

The Federal Open Markets Committee's balance of risks is an assessment of whether, in the future, its primary concern will be a. Higher exchange rates or higher unemployment c. b. Higher inflation or a stronger economy c. Higher inflation or a weaker economy d. Lower inflation or a stronger economy

c

The money multiplier is a. Negatively related to the monetary base b. Positively related to the monetary base c. Negatively related to the required reserves ratio d. Positively related to holdings of excess reserves

c

The theory of asset demand suggests that the most important factor affecting the demand for assets is a. The level of trade and capital flows b. The liquidity of the assets c. The expected return on these assets d. The riskiness of the assets

c

.If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply a. Increase by only the initial increase in reserves b. Increase by only one-half the initial increase in reserves c. Increase by a multiple of the initial increase in reserves d. Does not increase

d

.If the required reserve ratio is equal to 20 percent, a single bank can increase its loans up to a maximum amount equal to a. 5 times its excess reserves b. 20 times its excess reserves c. 10 times its excess reserves d. Its excess reserves

d

.The Fed does not tightly control the monetary base because it does not completely control a. Open market purchases b. Open market sales c. The discount rate d. Borrowed reserves

d

.The formula for the M1 money multiplier is a. M = 1/(r+e+c) b. M = 1/(r+e+c) c. m = 1/(r+e+c) x MB d. m = (1+c)/(r+e+c)

d

Everything else held constant, when a country's currency depreciates, its goods sold abroad become ____ expensive while foreign goods become ____ expensive a. more; less b. more; more c. less; less d. less; more

d

Higher tariffs imposed on imports cause a country's currency to ____ in the ____ run a. depreciate; short b. appreciate; short c. depreciate; long d. appreciate; long

d

Suppose that the Federal Reserve conducts an open market purchase. Everything else held constant, this will cause the demand for U.S assets to _____ and the U.S dollar will _____ a. increase; appreciate b. increase; depreciate c. decrease; appreciate d. decrease; depreciate

d

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the a. Board of Governors b. Open Market Advisory c. Chairmen of the Board of Governors d. Federal Open Market Committee

d

_______ the Federal Reserve earn income while ______ the Federal Reserve cost nothing a. currency in circulation by; assets of b. reserves of; assets of c. liabilities of; assets of d. assets of; liabilities of

d

The two most common types of open market operations are dynamic operations and _____ operations

defensive

The quantity of reserves demanded by banks is the sum of required reserves and ______

excess reserves

the quantity of reserves demanded by banks increases as the _______ falls

interest rate

the opportunity cost of holding excess reserves is the federal funds rate minus the interest rate paid on _____

reserves

when the fed acts as a lender of last resort this type of lending is called __________ credit

secondary

an increase in the required reserve ratio on checkbook deposits causes the M1 money multiplier to _____

shrink