FIN 3100 - Chapter 4 SmartBook

True or false: Reserve requirements are an easy and common way for the Federal Reserve to control the money supply.

False: Changes to the reserve requirement can result in unpredictable changes to the money supply, so this is not a commonly used tool.

The Fed's Quantitative Easing programs implemented between 2009 and 2014 involved the purchase of

Fannie Mae and Freddie Mac mortgage-backed securities. long-term Treasury securities.

Depository institutions currently hold large balances of excess reserves at the Fed. As a result, the Fed intends to move the federal funds rate primarily by setting the ________ to the top of the desired target range for the federal funds rate.

IOER

Which of the following are among the responsibilities of the Federal Reserve Banks?

Issue and redeem U.S. savings bonds Issue U.S. Treasury securities Deliver government securities to investors

The Federal Reserve Bank has approval power over which of the following bank member bank activities?

Mergers and acquisitions, and Permissible nonbank activities of bank holding companies

The three largest Federal Reserve Banks, holding over 74 percent of the total assets of the system are

New York San Francisco Richmond

The trading desk through which the Federal Reserve implements monetary policy is located in

New York.

Members of the Federal Reserve Board are appointed by the President but must be confirmed by the

Senate.

True or false: During the Financial Crisis, coordinated effort by the central banks of 11 major countries accounted for the bulk of the economic rescue programs.

True

True or false: The primary advantage to membership in the Federal Reserve System is access to the federal funds wire transfer network for interbank borrowing and lending of reserves.

True

For the purposes of check clearing, all depository institutions have ________ with the Federal Reserve Bank in their district.

accounts

The Federal Reserve Bank has primary responsibility for the supervision and regulation of

bank holding companies. banks chartered by the OCC. state-chartered member banks. foreign bank operations in the U.S. Edge act and agreement corporations.

The government entity in most countries that is responsible for the planning and implementation of monetary policy is the

central bank.

Historical data has shown that major U.S. interest rates are ______ the discount rate.

correlated with

Federal Reserve Banks are responsible for the collection and replacement of _________ from circulation.

currency

The Federal Reserve Banks distribute new ________ to meet the public need for _______.

currency; cash

Each Federal Reserve Bank's ________ makes cash loans to financial institutions by discounting eligible short-term securities at the official ________.

discount window; discount rate

The Federal Reserve Bank uses its tools to influence either the demand for or supply of _________ at depository institutions.

excess reserves

Federal Reserve Board members serve a _______ year nonrenewable term.

fourteen

When the Federal Reserve wants to slow down the economy, it can

increase reserve requirements. raise the discount rate. use open market operations to sell Treasury bills.

Raising domestic interest rates can cause the dollar's foreign exchange rate to ________, resulting in a(n) ________ in U.S. exports.

increase; decrease

Selling Treasury securities in the open market, increasing required reserves and increasing the discount rate all have the effect of ________ interest rates in the economy.

increasing

The Federal Reserve System is a(n)

independent central bank.

The Fed funds rate is used in the United States to guide ________ policy.

monetary

The Federal Reserve Board, acting through the Federal Open Market Committee, sets _______ and _______ targets.

money supply; interest rate

The main responsibilities of the FOMC are to formulate policies to

promote price stability. promote economic growth. promote full employment. maintain a sustainable pattern of international trade.

The two approaches available to the Federal Reserve for implementing monetary policy are to

target the quantity of reserves in the market based on the FOMC's objectives for growth in the monetary base. set a target for the federal funds rate and adjust the level of excess reserves to meet that target.

Since 1993, the Federal Reserve has implemented monetary policy mainly by

targeting the federal funds rate.

The chair of the Federal Open Market Committee is

the chair of the Board of Governors.

The Federal Reserve System is divided into ________ districts, each of which has one main Federal Reserve Bank and possibly branches in other cities.

twelve

Because the effect of changes in the reserve requirement on bank deposits is _________, the Federal Reserve _________ uses this mechanism for monetary policy.

unpredictable; rarely

Approximately ______ percent of all US banks are currently members of the Federal Reserve System.

38

The supervisory and regulatory activities of each Federal Reserve Bank in its district includes the authority to do which of the following?

Approve expanded activities Performs examinations and inspections Issue warnings

The ________ system is the wire transfer system operated by the Federal Reserve Bank for the secure transfer of government securities between investors.

Fedwire

Nationally chartered banks ("National Banks") are those chartered through the

Office of the Comptroller of the Currency.

The twelve members of the Federal Open Market Committee consist of which of the following?

The president of the New York Fed Four of the presidents of the twelve Fed districts The seven members of the Board of Governors

The Federal Reserves usually implements its open market operations by buying and selling

U.S. Treasury bills.

The three tools that the Federal Reserve Bank can use to implement monetary policy are

adjusting the discount rate. adjusting bank reserve requirements. executing open market operations.

The Federal Reserve Bank, the Bank of England, the Reserve Bank of India, and the People's Bank of China are all examples of

central banks.

The Fed's check clearing system routes ________ to the depository institution on which they are written and ________ from one bank to another.

checks; funds

The Federal Reserve serves as the __________ for the U.S. Treasury, holding the deposit accounts and collateral for government agencies.

commercial bank

Four of the programs implemented by central banks to alleviate the effects of the Financial Crises were

debt guarantees. capital injections into the banking system. asset purchases or guarantees. the expansion of retail deposit insurance.

When the Federal Reserve wants to increase the supply of bank deposits in the system and hence the money supply, they _______ the level of required reserves.

decrease

Lowering domestic interest rates can cause the dollar's foreign exchange rate to ________, resulting in a(n) ________ in U.S. exports.

decrease; increase

The Fed's Quantitative Easing programs increased the supply of funds to the long-term securities market and thereby _________ long-term interest rates.

decreased

Each of the twelve Federal Reserve Banks sets and changes the ________ that they charge on loans to financial institutions in their district.

discount rate

The President designates two board members to be the chairman and vice chairman for _______-year terms.

four

A central bank is said to be "independent" if it is

free from pressure from politicians.

When the Federal Reserve wants to decrease the supply of bank deposits in the system and hence the money supply, they _______ the level of required reserves.

increase

Changes in the excess reserves held by depository institutions directly influences the _______ and the _______.

money supply; interest rates

The repeated issuing of new loans and creation of new deposits triggered by a change in the reserve requirement results in a total change in bank deposits that is many times different than the original change in reserves. This is called the

multiplier effect.

Each Federal Reserve Bank has its own _______-member board of directors.

nine

The purchase and sale of U.S. government securities by the trading desk at the New York Fed under the direction of the FOMC is called

open market operations.

Of the three monetary policy tools the Federal Reserve has at their disposal, only ________ and _________ work by changing the level of bank deposits and thus the money supply.

open market operations; reserve requirement changes

One important way in which the Federal Reserve Banks provide assistance in the conduct of monetary policy is by

providing five Federal Reserve Bank presidents to serve on the FOMC board members.

The Federal Reserve Board also sets bank ________ and reviews and approves the ________ set by the 12 Federal Reserve Banks.

reserve requirements; discount rates

The Board of Governors of the Federal Reserve System consists of ________ members headquartered in _________.

seven; Washington, D.C.

Of the nine members of the board of directors of each Federal Reserve Bank, _______ are elected by member banks in the district, and ______ are appointed by the Board of Governors in Washington.

six; three

Each Federal Reserve Bank has supervisory and regulatory authority over the activities of ___________ and ___________ located in their districts.

state-chartered member banks; bank holding companies

The Federal Reserve is cautious in its use of the discount rate for monetary policy because its effects on financial markets can be ________ and _______.

strong; unpredictable

The four major functions of the Federal Reserve Bank are to

supervise and regulate depository institutions. provide payment and other financial services. conduct monetary policy. manage the stability of the financial system.

The primary responsibilities of the Federal Reserve Board are the

supervision and regulation of banks. formulation and conduction of monetary policy.

Federal Reserve Banks operate under the general supervision of

the Board of Governors of the Federal Reserve.

When the Federal Reserve want to stimulate the economy, it can

use open market operations to buy Treasury bills. lower reserve requirements. lower the discount rate.