Financial Systems FIN 3113 Test#2 Learn Smart/HW Mississippi State University Whitledge
The twelve members of the Federal Open Market Committee (FOMC) 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 supervisory and regulatory activities of each Federal Reserve Bank in its district includes the authority to do what?
-approve expanded activities -performs examinations and inspections -issue warnings
Three tools that the federal reserve bank can use to implement monetary policy are:
-executing open market operations -adjusting the discount rate -adjusting bank reserve requirements
What are the 3 primary sources The Federal Reserve Banks generate their income from?
-fees from provision of services to banks -interest earned on gov' securities held -interest earned on bank reserves
When the Federal Reserve wants to slow down the economy, it can
-increase reserve requirements -use open market operations to sell Treasury bills -raise the discount rate
What are the responsibilities of the Federal Reserve Banks?
-issue U.S. Treasury securities -issue and redeem U.S. savings bonds -deliver government securities to investors
The supervisory and regulatory activities of each federal reserve bank in its district includes the authority to do what?
-issue warnings -perform examinations and inspections -approve expanded activities
When the Federal Reserve want to stimulate the economy, it can
-lower the discount rate -lower reserve requirements -use open market operations to buy Treasury bills
The main responsibilities of the FOMC are to formulate policies to
-promote price stability -promote full employment -promote economic growth -maintain a sustainable pattern of international trade
The 4 major functions of the federal reserve banks are to
-supervise and regulate depository institutions -provide payment and other financial services -conduct monetary policy -manage the stability of the financial system
What are the two approaches available to the Federal Reserve for implementing monetary policy?
-target the quantity of reserves in the market based on the FOMC's objectives for growth in the monetary base -set a large for the federal funds rate and adjust the level of excess reserves to meet that target
What are the primary responsibilities of the Federal Reserve Boards
-the supervision and regulation of banks -the formulation and conduct of monetary policy
When was the Federal Reserve Banks founded by Congress?
1913
The President designates two board members to be the chairman and vice chairman for how many year terms?
4
What is the major monetary policy-making body of the U.S. Federal Reserve System?
FOMC
T/F A large portion of the mortgage payment goes towards the principal, during the early life of a mortgage loan.
False
Rank the following types of mortgages by amount outstanding from largest to smallest. I. Home mortgages II. Multifamily mortgages III. Farm mortgages IV. Commercial mortgages
Home Commercial Multifamily Farm
In the area of bank supervision, which of the following are functions of the Federal Reserve Banks? I. Examinations of state member banks II. Approval of member bank and bank holding company acquisitions III. Deposit insurance
I & II
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
On Oct. 1, 2008 the Fed was authorized to start payment of interest on required and excess reserves. The interest paid on required reserves is called the _____ and the interest paid on excess reserves is called _____
IORR; IOER
The most important of the Federal Reserve Banks is generally considered to be
New York
independent central bank
The Federal Reserve System
T/F During the 2010-2014 period, the Federal Reserve purchased long-term treasury securities as part of the Quantitative Easing program.
True
T/F Four seats on the FOMC are allocated to Federal Reserve Bank presidents on an annual rotating basis.
True
T/F If the FOMC wished to generate faster economic growth, they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities.
True
The major asset of the Federal Reserve is
U.S. Treasury securities
The _____ creates federal laws intended to protect consumers in financial transactions, and the _____ implement and enforce those laws
US Congress; Federal Reserve Banks
The Federal Reserve Trading desk at the NY Fed implements the FOMC policy directive by buying or selling _____ on the over the counter market
US Treasury securities
The largest asset on the balance sheet of the Federal Reserve Bank is
US Treasury securities
When The Federal Reserve implements monetary policy by targeting interest rates, movement of the demand curve. for money requires that The Federal Reserve respond by _____ to keep interest rates at their target value
adjusting the money supply
The Fed funds rate is the rate that
banks charge each other on loans of excess reserves
What are the intended consequences from charging an interest on excess reserves by Central banks?
banks lend more money
One of the problems with using the discount rate as a monetary policy tool is that it is difficult to predict _____ when the discount rate changes.
changes in discount window borrowing
The _____ allowed banks to destroy checks after taking a digital image which can be processed electronically
check 21 Act
The Federal Reserve serves as the _____ for the US Treasury, holding the deposit accounts and collateral for gov't agencies
commercial bank
Federal Reserve Banks are responsible for the collection and replacement of _____ from circulation
currency
Lowering domestic interest rates can cause the dollar's foreign exchange rate to _____, resulting in a(n) _____ in U.S. exports
decrease; increase
When the Federal Reserve sells U.S. Treasury securities from over the counter market, it _____ the supply of excess reserves and places _____ pressure on the federal funds rate
decreases; upward
The single largest liability on the Federal Reserve Bank's balance sheet
depository institution reserves
On the Fed balance sheet, reserves consist of what?
depository institution reserves and vault cash
Each of the 12 Federal Reserve banks sets and changes the _____ that they charge on loans to financial institutions in their district
discount rate
the rate at which financial institutions can borrow funds directly from the Fed
discount rate
Mortgage payments are ____________ on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage, and ____________ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus
higher; less interest
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
A ___________ placed against mortgaged property ensures that the property cannot be sold (except by the lender) until the mortgage is paid off.
lien
When the Fed _____ the discount rate, they are sending a signal to the market that they would like to see _____ interest rates and _____ borrowing.
lowers; lowers; more OR raises; higher; less
The Federal Reserve Bank carries a large balance of securities issued or guaranteed by US gov't agencies, such as _____ backed by Fannie Mae, Freddie Mac, and Ginnie Mae
mortgage-backed securities
The repeated issuing of new loans and creation of new deposits triggered by a change in the reserve requirement results in bank deposits that is many times different than the original change in reserves
multiplier effect
Banks chartered by the office of the comptroller of the currency _____ become members of The Federal Reserve, while state-chartered banks _____ become members if they qualify
must; may
The purchase and sale of US government securities by the trading desk at the NY Fed under the direction of the FOMC
open market operations
Depository institutions since 2008 have been motivated to hold large balances of excess reserves at the Fed rather than lend them to other banks. This is because in 2008 the Fed began to
pay interest on excess reserves
What does the "money base" consist of?
reserves and currency in circulation
When The Federal Reserve implements monetary policy by targeting the money supply (currency and bank reserves), it fixes the _____ while letting the _____ fluctuate
supply curve; demand curve
Federal Reserve Banks operate under the general supervision of what
the board of governors of The Federal Reserve
Who is the chair of the Federal Open Market Committee
the chair of the Board of Governors
Currently the Fed sets monetary policy by targeting
the fed funds rate
T/F On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding
true
By increasing banks use of the discount window as a source of funding, the Federal Reserve hopes to reduce _____ in the _____
volatility; federal funds market
