Financial System Of The Economy Principles Of Money And Banking 5th Edition Maureen Burton,Bruce Brown - Solutions

What are the ultimate targets of monetary policy?
What is an intermediate target? Why does the Fed use intermediate targets instead of focusing on the ultimate targets? What is an operating target?
What is the recognition lag? The policy lag? The impact lag?
How would the recognition, policy, and impact lags differ with regard to monetary and fiscal policy? What role does uncertainty play?
Are current incoming economic data or forecasts more important in guiding monetary policy? Why?
What is policy regret? What are some of the strategies that the Fed could use to minimize policy regret?
Why can short-term goals sometimes differ from long-term goals? Why does the Fed now establish long-term economic projections four times a year rather than two times?
What is an irregular variance? How does it affect Fed behavior?
What are some common intermediate targets that the Fed has used to guide policy in recent years? Give two criteria for intermediate targets.
Why can’t the Fed target both an interest rate and a monetary aggregate simultaneously?
The Fed should do everything it can to eliminate inflation.” Do you agree? Explain.
Can using an interest rate as an intermediate target ever have an inflationary bias? Explain.
Assume that the Fed is targeting an interest rate and aggregate demand drops. Show graphically why the Fed will have to reduce the supply of money to maintain the interest rate target.
What should the Trading Desk do if the fed funds rate falls below the targeted rate?
Explain what is meant by the reserve need.
For what purposes are system repurchase agreements and reverse repurchase agreements likely to be used?
For what purposes are outright purchases and sales likely to be used?
What is the computation period? What is the maintenance period?
When and why would the Fed accommodate a rise in reserve demand by supplying more reserves?
What characteristics of Treasury bills make them desirable for use in outright transactions by the Trading Desk?
The float increases unexpectedly. Will the Fed typically respond with outright purchases or temporary purchases?
Why have required reserves fallen in recent years? Will the trend continue?
Under lagged reserve accounting, how does the computation period correspond with the maintenance period? Under contemporaneous reserve accounting, how does the computation period correspond with the
Why and how has the Fed become more open about monetary policy decisions in recent years?
What are the special lending facilities created by the Fed in response to the financial crisis of 2007– 2009? What does each do? Why were they created?
Assume that checkable deposits are $500 billion, desired excess reserves are 1 percent of deposits, the required reserve ratio is 10 percent, and the amount of reserves is $50 billion. What is the
The Fed anticipates a seasonal reserve need of $10 billion over the next month. Is it more likely to use outright purchases or temporary transactions to meet this need? If the Fed supplies $20
Explain the following statement: Even though outright purchases account for less than 10 percent of Fed transactions, the Fed’s portfolio of securities consists mainly of securities bought outright.
Assume that the demand for required plus excess reserves is $50 billion, the level of discount borrowing is $100 million, and the actual level of nonborrowed reserves is $49 billion. What is the
What are the implications of the following Fed activities? a. The Fed sells securities using reverse repurchase agreements. b. The Fed buys securities using system repurchase agreements. c. The
Briefly explain the Bretton Woods exchange rate system. When was it created? When and why did the system collapse?
Under the Bretton Woods system, the U.S. dollar was the official reserve asset. How did this affect the U.S. balance of payments on current and capital accounts? Could the United States experience
Assume that you work at the central bank of a small country that is considering an expansionary monetary policy to speed up the level of economic activity. Given fixed exchange rates, advise the
Argue that fixed exchange rates are preferable to flexible exchange rates. Then present the opposite argument.
For each of the following situations, assuming fixed exchange rates, tell what will happen to the balance of payments on current and capital accounts in the United States, ceteris paribus:a. Domestic
What are the advantages of fixed exchange rates? What are the disadvantages? Does it matter if the country is large or small?
Briefly explain how interest rates on instruments of comparable risk and maturity will tend to be equalized in a world without capital barriers.
Under a flexible exchange rate system, what effect does contractionary monetary policy have on the exchange rate?
Why is a country limited in executing its own monetary policy under a fixed exchange rate system? How is it limited under a flexible exchange rate system?
How can monetary policy coordination among countries increase the degree to which monetary policy can be used to pursue macroeconomic goals under fixed exchange rates? Under flexible exchange rates?
Could high U.S. interest rates affect investment spending in foreign countries? Explain.
What is the Euro system? Briefly discuss how the Euro system conducts monetary policy.
What is full dollarization? How does it differ from a currency board? What is seigniorage?
The Fed exchanges $1 million for 139 million yen. If the Fed sells $1 million worth of T-bills in the open market, what will happen to domestic interest rates and the money supply? If the Fed does
On September 30, 2008, what percentage of bank assets did the smallest 40 percent of banks control? What percentage of bank assets did the largest 7 percent of banks control?
Briefly discuss the incentives that have led to a rapid pace of financial innovation in the last 45 years.
Discuss the factors that have contributed to the revolutionary changes in the structure of U.S. banking in recent years. Which factors are most important? Could regulators have prevented many of the
Will the revolutionary changes in banking increase or decrease the competitiveness of the industry? Why?
Discuss the following statement: The breakdown of barriers to interstate and intrastate banking means that competition in banking is decreasing.
What is the difference between a bank holding company and a financial holding company?
What is merchant banking?
What is disintermediation? When is it likely to occur? What factors can reduce it? If I take my funds out of my credit union and put them in a money market mutual fund, have I disintermediated? Why
Discuss the roles that technology and regulation play in aiding financial innovation. Will innovation always occur to exploit loopholes in regulations?
What are nondeposit liabilities? Give some examples. What are negotiable CDs? How do nondeposit liabilities differ from negotiable CDs? What are retail sweep accounts? What are credit derivatives?
What is Regulation Q? Regulation D? Discuss ways banks have found to get around both regulations.
What is securitization? How does it reduce interest rate risk? Name some types of liabilities that are now securitized.
Discuss some characteristics of the financial system in 2009 that make it different from earlier periods.
How have increased competition and price volatility affected financial innovation? What are some specific types of innovation that deal with these factors?
How do collateralized mortgage securities differ from mortgage-backed securities? Which has less risk?
Defend the following statement: Once an innovation appears, it will remain even after the impetus for its development disappears. Give an example.
What are derivatives? Define forward, futures, and option agreements. What are the underlying instruments in these agreements?
Discuss ways in which each of the following risks can be reduced: default risk, interest rate risk, liquidity risk, and exchange rate risk.
Why does financial intermediation inherently involve risk? Are FIs better at evaluating risks than you are? Why or why not?
What is a financial crisis? Why does an economic downturn often lead to a financial crisis? Explain why the reverse is also true.
Can sharp increases in interest rates increase the risk of a financial crisis? Explain.
What is a debt deflation and why is it so onerous for the economy?
Is a financial crisis more likely to be triggered by inflation or deflation? Explain.
What does “too big to fail” mean? What are the costs of such a policy? Under what circumstances would your funds be safer in a large bank that made risky loans rather than in a small conservative
What is moral hazard? Why does deposit insurance inherently involve moral hazard? What factors contribute to moral hazard on the inter national level?
Discuss the factors that contributed to the S&L debacle during the 1980s.
Define derivatives. Why can they be risky?
S&Ls had limited experience making commercial loans, while commercial banks were extremely experienced in dealing with them. Explain how this difference could have exacerbated the adverse selection
Can derivatives cause massive losses if they are used only to hedge?
Discuss the reasons for the crisis in mortgage markets in the first de cade of the 2000s.
What are some ways policy makers responded to the financial crisis of 2008– 2009?
Define hedge, speculative, and Ponzi spending units. What is the financial instability hypothesis?
If all prices and my income fall by 25 percent, by what percent does the real value of my debt increase?
List three factors that can cause a financial crisis.
How is the failure of an FI different from the failure of a video rental store? What do these differences imply about the need for regulation?
Discuss the major provisions of the FIRREA and the Reform Act of 2005.
What is redlining? How is the Community Reinvestment Act supposed to affect it? What are the classifications for depository institutions and the ratings under the current regulations? Could my bank
What is the Basel Accord? Why is it desirable to have uniform international capital standards for banks? What is the difference between Basel I and II?
What is the intent of the 25 core principles for effective bank supervision?
Some contend that the passage of the IBBEA is having little effect on the banking industry. What is the basis of their argument? On what date were banks allowed to branch across state lines by
What are the provisions of the Deposit Insurance Reform Act of 2005?
Would a wealthy individual with bank accounts of more than $100,000 prefer the FDIC to use the purchase and assumption method or the payoff method to liquidate failed banks? Why?
What is core capital? How do risk-adjusted assets differ from total assets?
Who regulates money markets? Capital markets?
What are the major provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980? The Garn St. Germain Depository Institutions Act of 1982? Which act expanded the powers of
Explain the difference between risk-based capital standards and risk- based deposit insurance premiums.
What are the regulatory responsibilities of the Securities and Exchange Commission? What is insider trading? Who sets margin requirements?
Identify three self-regulating agencies and explain which industries they regulate. Speculate as to why an industry would self- regulate.
Explain the function of each: (a) National Credit Union Share Insurance Fund; (b) Pension Benefit Guaranty Corporation; (c) Securities Investor Protection Corporation; (d) FDIC
Explain the difference between the purchase and assumption method and the payoff method of resolving a bank insolvency. What does “too big to fail” mean?
What are the major provisions of the GLBA? What is an FHC? How does a bank holding company become an FHC? What conditions must be met to become an FHC?
Was investment banking effectively separated from commercial banking prior to the passage of GLBA? Explain.
What were the provisions of and purpose for the Emergency Economic Stabilization Act?
Assume that a bank has core capital of $1,000,000 and total capital of $2,000,000. Its total risk adjusted assets are $25,000,000 and total assets are $30,000,000. According to the Basel Accord
Define par (face) value, coupon rate, coupon payment, and current yield. What are call provisions and convertible provisions, and how do they affect the interest rates on newly issued securities?
What role do Moody’s and Standard & Poor’s Investors Ser vices play in the bond market?

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Financial System Of The Economy Principles Of Money And Banking 5th Edition Maureen Burton,Bruce Brown - Solutions

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