Question
Exercise 1. Suppose the central bank sets a required reserve ratio of 10 percent. First Municipal Bank (FMB) currently has deposits of $1,000 from the
Exercise 1.
Suppose the central bank sets a required reserve ratio of 10 percent. First Municipal Bank (FMB) currently has deposits of $1,000 from the public and an actual reserve ratio of 20 percent. If FMB receives an additional deposit of $100,
then it has required reserves of $210 and holds excess reserves of $10.
then it has required reserves of $10 and holds excess reserves of $20.
then it has a total of $300 reserves and holds excess reserves of $190.
then it has a total of $210 reserves and holds excess reserves of $90.
The banking system has $1 million currency in their vaults and $10 million deposits at the Fed. The required reserve ratio is 10%.
monetary base is equal to $11 million.
bank reserves are equal to $2 million.
monetary base cannot be determined unless we also know the amount of currency in circulation.
money supply is equal to $110 million.
Suppose the Fed increases the required reserve ratio from 10% to 100%. As a result,
it is impossible to have bank failures caused by bank runs.
the simple money multiplier will be reduced to zero.
deposit-taking banks will have very limited influence over money supply.
banks will extend loans only to those who are able to repay them 100%.
If the Federal Reserve conducts a $10 million open-market sale and the reserve requirement is 20%, the monetary base will:
increase by $10 million.
increase by $8 million.
decrease by $10 million.
decrease by $50 million.
Question 5
When the Federal Reserve extends loans to commercial banks, the interest rate charged on these loans is called:
coupon rate.
discount rate.
target rate.
federal funds rate.
Question 6
Total amount of reserves held by deposit-taking banks could be affected by
the total amount of demand deposits.
the minimum reserve requirement set by the Fed.
the Fed's open market operations.
All of the above are correct.
Please read the policy statement (Links to an external site.)Links to an external site. for the FOMC meeting that took place on on Sept 26, 2018. According to this statement, FOMC decided to:
maintain the target range for the federal funds rate at 2 to 2?1/4 percent.
lower the target range for the federal funds rate to 2 to 2-1/4 percent.
raise the target range for the federal funds rate to 2 to 2-1/4 percent.
raise the target range for the federal funds rate to 2-1/4 to 2?1/2 percent.
Two.
Each Federal Reserve Bank is
Answer
a corporation.
a government owned enterprise.
a government subsidized entity.
a government-sponsored enterprise.
A transaction in which the Fed agrees to buy a security one day and sell it back the next day is
Answer
an overnight securitization operation.
a repurchase agreement.
a legal tender.
a rebate sale.
The Federal Reserve document that states the goals of the FOMC and the target for the federal funds rate is known as the
Answer
Directive.
Beige
book.
Bluebook.
Green book.
How long is the normal term in office for a Governor of the Federal Reserve Board?
Answer
Five years
Seven years
Fourteen years
Life
The federal funds rate is the interest rate on
Answer
loans to banks from the Fed.
loans by banks to the Fed.
short-term loans between banks.
Treasury bills.
Expenditures of each Federal Reserve Bank are approved by
Answer
the U.S. Senate.
the President of the United States.
the U.S. Treasury Department.
the Federal Reserve Board of Governors.
Federal Reserve Banks pay for their central banking operations through
Answer
government tax revenue.
interest on the securities they own.
fees charged to banks that use their services.
dividends paid by local banks.
When the Fed engages in open-market operations, the transactions are conducted by
Answer
the Open Market Desk at the Federal Reserve Bank of New York.
the Open Market Desk at the Federal Reserve Board in Washington, D.C.
the National Bureau of Economic Research.
the Federal Open Market Committee.
In 2006, Chairman Greenspan left the Fed because
Answer
President Bush wanted him to resign.
he reached mandatory retirement age.
his term as Governor expired.
his term as Chairman expired.
The Federal Reserve publication that discusses forecasts for the economy is known as the
Answer
Redbook.
Beigebook.
Bluebook.
Greenbook.
The FOMC directive
Answer
describes forecasts for the economy.
states the target for the federal funds rate.
discusses the regional economies around the country.
shows the Fed's balance sheet.
The chairman of the Federal Reserve Board who reduced the inflation rate from over 10 percent to about 3 percent in the early 1980s was
Answer
Arthur Burns.
G. William Miller.
Paul Volcker.
Alan Greenspan.
Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?
Answer
William McChesney Martin
Arthur Burns
Paul Volcker
G. William Miller
There are ____ Federal Reserve Banks.
Answer
seven
ten
twelve
fifteen
Purchases and sales of government securities in the secondary market are known as
Answer
discount borrowing and lending.
federal funds purchases and sales.
discounting.
open-market operations.
The monetary base can be divided into
Answer
currency plus transactions deposits.
vault cash plus reserves held at the Fed.
required clearing balances plus currency.
reserves plus currency.
The Fed does not generally change reserve requirements to affect the money supply because
Answer
the impact is too large.
the Fed needs the approval of Congress to do so.
it's not legal for the Fed to do so.
the Fed needs the approval of the President of the United States to do so.
The Fed has decided to tighten monetary policy, so it decreases the money supply through
Answer
defensive open-market operations.
dynamic open-market operations.
reduced discount loans for profit.
reduced discount loans for business needs.
A haircut is
Answer
the extra collateral the Fed requires above the value of a discount loan.
the extra principal a commercial bank requires the Fed to pay when making a discount loan.
the difference between what an investor pays for a bond and what the investor sells the bond for.
expected personal grooming for a member of the Board of Governors.
Currency held by the nonbank public plus banks' vault cash plus banks' deposits at the Fed equals
Answer
the Fed's capital stock.
discount loans.
the monetary base.
required clearing balances.
The extra collateral the Fed requires above the value of a discount loan is known as
Answer
the term premium.
a haircut.
a covenant.
secondary credit.
Currency held by the nonbank public plus banks' reserves equals
Answer
the Fed's capital stock.
discount loans.
the monetary base.
required clearing balances.
The money supply divided by the monetary base equals
Answer
the reserve ratio.
velocity.
high-powered money.
the money multiplier.
The main liability on the Federal Reserve's balance sheet is
Answer
discount loans.
securities.
monetary base.
capital.
A bank in good condition may take out a loan without the Fed questioning the purpose or nature of the loan. Such a loan is known as
Answer
a no documentation discount loan.
a haircut.
a covenant.
a primary credit discount loan.
If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the
Answer
federal funds rate decreases.
primary credit discount rate decreases.
primary credit discount rate increases.
federal funds rate increases.
In November and December, people use more currency than usual, so the Fed increases the money supply through
Answer
defensive open-market operations.
dynamic open-market operations.
discount loans for profit.
discount loans for business needs.
Reserves held by banks at the Fed that earn implicit interest payments in the form of earnings credits for Fed services are known as
Answer
required clearing balances.
reserve requirements.
excess reserves.
non-transaction deposits.
Required clearing balances
Answer
pay interest in the form of earnings credits.
count as reserves and can be used to meet reserve requirements.
pay interest equal to the federal funds rate minus one percent.
are required to be held against transactions deposits.
iii. Explain the following.
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Intermediate Accounting
Authors: J. David Spiceland, James Sepe, Mark Nelson
6th edition
978-0077328894, 71313974, 9780077395810, 77328892, 9780071313971, 77395816, 978-0077400163
