Question 1

The Federal Reserve does all but which one of the following?

Accepted Answer

A)  Conduct monetary policy 
B)  Supervise and regulate bank activities 
C)  Serve as the commercial bank for the U.S. Treasury 
D)  Operate check clearing and wire transfer facilities 
E)  Insure deposits 
A)  Conduct monetary policy 
B)  Supervise and regulate bank activities 
C)  Serve as the commercial bank for the U.S. Treasury 
D)  Operate check clearing and wire transfer facilities 
E)  Insure deposits E

Question 2

The Fed increases bank reserves in the system by $75 million. If there are no drains the expected change in bank deposits is

Accepted Answer

A)  $82.5 million. 
B)  $945 million. 
C)  $750 million. 
D)  $1,500 million. 
E)  $655 million. (1/0.10) F1F1F1S1F1F1F10 $75 million 
A)  $82.5 million. 
B)  $945 million. 
C)  $750 million. 
D)  $1,500 million. 
E)  $655 million. (1/0.10) F1F1F1S1F1F1F10 $75 million C

Question 3

The _____________ is a network linking over 9,000 banks with the Federal Reserve that is used to transfer deposits and make loan payments between participants.

Accepted Answer

A)  Fedwire 
B)  ACH 
C)  CHIPS 
D)  NASDAQ 
E)  SWIFT 
A)  Fedwire 
B)  ACH 
C)  CHIPS 
D)  NASDAQ 
E)  SWIFT A

Question 4

The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be

Accepted Answer

A)  $3,000 million. 
B)  $15,625 million. 
C)  $12,857 million. 
D)  $3,795 million. 
E)  none of the above. (1/0.07) F1F1F1S1F1F1F10 $900 million 
A)  $3,000 million. 
B)  $15,625 million. 
C)  $12,857 million. 
D)  $3,795 million. 
E)  none of the above. (1/0.07) F1F1F1S1F1F1F10 $900 million

Question 5

Before 2003 the discount window loan rate was set

Accepted Answer

A)  below the target fed funds rate. 
B)  above the target fed funds rate. 
C)  equal to the target fed funds rate. 
D)  equal to the repurchase rate. 
A)  below the target fed funds rate. 
B)  above the target fed funds rate. 
C)  equal to the target fed funds rate. 
D)  equal to the repurchase rate.

Question 6

An increase in Treasury securities held by the Fed leads to a decrease in the money supply.

Accepted Answer

A) True 
 B)False

Question 7

The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.

Accepted Answer

A) True 
 B)False

Question 8

Federal Reserve interest rate decisions can be vetoed by the U.S. President or the Congress.

Accepted Answer

A) True 
 B)False

Question 9

The major asset of the Federal Reserve is

Accepted Answer

A)  U.S. Treasury securities. 
B)  depository institution reserves. 
C)  currency outside banks. 
D)  vault cash of commercial banks. 
E)  gold and foreign exchange. 
A)  U.S. Treasury securities. 
B)  depository institution reserves. 
C)  currency outside banks. 
D)  vault cash of commercial banks. 
E)  gold and foreign exchange.

Question 10

The Fed offers three types of discount window loans. ______________ credit is offered to small institutions with demonstrable patterns of financing needs, _____________ credit is offered for short-term temporary funds outflows, and _____________ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems.

Accepted Answer

A)  Seasonal; extended; adjustment 
B)  Extended; adjustment; seasonal 
C)  Adjustment; extended; seasonal 
D)  Seasonal; primary; secondary 
E)  Adjustment; seasonal; extended 
A)  Seasonal; extended; adjustment 
B)  Extended; adjustment; seasonal 
C)  Adjustment; extended; seasonal 
D)  Seasonal; primary; secondary 
E)  Adjustment; seasonal; extended

Question 11

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are _____________ and its excess reserves are _____________.

Accepted Answer

A)  $85 million; $0 
B)  $770 million; $85 million 
C)  $89 million; $21 million 
D)  $685 million; $8.5 million 
E)  $77 million; $8 million Required = 10% (770); Excess = 85 - 10% (770) 
A)  $85 million; $0 
B)  $770 million; $85 million 
C)  $89 million; $21 million 
D)  $685 million; $8.5 million 
E)  $77 million; $8 million Required = 10% (770); Excess = 85 - 10% (770)

Question 12

From October 1983 to July 1993 the Federal Reserve targeted

Accepted Answer

A)  the fed funds rate. 
B)  borrowed reserves. 
C)  nonborrowed reserves. 
D)  M1. 
E)  M3. 
A)  the fed funds rate. 
B)  borrowed reserves. 
C)  nonborrowed reserves. 
D)  M1. 
E)  M3.

Question 13

About 40% of all U.S. banks are members of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 14

If the Fed is targeting interest rates and money demand increases, an appropriate policy response would be to

Accepted Answer

A)  increase reserve requirements. 
B)  increase the discount rate. 
C)  buy U.S. Treasury securities from government bond dealers. 
D)  increase government spending. 
E)  none of the above. 
A)  increase reserve requirements. 
B)  increase the discount rate. 
C)  buy U.S. Treasury securities from government bond dealers. 
D)  increase government spending. 
E)  none of the above.

Question 15

If the Fed wishes to stimulate the economy it could
I. buy U.S. government securities.
II. raise the discount rate.
III. lower reserve requirements.

Accepted Answer

A)  I and III only 
B)  II and III only 
C)  I and II only 
D)  II only 
E)  I, II, and III 
A)  I and III only 
B)  II and III only 
C)  I and II only 
D)  II only 
E)  I, II, and III

Question 16

The major monetary policy making arm of the Federal Reserve is the

Accepted Answer

A)  Board of Governors. 
B)  Council of Federal Reserve Bank Presidents. 
C)  Office of the Comptroller of the Currency. 
D)  Federal Reserve Bank of New York. 
E)  none of the above. The Federal Open Market Committee is the correct answer. 
A)  Board of Governors. 
B)  Council of Federal Reserve Bank Presidents. 
C)  Office of the Comptroller of the Currency. 
D)  Federal Reserve Bank of New York. 
E)  none of the above. The Federal Open Market Committee is the correct answer.

Question 17

The seven members of the Board of Governors of the Federal Reserve System serve 14-year nonrenewable terms. Each Board member is appointed by the President and confirmed by the Senate.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  I only 
B)  I and II only 
C)  II and III only 
D)  I and III only 
E)  I, II, and III 
A)  I only 
B)  I and II only 
C)  II and III only 
D)  I and III only 
E)  I, II, and III

Question 19

What are the main responsibilities of the FOMC?

Accepted Answer

Promote full employment; promo

Question 20

Which of the following is the major monetary policy making body of the U.S. Federal Reserve System?

Accepted Answer

A)  FOMC 
B)  OCC 
C)  FRB bank presidents 
D)  U.S. Congress 
E)  Group of Eight 
A)  FOMC 
B)  OCC 
C)  FRB bank presidents 
D)  U.S. Congress 
E)  Group of Eight

Exam 4: The Federal Reserve System, Monetary Policy, and Interest Rates

The Federal Reserve does all but which one of the following?

The Fed increases bank reserves in the system by $75 million. If there are no drains the expected change in bank deposits is

The _____________ is a network linking over 9,000 banks with the Federal Reserve that is used to transfer deposits and make loan payments between participants.

The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be

Before 2003 the discount window loan rate was set

An increase in Treasury securities held by the Fed leads to a decrease in the money supply.

The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities.

Federal Reserve interest rate decisions can be vetoed by the U.S. President or the Congress.

The major asset of the Federal Reserve is

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are _____________ and its excess reserves are _____________.

From October 1983 to July 1993 the Federal Reserve targeted

About 40% of all U.S. banks are members of the Federal Reserve System.

If the Fed is targeting interest rates and money demand increases, an appropriate policy response would be to

If the Fed wishes to stimulate the economy it could I. buy U.S. government securities. II. raise the discount rate. III. lower reserve requirements.

The major monetary policy making arm of the Federal Reserve is the

The seven members of the Board of Governors of the Federal Reserve System serve 14-year nonrenewable terms. Each Board member is appointed by the President and confirmed by the Senate.

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

What are the main responsibilities of the FOMC?

Which of the following is the major monetary policy making body of the U.S. Federal Reserve System?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Mutual Funds and Hedge Funds

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are _ and its excess reserves are _.