Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Banking
Q:
Suppose you purchase a bond with a coupon of $30 for $1025. You sell it one year later for $1050. What rate of return did you earn? Report a percentage with two decimal places.
Q:
Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year, which includes 4% interest. How much will they receive for the bond?
A) $9,600
B) $9,615
C) $10,000
D) $10,400
Q:
Which of the following statements is most correct? A. The FOMC sets the federal funds rate.B. The discount rate is the primary policy tool of the FOMC.C. The FOMC sets the target federal funds rate.D. The difference between the target and actual federal funds rate is the dealer's spread.
Q:
How can a bond have a negative rate of return?
A) if the current yield is greater than the coupon rate
B) if the current yield is less than the coupon rate
C) if the rate of capital loss exceeds the current yield
D) if the rate of capital gains is less than the current yield
Q:
If the real interest rate is -1.4% and the nominal interest rate is 6%, expected inflation equalsA) -2%B) -0.8%C) 0.8%D) 2%
Q:
Why isn't the current yield a good indicator of holding a bond?
A) It doesn't account for the yield to maturity.
B) It doesn't account for capital gains or losses.
C) It doesn't account for the coupon.
D) It assumes that the current price equals its par value.
Q:
The tools of monetary policy include: A. the target federal funds rate.B. the excess reserve rate.C. the currency-to-deposit ratio.D. both the excess reserve rate and the target federal funds rate.
Q:
If the real interest rate is 2% and expected inflation is 2%, the nominal interest rate is:
A) 0%
B) 1%
C) 2%
D) 4%
Q:
The tools of monetary policy available to the Fed include each of the following, except the: A. currency-to-deposit ratio.B. discount rate.C. target federal funds rate.D. reserve requirement.
Q:
U.S. Treasury bonds
A) carry no risk of default and are therefore not risky investments.
B) have constant yields to maturity and are therefore not risky investments.
C) have constant coupon rates and are therefore not risky investments.
D) are subject to fluctuations in their market prices and are therefore risky investments.
Q:
The focus for most central banks today is: A. the quantity of M1.B. interest rates.C. the quantity of M2.D. controlling the size of the money multiplier.
Q:
Which of the following statements is most correct? A. The Fed can control the amount of reserves, but cannot control the monetary base.B. The Fed can control the makeup of the monetary base, but cannot affect the market interest rate.C. The Fed can control the size of the monetary base but not the price of its components.D. The Fed can control either the size of the monetary base or the price of its components.
Q:
Interest-rate risk can best be characterized as the risk that
A) you could have earned a higher interest rate if you waited to purchase a bond.
B) fluctuations in the price of a financial asset in response to changes in market interest rates.
C) you could have gotten a lower interest rate if you waited to lock in a mortgage.
D) short-term interest rates may exceed long-term interest rates.
Q:
Considering changes to the monetary base, are discount loans and federal funds borrowing equivalent? Explain.
Q:
What is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931?
A) 2%
B) 4%
C) 6%
D) 19%
Q:
The ways the Fed can inject reserves into the banking system include: A. an increase in the size of the Fed's balance sheet through purchasing securities.B. increasing the discount rate.C. making loans to non-bank corporations.D. an increase in the size of the Fed's balance sheet through selling securities.
Q:
Explain why the Fed making more discount loans to banks, or an open market purchase, or an increase in foreign exchange reserves all have the same effect on its balance sheet. What is that effect on the monetary base?
Q:
If an investor is certain that market interest rates will decline in the future, which of the following will she be most likely to purchase?
A) a six-month government bill
B) a two-year government note
C) a ten-year government bond
D) a fifty-year government bond
Q:
Most central banks, including the Fed and the ECB, provide discount loans at a rate: A. equal to the target interest rate.B. below the target interest rate.C. above the target interest rate.D. that is equal to the overnight interbank lending rate.
Q:
During the financial crisis of 2007-2009, the deposit expansion multiplier plummeted to a fraction of its normal value. Why?
Q:
For a specific change in the yield to maturity
A) the shorter the time until a bond matures, the greater will be the change in its price.
B) the longer the time until a bond matures, the greater will be the change in its price.
C) the longer the time until a bond matures, the greater will be the change in its par value.
D) the shorter the time until a bond matures, the greater will be the change in its coupon rate.
Q:
What is normally the ultimate cause of hyperinflation?
Q:
What was the main reason the Fed stopped announcing growth targets for money aggregates in the early 2000s?
Q:
If the current price of a bond is less than its face value,
A) an investor will receive a capital gain by holding the bond until maturity.
B) the yield to maturity must be less than the current yield.
C) the coupon rate must be greater than the current yield.
D) the coupon rate must be equal to the current yield.
Q:
Make use of the quantity equation to answer the following problem. If the Fed increases the money supply by 6%, economic growth is 2%, and inflation is 2%, what is happening to the velocity of money? Be specific.
Q:
You are given the following information: Reserves (R) in the banking system amount to $48 billion, of which $45.8 billion are required. Currency in the hands of the public amounts to $692.5 billion while checkable deposits amount to $650 billion. Calculate the money multiplier.
Q:
If the current price of a bond is equal to its face value,
A) there is no capital gain or loss from holding the bond until maturity.
B) the yield to maturity must be greater than the current yield.
C) the current yield must be greater than the coupon rate.
D) the coupon rate must be greater than the yield to maturity.
Q:
Make use of the quantity equation to answer the following problem. If the Fed increases the money supply by 4%, velocity increases by 1%, and economic growth is 3%, by how much will the price level increase?
Q:
What would be the amount of deposits D, given that the monetary base MB = $750 billion, the required reserve rate (rD) = 0.1, the excess reserve rate (ER/D) = 0.005, and non-bank currency to deposits (C/D) equaled 1.2?
Q:
The rate of return is equal to
A) the coupon rate plus the rate of capital gains.
B) the coupon rate plus the current yield.
C) the current yield plus the rate of capital gains.
D) the coupon rate multiplied by the rate of capital gains.
Q:
Traveler's checks have no reserve requirements and are included in M1. When people travel during the summer and convert some of their checking account deposits into traveler's checks, explain what happens to the monetary base.
Q:
Make use of the quantity theory of money to solve the following problem. If the Fed has an inflation target of 2% and the velocity of money is constant, by how much should it increase the money supply each year if economic growth is expected to average 3%?
Q:
Total banking system reserves equal $58.65 billion. The total banking system checkable deposits subject to reserve requirements are $510 billion. The required reserves are $51 billion. What is the required reserve rate, and what is the excess reserve rate?
Q:
If reserves pay interest below the market federal funds rate, why would a bank hold any excess reserves?
Q:
The American Civil War lasted from the spring of 1861 to the spring of 1865. During the war the Confederate government issued substantial amounts of fiat paper currency. What do you think happened to the price level (measured in Confederate dollars) in the Confederate states during the final months of the war?
Q:
Why would it be correct to say that, if we assume that people do not change their currency holdings and that banks do not hold any excess reserves, the equation really could be stated as ?
Q:
The required reserve rate set by the Fed is ten percent of all checkable deposits. A bank sells $1 million of U.S. Treasury securities it owns to the Fed. Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.
Q:
In quantity theory terms, during a hyperinflation,
A) money supply increases rapidly, but velocity does not
B) velocity increases rapidly, but money supply does not
C) both the money supply and velocity increase rapidly
D) neither the money supply nor velocity increase rapidly
Q:
If we assume the required reserve rate is ten percent (0.1), and that the public does not change their currency holdings and that banks do not hold any excess reserves, what will be the change in deposits resulting from a $150 million open market purchase by the Fed?
Q:
Evidence indicates that there's a strong relationship between money and inflation in:
A) both the short and long run
B) neither the short nor the long run
C) short run, but not the long run
D) long run, but not the short run
Q:
What happens to the monetary base if people, fearing a bank run, convert their checking deposits into currency holdings?
Q:
Why is it more correct to say that the Fed (the central bank) controls the monetary base than to say it controls the amount of reserves?
Q:
You receive a $1,000 gift from your grandmother when you graduate from college. Your grandmother withdrew the $1,000 from her checking account and gave you ten $100 bills. You deposit the ten bills into your checking account. Discuss the impact of these transactions on your grandmother's balance sheet, your balance sheet, and the Fed's balance sheet.
Q:
In July 2010, what was the total value of U.S. currency in circulation?
A) $500 million
B) $150 billion
C) $1080 billion
D) $6 trillion
Q:
Who benefits from rising inflation?
A) those who already have fixed-rate loans
B) those considering taking out a loan
C) lenders that already made loans
D) lenders considering whether to make new loans
Q:
The Fed's current position towards the existing monetary aggregates is
A) it is convinced that M1 is the best measure of the money supply.
B) it is convinced that M2 is the best measure of the money supply.
C) it is an issue of ongoing research.
D) it is reverting to considering currency alone as the best measure of the money supply.
Q:
The Treasury usually requires most businesses to regularly deposit taxes withheld from employees into accounts at designated commercial banks. On a regular basis, the funds in these accounts are transferred to the Treasury's account at the Fed. Discuss what is happening to the balance sheet of the banking system as the businesses are making deposits and these tax accounts are increasing. What happens to the Banking system's balance sheet when the funds are transferred to the Fed?
Q:
All of the following were took place during the German hyperinflation in the 1920s EXCEPT
A) banks reduced lending.
B) some banks only made loans to customers who agreed to repay in terms of foreign currencies or commodities.
C) Deutsche Bank had to lay off many workers due to lack of business.
D) households and firms increased their demand for loans.
Q:
Research has shown that nations with highly independent central banks tend to have low
A) inflation.
B) interest rates.
C) economic growth.
D) unemployment.
Q:
Which of the following makes up the largest share of M2?
A) M1
B) savings deposits
C) small time deposits
D) money market mutual fund shares
Q:
Given the prevalence of electronic payment mechanisms like credit cards and debit cards and the safety of checks, why is the amount of currency in the hands of the public increasing?
Q:
Which country experiencing hyperinflation in excess of 15 billion percent in 2008?
A) Argentina
B) Canada
C) Iceland
D) Zimbabwe
Q:
Money market deposit accounts are included in
A) only M1.
B) only M2.
C) M1 and M2.
D) neither M1 nor M2.
Q:
Why do most central banks publish their balance sheets so frequently?
Q:
If the Fed sells euros valued at $100 million to commercial banks, will this change the size of the Fed's liabilities and assets? Explain.
Q:
Follow a $1 billion purchase of U.S. Treasury bonds by the Fed from commercial banks. Discuss the changes that occur to the balance sheet of the banking system and the balance sheet of the Fed.
Q:
Which of the following is included in M1, but not in M2?
A) currency
B) checking account deposits
C) travelers checks
D) Everything in M1 is in M2.
Q:
In terms of foreign exchange reserve holdings, how does the Fed's balance sheet compare to that of the European Central Bank (ECB)?
Q:
Explain the impact on the Fed's balance sheet from a $10 million open market purchase of U.S. Treasury Securities. Be sure to identify which categories of assets and liabilities change and by what amounts.
Q:
Which of the following statements is true about M2?
A) Its total value is smaller than that of M1.
B) Apart from those assets also included in M1, it includes no assets that offer check-writing features.
C) Its total value is about five times as large as M1.
D) It includes large-denomination time deposits.
Q:
If the central banks of most countries do not set the exchange rates, why do they hold foreign exchange as one of their assets?
Q:
Which of the following is NOT included in M2?
A) currency
B) savings bonds
C) money market deposit accounts
D) overnight repurchase agreements
Q:
Suppose a student writes a check in the amount of $300 to the college bookstore for textbooks. Discuss briefly the impact on the student's balance sheet, his/her bank's balance sheet and the balance sheet of the Fed.
Q:
The Federal Reserve's Balance sheet would include an item labeled Currency. Is this an asset or a liability of the Fed, and does it include all currency that is printed? Explain.
Q:
The M2 aggregate
A) includes M1 plus short-term investment accounts.
B) includes M1 plus large-denomination time deposits.
C) equals currency plus checking account deposits at commercial banks.
D) is the best definition of money purely as a medium of exchange.
Q:
The assets that appear on the central bank's balance sheet include the category of loans. Who are central banks lending to and are these loans associated with the central bank functioning as the government's bank? Explain.
Q:
All of the following are characteristics of debit cards EXCEPT:A) payments are deferred until a later dateB) they can be used like checksC) they eliminate the problem of trust since the bank's computer authorizes the transactionD) when used at a store, his bank instantly credits the store's account with the amount and deducts it from his account.
Q:
As of October 2012, the amount of money as measured by M2 was about
A) $880 billion.
B) $1700 billion.
C) $10.2 trillion.
D) $14 trillion.
Q:
What do many economists blame for the severity of the Great Depression?
A) The collapse of the banking system.
B) A rapid increase in the money supply.
C) The issuing of an excessively large amount of currency by the Federal Reserve.
D) The collapse of the electronic funds transfer system.
Q:
The authors open Chapter 17 with a contrast between the Fed's actions in response to the terrorist attacks of September, 2001 and its response to the financial crisis of the Great Depression. Why was the Fed successful at dealing with the crisis in 2001, and not as successful with the crisis of the early 1930s?
Q:
During the 1990s, the money multipliers for M1 and M2: A. decreased.B. remained fairly constant even though the economy grew.C. the M1 multiplier decreased while the M2 multiplier increased dramatically.D. increased dramatically as the economy grew.
Q:
Why does the payments system continue to change over time?
Q:
All of the following are examples of electronic funds EXCEPT
A) credit cards.
B) debit cards.
C) stored value cards.
D) e-cash.
Q:
Automatic teller machines and debit cards are examples of
A) electronic funds transfer systems.
B) commodity monies.
C) legal tender in the United States.
D) modern barter systems.
Q:
Which of the following statements about ACH transactions is false?
A) They reduce the likelihood of missed payments.
B) They reduce transactions costs associated with check processing.
C) They reduce the costs that lenders incur in notifying customers of missed payments.
D) They typically involve digital cash.
Q:
One thing the Fed has learned over the past twenty-five years is: A. the money multiplier is fairly constant no matter what changes are made to the monetary base.B. the money multiplier is unstable over time.C. the money multiplier has a trend rate of growth that is fairly constant.D. it should focus its attention on targeting M2.
Q:
The money multiplier is much lower today than it was twenty-five years ago because: A. people are holding less currency today.B. the currency-to-deposit ratio is much higher today.C. there is less currency available today.D. credit cards are more widely used.
Q:
The use of checks in transactions
A) entails lower information costs than the use of currency.
B) entails fewer steps than settling transactions with currency.
C) avoids the cost of transporting currency back and forth.
D) entails lower information and fewer steps than settling transactions with currency.
Q:
During the early years of the Great Depression, a study of the money aggregates reveals that the money multiplier: A. was at an all-time high.B. increased from 1929 right through 1936.C. decreased.D. was constant from 1929 through 1936.
Q:
The use of deposit sweeping allows banks to: A. pay higher rates of interest than are allowed by law.B. reduce the amount of required reserves they must hold.C. pay less for FDIC insurance.D. weed out less profitable deposits.