Q&A Hero

Q: Instrument independence is the ability of ________ to set monetary policy ________. A. the central bank; goals B. Congress; goals C. Congress; instruments D. the central bank; instruments

Q: Who are the voting members of the Federal Open Market Committee and why is this committee important? Where does the power lie within this committee?

Q: Why does the Federal Reserve Bank of New York play a special role within the Federal Reserve System?

Q: Subject to the approval of the Board of Governors, the decision of choosing the president of a district Federal Reserve Bank is made by A. all nine district bank directors. B. the six district bank directors elected by the member banks. C. three district bank directors who are professional bankers. D. district bank directors who are not professional bankers. E. class A and class B directors.

Q: The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will be A. higher exchange rates or higher unemployment. B. higher inflation or a stronger economy. C. higher inflation or a weaker economy. D. lower inflation or a stronger economy.

Q: The teal book is the Fed research document containingA. the forecast of national economic variables for the next three years.B. forecasts of the money aggregates conditional on different monetary policy stances.C. information on the state of the economy in each Federal Reserve district.D. both A and B.E. A, B and C.

Q: The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A. beige book. B. green book. C. blue book. D. black book.

Q: Although reserve requirements and the discount rate are not actually set by the ________, decisions concerning these policy tools are effectively made there. A. Federal Reserve Bank of New York B. Board of Governors C. Federal Open Market Committee D. Federal Reserve Banks

Q: Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input. A. three; ten B. five; ten C. three; twelve D. five; twelve

Q: The majority of members of the Federal Open Market Committee are A. Federal Reserve Bank presidents. B. members of the Federal Advisory Council. C. presidents of member banks. D. the seven members of the Board of Governors.

Q: The Federal Open Market Committee consists of the A. five senior members of the seven-member Board of Governors. B. seven members of the Board of Governors and seven presidents of the regional Fed banks. C. seven members of the Board of Governors and five presidents of the regional Fed banks. D. twelve regional Fed bank presidents and the chairman of the Board of Governors.

Q: The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the A. Board of Governors. B. chairman of the Board of Governors. C. Federal Open Market Committee. D. Open Market Advisory Council

Q: The Federal Open Market Committee usually meets ________ times a year. A. four B. six C. eight D. twelve

Q: Which of the followings is NOT a current duty of the Board of Governors of the Federal Reserve System? A. setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B. setting the maximum interest rates payable on certain types of time deposits under Regulation Q C. approving the discount rate "established" by the Federal Reserve banks D. voting on the conduct of open market operations

Q: Which of the followings is a duty of the Board of Governors of the Federal Reserve System? A. setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B. setting the maximum interest rates payable on certain types of time deposits under Regulation Q C. regulating credit with the approval of the president under the Credit Control Act of 1969 D. All governors advise the president of the United States on economic policy.

Q: While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined by A. Congress. B. the president of the United States. C. the Senate. D. the Board of Governors.

Q: The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________, renewable term. A. one-year B. two-year C. four-year D. eight-year

Q: Each governor on the Board of Governors can serve A. only one nonrenewable fourteen-year term. B. one full nonrenewable fourteen-year term plus part of another term. C. only one nonrenewable eight-year term. D. one full nonrenewable eight-year term plus part of another term.

Q: Members of the Board of Governors are A. chosen by the Federal Reserve Bank presidents. B. appointed by the newly elected president of the United States, as are cabinet positions. C. appointed by the president of the United States and confirmed by the Senate. D. never allowed to serve more than 7-year terms.

Q: There are ________ members of the Board of Governors of the Federal Reserve System. A. 5 B. 7 C. 12 D. 19

Q: The Depository Institutions Deregulation and Monetary Control Act of 1980 A. established higher reserve requirements for nonmember than for member banks. B. established higher reserve requirements for member than for nonmember banks. C. abolished reserve requirements. D. established uniform reserve requirements for all banks.

Q: Banks subject to reserve requirements set by the Federal Reserve System include A. only nationally chartered banks. B. only banks with assets less than $100 million. C. only banks with assets less than $500 million. D. all banks whether or not they are members of the Federal Reserve System.

Q: The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its A. concern over declining Fed membership. B. belief that all banking regulations should be eliminated. C. belief that interest rate ceilings were too high. D. belief that depositors had to become more knowledgeable of banking operations.

Q: Prior to 1980, member banks left the Federal Reserve System due to A. the high cost of discount loans. B. the high cost of required reserves. C. a desire to avoid interest rate regulations. D. a desire to avoid credit controls.

Q: Of all commercial banks, about ________ belong to the Federal Reserve System. A. 10% B. one half C. one third D. 90%

Q: All ________ are required to be members of the Fed. A. state chartered banks B. national banks chartered by the Office of the Comptroller of the Currency C. banks with assets less than $100 million D. banks with assets less than $500 million

Q: Which of the following functions is NOT performed by any of the twelve regional Federal Reserve Banks? A. check clearing B. conducting economic research C. setting interest rates payable on time deposits D. issuing new currency

Q: An important function of the regional Federal Reserve Banks is A. setting reserve requirements. B. clearing checks. C. determining monetary policy. D. setting margin requirements.

Q: The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee? A. Philadelphia B. Boston C. San Francisco D. New York

Q: The Federal Reserve Bank of ________ houses the open market desk. A. Boston B. New York C. Chicago D. San Francisco

Q: Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually. A. four B. five C. six D. eight

Q: The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks. A. 5; 2; 2 B. 2; 5; 2 C. 4; 2; 3 D. 3; 3; 3

Q: Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors. A. three; six B. four; five C. five; four D. six; three

Q: The Federal Reserve Banks are ________ institutions since they are owned by the ________. A. quasi-public; private commercial banks in the district where the Reserve Bank is located B. public; private commercial banks in the district where the Reserve Bank is located C. quasi-public; Board of Governors D. public; Board of Governors

Q: The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System. A. 25 B. 33 C. 50 D. 67

Q: Which of the following is an entity of the Federal Reserve System? A. the U.S. Treasury Secretary B. the FOMC C. the Comptroller of the Currency D. the FDIC

Q: Which of the following is NOT an entity of the Federal Reserve System? A. Federal Reserve Banks B. the Comptroller of the Currency C. the Board of Governors D. the Federal Open Market Committee

Q: What makes the Federal Reserve so unique compared to other central banks around the world is itsA. centralized structure.B. decentralized structure.C. regulatory functions.D. monetary policy functions.

Q: The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that A. the First Bank of the United States had failed to serve as a lender of last resort. B. the Second Bank of the United States had failed to serve as a lender of last resort. C. the Federal Reserve System had failed to serve as a lender of last resort. D. a central bank was needed to prevent future panics.

Q: The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as A. the First Bank of the United States and the Second Bank of the United States. B. the First Bank of the United States and the Central Bank of the United States. C. the First Central Bank of the United States and the Second Central Bank of the United States. D. the First Bank of North America and the Second Bank of North America.

Q: The Second Bank of the United States A) was disbanded in 1811 when its charter was not renewed. B) had its charter renewal vetoed in 1832. C) is considered to be the primary cause of the bank panic of 1907. D) None of the above.

Q: The First Bank of the United StatesA. was disbanded in 1811 when its charter was not renewed.B. had its charter renewal vetoed in 1832.C. was fundamental in helping the Federal Government finance the War of 1812D. None of the above.

Q: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not prohibit companies issuing securities from paying the credit-rating agencies to rate them. This is an example of which remedy of conflicts of interest? A. regulate for transparency B. supervisory oversight C. leave it to the market D. socialization of information production

Q: Under the Global Legal Settlement of 2002, the provision that requires investment banking firms to sever the link between underwriting and research is an example of A. regulate for transparency. B. supervisory oversight. C. separation of functions. D. socialization of information production.

Q: Under the Sarbanes-Oxley Act of 2002, the provision that gives more funding to the SEC is an example of A. regulate for transparency. B. supervisory oversight. C. separation of functions. D. socialization of information production.

Q: Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to supervise accounting firms is an example of A. regulate for transparency. B. supervisory oversight. C. separation of functions. D. socialization of information production.

Q: Under the Global Legal Settlement of 2002, the provision that requires investment banking firms to make their analysts' recommendations public is an example of A. regulate for transparency. B. supervisory oversight. C. separation of functions. D. socialization of information production.

Q: Under the Global Legal Settlement of 2002, the provision that requires, for a period of five years, brokerage firms to contract with independent research firms to provide information to their customers is an example of A. regulate for transparency. B. supervisory oversight. C. separation of functions. D. socialization of information production.

Q: Of the remedies for conflicts of interest, which one is the most intrusive? A. regulate for transparency B. separation of functions C. supervisory oversight D. socialization of information production

Q: Under the Sarbanes-Oxley Act of 2002, the clause that makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit is an example of which remedy of conflicts of interest? A. regulate for transparency B. supervisory oversight C. separation of functions D. socialization of information production

Q: If firms have an incentive to hide information from mandatory disclosure because the information is proprietary, then which of the following remedies is the least intrusive way to overcome this incentive? A. leave it to the market B. separation of functions C. supervisory oversight D. socialization of information production

Q: When the SEC requires companies to publicly release financial statements, which of the following remedies of conflicts of interest does this fall under? A. leave it to the market B. regulate for transparency C. supervisory oversight D. separation of functions

Q: If there isn't sufficient information available, then which of the following approaches to reduce conflicts of interest will have the lowest probability of working? A. leave it to the market B. supervisory oversight C. separation of functions D. socialization of information production

Q: If the incentive to take advantage of a conflict of interest is high A. removing the economies of scope that created the conflict may induce higher costs because of the decrease in the flow of reliable information. B. then the government must step in to remove the conflict. C. the costs of non-action in removing the conflict will always be higher than the cost of removing the conflict. D. firms will always step in and work to remove the conflict.

Q: If a conflict of interest exists A. it will always have serious adverse consequences. B. it may not have a serious adverse consequences if the incentive to take advantage of the conflict is low. C. the government needs to step in to pass legislation to remove the conflict. D. there will not be serious adverse consequences, even if the incentive to take advantage of the conflict is low.

Q: Which of the following policy measures authorized investors to bring lawsuits against credit-rating agencies for a reckless failure to get the facts when providing a credit rating? A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 B. Sarbanes-Oxley Act of 2002 C. Global Legal Settlement of 2002 D. Gramm-Leach-Bliley Act of 1999 E. Riegle-Neal Act of 1994

Q: Which of the following policy measures required the SEC to prevent issuers of asset-backed securities from choosing the credit-rating agencies that will give them the highest rating and supported earlier initiatives by the SEC? A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 B. Sarbanes-Oxley Act of 2002 C. Global Legal Settlement of 2002 D. Gramm-Leach-Bliley Act of 1999 E. Riegle-Neal Act of 1994

Q: Which of the following policy measures prohibited compliance officers from being involved in producing or selling credit ratings? A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 B. Sarbanes-Oxley Act of 2002 C. Global Legal Settlement of 2002 D. Gramm-Leach-Bliley Act of 1999 E. Riegle-Neal Act of 1994

Q: Which of the following policy measures created an Office of Credit Ratings at the SEC with its own staff and the authority to fine credit-rating agencies and to deregister an agency if it produces bad ratings? A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 B. Sarbanes-Oxley Act of 2002 C. Global Legal Settlement of 2002 D. Gramm-Leach-Bliley Act of 1999 E. Riegle-Neal Act of 1994

Q: Which of the following policy measures forced credit-rating agencies to provide reports to the SEC when their employees go to work for a company that has been rated by them in the last twelve months? A. the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 B. Sarbanes-Oxley Act of 2002 C. Global Legal Settlement of 2002 D. Gramm-Leach-Bliley Act of 1999 E. Riegle-Neal Act of 1994

Q: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included which of the following provisions to deal with conflicts of interest in the credit-rating Industry? Created an Office of Credit Ratings at the SEC with its own staff and the authority to fine credit-rating agencies and to deregister an agency if it produces bad ratings. Forced credit-rating agencies to provide reports to the SEC when their employees go to work for a company that has been rated by them in the last twelve months. Prohibited compliance officers from being involved in producing or selling credit ratings. Required the SEC to prevent issuers of asset-backed securities from choosing the credit-rating agencies that will give them the highest rating and supported earlier initiatives by the SEC. Authorized investors to bring lawsuits against credit-rating agencies for a reckless failure to get the facts when providing a credit rating. A. 1, 2, 3, and 4. B. 2, 3, 4, and 5. C. none. D. 1, 2, 3, 4, and 5.

Q: Which policy measure requires investment banks to make public their analysts' recommendations? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure bans spinning? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure requires investment banks to sever the links between research and securities underwriting? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which of the following is a part of the Global Legal Settlement of 2002? A. The establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality. B. Increased penalties for white-collar crime and obstruction of official investigations. C. Requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate. D. Requires investment banks to make public their analysts' recommendations.

Q: Which policy measure increases the punishment for white-collar crime and obstruction of official investigations? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which policy measure increased the SEC budget to supervise securities markets? A. Sarbanes-Oxley Act of 2002 B. Global Legal Settlement of 2002 C. Gramm-Leach-Bliley Act of 1999 D. Riegle-Neal Act of 1994

Q: Which of the following is not a part of the Sarbanes-Oxley Act of 2002? A. the establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality B. increased penalties for white-collar crime and obstruction of official investigations C. requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate D. requires investment banks to make public their analysts' recommendations

Q: Explain how the market can reduce the incentive for credit-rating firms to take advantage of conflicts of interest.

Q: Reputational rents refer to A. the profit earned by a firm when it captures economies of scope. B. the costs associated with building credibility of a firm. C. the profit earned solely based on the credibility of a firm. D. the costs associated with the firm's achievement of economies of scale.

Q: Evidence suggests that the market ________ take into account the credibility of analyst's recommendations of IPOs that were underwritten at the analyst's investment bank because the performance of these recommendations was about 50% ________ compared to recommendations made by other analysts at different investment banks. A. does; better B. does; worse C. does not; better D. does not; worse

Q: Evidence suggests that credit-rating agencies ________ exploited conflicts of interest because ________. A. have not; it would cause their ratings to lose credibility and thus have a lower value in the marketplace B. have not; they would have an increase in profits in the long-run C. have; it would cause their ratings to lose credibility and thus have a lower value in the marketplace D. have; they would have an increase in profits in the long-run

Q: Explain the type of conflicts of interest that can arise from the development of universal banking.

Q: When the Glass-Steagall Act was repealed in 1999, potential conflicts of interest arose with A. the development of universal banking. B. the introduction of more credit-rating agencies. C. accounting firms developing more comprehensive services. D. investment analysis in investment banking.

Q: Conflicts of interest may arise within the credit rating agencies because A. the investors pay the credit agencies for ratings. B. the issuers of debt securities pay the credit agencies for ratings. C. the credit rating agencies provide auditing services to issuers of debt securities. D. the credit rating agencies are involved in offering credit counseling to investors.

Q: Conflicts of interest arising from management advisory services brought down ________ in 2002. A. Enron B. WorldComm C. Arthur Andersen D. Global Crossing

Q: Advice on taxes, accounting or management information systems, and business strategies are commonly referred to as ________ services. A. accounting audit B. management advisory C. seller D. managing underwriter

Q: Which of the following is not a conflict of interest in accounting firms? A. The firm provides consulting as well as rating creditworthiness. B. Auditors may be pressured to skew their opinions so the client will stay with the firm. C. Auditors may be reluctant to criticize advice put into place by nonaudit personnel of the firm. D. Auditors release an overly favorable audit in order to solicit business.

Q: The problem with spinning is that it may ________ the cost of capital to a firm and thus ________ the efficiency of the capital market. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease