Q&A Hero

Q: Consider the following four debt securities, which are identical in every characteristic except as noted: W: A corporate bond rated AAAX: A corporate bond rated BBBY: A corporate bond rated AAA with a shorter time to maturity than bonds W and XZ: A corporate bond rated AAA with the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or YWhich of the following is the most likely order of the interest rates (yields to maturity) of the bonds from highest to lowest?a. X, W, Y, Zb. W, X, Z, Yc. X, Y, Z, Wd. X, Z, W, Y

Q: All of the following statements about secondary credit are true EXCEPT A) they are temporary, short-term loans to satisfy seasonal requirements. B) the secondary credit interest rate is set above the primary credit rate. C) it is intended for banks not eligible for primary credit. D) borrowers of secondary credit are less financially healthy.

Q: Which of the following statements is most correct? A. A sterilized foreign exchange intervention will alter the composition of a central bank's assets and alter commercial bank reserves.B. A sterilized foreign exchange intervention will not alter the composition of a central bank's assets.C. An unsterilized foreign exchange intervention will alter commercial bank reserves.D. A sterilized foreign exchange intervention will leave the central bank's holdings of foreign reserves unchanged.

Q: Suppose you are an investor facing a choice between three investments that are identical in every way except in terms of their rates of return and taxability. Which investment provides the highest after-tax return?Investment A: interest rate 10 percent, tax rate 40 percent of interest income.Investment B: interest rate 8 percent, tax rate 25 percent of interest income.Investment C: interest rate 5 percent, tax rate 0 percent.Investment D: interest rate 5 percent, tax rate 1 percent.a. Investment Ab. Investment Bc. Investment Cd. Investment D

Q: Since 1980, discount loans have been available A) only to member banks of the Federal Reserve System. B) only to national banks. C) only to state banks. D) to all depository institutions.

Q: A foreign exchange intervention that does not alter the domestic monetary base is: A. sterilized.B. unsterilized.C. likely to change domestic interest rates.D. impossible.

Q: One lesson learned from the financial crisis of 2008 was thata. government regulators need to respond slowly when financial practices threaten the economy.b. unregulated financial firms need to be prevented from growing so large that their failure would severely damage the economy.c. the ease of owning a home has no relationship to the efficiency of the financial system.d. unregulated financial firms need to be prevented from growing so small that their success would have no or little effect on the economy.

Q: Which of the following statements is NOT true? A) Each Federal Reserve bank maintains its own discount window. B) Before 1980, the Fed rarely made loans to banks which were not members of the Federal Reserve System. C) Since 1980, all depository institutions have had access to the discount window. D) Each Federal District Bank can charge a different discount rate.

Q: A foreign exchange intervention that alters the domestic monetary base is: A. sterilized.B. unsterilized.C. not likely to change domestic interest rates.D. impossible.

Q: In the Asian crisis, which began in 1997,a. investors began to pull their financial investments out of Asia with urgency.b. large banks from Asia began purchasing large American banks, threatening the health of the U.S. financial system.c. mutual funds in Asia began to fail in large numbers.d. savings-and-loan institutions in Asia began to fail in large numbers.

Q: The discount window is A) another name for the discount rate. B) the means by which the Fed makes discount loans to banks. C) the spread between the discount rate and the T-bill rate. D) the period each month during which banks are allowed to apply for discount loans.

Q: If the Fed were to purchase euros for dollars and at the same time sell U.S. Treasury securities in the open market, this would be an example of: A. an unsterilized foreign exchange intervention.B. the Fed not changing their balance sheet at all.C. a sterilized foreign exchange intervention.D. the Fed altering the domestic monetary base.

Q: In the 1980s, the United States suffered one of its worst financial crises when ______began to fail in large numbers.a. commercial banksb. stock brokersc. money market mutual fundsd. savings and loan institutions

Q: The Fed can implement open market operations A) more rapidly than changes in reserve requirements, but less rapidly than changes in the discount rate. B) more rapidly than changes in the discount rate, but less rapidly than changes in reserve requirements. C) less rapidly than either changes in the discount rate or changes in reserve requirements. D) more rapidly than either changes in the discount rate or changes in reserve requirements.

Q: A sterilized foreign exchange intervention would: A. alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged.B. alter the liability side of the central bank's balance sheet but leave the asset side unchanged.C. leave the central bank's balance sheet unchanged.D. not alter the central bank's holdings of international reserves.

Q: Suppose the quantity demanded for a security isBD= 150 − 1b,and the quantity supplied of the security isBS= 50 + 1b,where bis the price of the security in dollars. Suppose that the supply curve shifts toBS= 75 + 1b.The equilibrium quantity of the securitya. rises by 12.5.b. rises by 2.5. c. falls by 2.5. d. falls by 12.5.

Q: Open market operations A) lack flexibility because only very small purchases or sales may be carried out in any given month. B) lack flexibility because open market purchases cannot easily be offset by subsequent open market sales. C) are more flexible than other policy tools. D) may be carried out only on the third Friday of each month.

Q: Which of the following statements is incorrect? A. A foreign exchange intervention affects the value of a country's currency by changing domestic interest rates.B. Any central bank policy that influences the domestic interest rate will affect the exchange rate.C. Higher U.S. interest rates would likely result in an appreciation of the U.S. dollar.D. Sterilized changes in foreign exchange reserves alter a country's monetary base.

Q: The quantity demanded of a security is QD= 220 - 2b and the quantity supplied of it is QS=100 + 2b. The equilibrium price of the security is______ .a. $300b. $280c. $420d. $500

Q: Which of the following statements is correct? A) The volume of open market operations is determined jointly by the actions of the public, banks, and the Fed. B) The volume of open market operations is determined jointly by the actions of banks and the Fed. C) The volume of open market operations is determined jointly by the actions of the public and the Fed. D) The volume of open market operations is determined solely by the Fed.

Q: Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds. One result of this will be that: A. the dollar depreciates.B. the euro depreciates.C. both the dollar and the euro depreciate.D. the dollar appreciates and the euro depreciates.

Q: Suppose the quantity demanded for a security isBD= 150 − 1b,and the quantity supplied of the security isBS= 50 + 1b,where bis the price of the security in dollars. Suppose that the supply curve shifts toBS= 75 + 1b.The equilibrium price of the security a. rises by $50.b. rises by $125. c. falls by $125. d. falls by $50.

Q: If the FOMC's directive indicates a change in monetary policy, the account manager at the Fed's Open Market Trading Desk must A) design dynamic open market operations. B) design defensive open market operations. C) seek approval of the change from the Secretary of the Treasury. D) seek approval of the change from a majority of the presidents of the Federal Reserve district banks.

Q: Any central bank policy that influences the domestic interest rate will: A. have no effect on the exchange rate if exchange rates are flexible.B. have an effect on the exchange rate.C. not impact the supply of and demand for the domestic currency if exchange rates are flexible.D. be compatible with fixed exchange rates.

Q: The amount of debt and equity outstanding in the United States is more than____ times the nation's GDP.a. 2b. 3c. 4d. 5

Q: When the staff of the account manager at the Fed's Open Market Trading Desk analyzes forecasts on Treasury deposits and information on the timing of future Treasury sales of securities, what agency does it interact with? A) The Securities and Exchange Commission B) The Treasury's Office of Government Finance C) The Treasury's Office of Federal Reserve Relations D) The Federal Deposit Insurance Corporation

Q: A foreign exchange intervention by a central bank affects the value of a country's currency if it: A. alters banking system reserves.B. leaves domestic interest rates unchanged.C. results in a fixed exchange rate.D. alters banking system reserves and it changes domestic interest rates.

Q: Another name for an equity security isa. bond.b. debt.c. option.d. stock.

Q: Which of the following statements is correct? A) Dynamic open market operations are carried out to offset fluctuations in the monetary base. B) Defensive open market operations are carried out to change monetary policy. C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations. D) Defensive open market operations are usually carried out through outright purchases or sales.

Q: If interest rates in the U.S. increases relative to interest rates in Europe: A. the demand for dollars on the foreign exchange market would increase.B. the supply of euros on the foreign exchange market would increase.C. the price of U.S. assets should increase.D. all of the answers given are correct.

Q: A contract that makes the owner of a security a part owner of the company that issued the security is known as a. a debt security.b. an equity security.c. a bond.d. an option.

Q: Defensive open market transactions A) are aimed at achieving changes in monetary policy. B) are used much less frequently than dynamic open market transactions. C) are used to offset disturbances to the supply or demand for reserves. D) make it easy to deduce the Fed's intentions for monetary policy.

Q: The impact on the foreign exchange market for dollars resulting from the Fed selling euros will be: A. a decrease in the demand for dollars.B. a decrease in the supply of dollars.C. an increase in the supply of dollars.D. a decrease in the interest rate in the U.S.

Q: A contract that promises to pay a given amount of money to the owner of a security at specific dates in the future is known asa. a debt security.b. an equity security. c. stock.d. an option.

Q: Dynamic open market operations A) are aimed at achieving changes in monetary policy. B) are used much more frequently than defensive open market transactions. C) are used to offset disturbances to the monetary base. D) make it easy to deduce the Fed's intentions for monetary policy.

Q: If the Fed were to enter the foreign exchange market and purchase euros, the impact on domestic banking reserves would be: A. the opposite of what it would be with an open market purchase.B. domestic banking reserves would decrease.C. the same as it would be with an open market purchase.D. uncertain.

Q: A contract whereby a borrower, who seeks to obtain money from someone, promises to compensate the lender in the future is known asa. a warrant.b. an exchange rate.c. a derivative security. d. a financial security.

Q: In a matched sale-purchase transaction, the Fed A) buys securities from a dealer and the dealer agrees to buy them back. B) sells securities to a dealer and the dealer agrees to sell them back. C) buys securities from one dealer and sells the same dollar amount of securities to another dealer. D) sells securities to one dealer and buys the same dollar amount of securities from another dealer.

Q: The Fed holds its euro reserves primarily in the form of: A. euro currency.B. a weighted portfolio of European government bonds.C. German government bonds.D. international mutual funds.

Q: An equation that relates the interest rate to the output gap and the inflation rate is a. the Phillips relation.b. the Sharpe ratio. c. Okun's law.d. the Taylor rule.

Q: A matched sale-purchase transaction is also known as a A) reverse repo. B) discount loan. C) put option. D) federal funds loan.

Q: Reserves in the banking system will increase if the Fed: A. buys euros or sells dollars.B. sells euros or buys dollars.C. sells euro-dominated bonds and exchanges the euros for dollars.D. sells euro-dominated bonds and keeps the euros from the sale.

Q: The percentage by which real gross domestic product is above or below its potential level is called thea. inflation rateb. output gapc. real interest rated. rate of compounding

Q: A Federal Reserve repurchase agreement involves A) an agreement by a bank to repay a discount loan on a specific day. B) an agreement by a dealer to buy back securities she has sold to the Fed. C) an agreement between the Fed and the Treasury for the Fed to purchase a specified amount of Treasury securities. D) an agreement by a commercial bank to make a loan to another bank in the federal funds market.

Q: If the Fed decides to control the euro/dollar exchange rate: A. they will also have to control the domestic interest rate.B. they will have to control the amount of banking system reserves.C. the market will determine the interest rate.D. they will have to control the domestic rate of inflation or it won't work.

Q: In the long run, the only economic variable that the Federal Reserve can affect is a. inflation.b. output.c. unemployment.d. the exchange rate.

Q: If the account manager does NOT use a Federal Reserve reverse repurchase agreement or a matched sale-purchase transaction in carrying out open market operations, he will use A) an outright purchase or sale. B) a limited-duration purchase or sale. C) an indirect purchase or sale. D) a reverse duration purchase or sale.

Q: If the Fed decides to maintain a fixed euro/dollar exchange rate when they sell euros: A. there will be pressure on domestic interest rates to increase.B. the domestic money supply will increase.C. this will increase banking system reserves.D. they will have to impose capital controls.

Q: The Federal Reserve creates money bya. printing bills and circulating them in public meetings. b. giving dollar bills to banks to circulate.c. changing a number in its computer system. d. spending money on government purchases.

Q: If the account manager finds that the current level of bank reserves is greater than the desired level indicated in the most recent directive from the FOMC, he will A) order banks to reduce their reserves. B) order banks to raise their interest rates in an attempt to get them to loan out more of their reserves. C) conduct an open market purchase. D) conduct an open market sale.

Q: If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros: A. they increase the number of dollars.B. downward pressure is put on domestic interest rates.C. the domestic money supply increases.D. all of the answers given are correct.

Q: Economists who try to predict recessions find that recessions are a. easy to predict.b. difficult to predict.c. non-existent before the year 2000. d. non-existent since the year 2000.

Q: Primary dealers are those A) permitted to trade directly with the Fed. B) who work under the account manager at the Federal Reserve Bank of New York. C) who specialize in selling bonds to small private investors. D) responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline.

Q: When the overall level of business activity declines persistently, there is said to be a. a revolution.b. a hyperinflation. c. a recession.d. an expansion.

Q: An open-market purchase of foreign bonds to increase a central bank's international reserves: A. increases the central bank's liabilities and assets.B. decreases the central bank's assets and liabilities.C. increases the central bank's assets but decreases its liabilities.D. increases the central bank's liabilities and decreases its assets.

Q: How does the Open Market Trading Desk conduct its operations? A) directly with private securities dealers on the floor of the New York Stock Exchange B) directly with private securities dealers on the floor of the Federal Reserve Bank of New York C) over-the-counter electronically with private securities dealers D) by sending its buy and sell orders to the U.S. Treasury for execution

Q: If the Fed desired to fix the euro/dollar exchange rate, they would have to: A. get the European Central Bank to also agree to fixed exchange rates.B. maintain ample reserves of dollars.C. be willing to exchange dollars for euros whenever anyone asked.D. impose capital controls.

Q: During the 2000s, banks became complacent about making mortgage loans because a. there was not a single bank failure in the decade.b. bank stocks performed better than the rest of the stock market. c. the banks counted on housing prices to keep appreciating.d. the government eliminated the FDIC.

Q: The Open Market Trading Desk is A) another name for the Federal Open Market Committee. B) an organization of private traders in government securities. C) the area on the floor of the New York Stock Exchange set aside for bond trading. D) a group of private securities traders that the Fed has selected to participate in open market operations.

Q: A country that frequently uses capital controls: A. increases the risk for foreign investors.B. decreases the risk for foreign investors.C. should see lower interest rates on its domestic bonds and lower prices.D. will attract more investment.

Q: Buying stocks gives an investor a. a very low but safe return.b. ownership in corporations.c. the riskiest asset available in the market. d. a pure and random speculative gamble.

Q: The policy directive from the FOMC is carried out by A) the presidents of the district banks. B) the presidents of commercial banks that are members of the Federal Reserve System. C) the account manager at the Federal Reserve Bank of New York. D) private dealers in the bond market.

Q: A country announces capital outflow controls that will take effect in three months. This announcement will likely: A. stabilize the country's exchange rate.B. attract significant amounts of foreign investors.C. result in a significant appreciation of the country's currency.D. result in a significant depreciation in the country's currency.

Q: Americans should not worry about all the dollars held by foreigners because a. most of the currency is reinvested into America.b. taxes are lower as a result.c. interest rates are lower as a result. d. stock prices are higher as a result.

Q: The FOMC states its overall objectives for interest rates in A) the Governors' Order. B) the Policy Directive. C) the Federal Reserve Bulletin. D) the Chairman's Order.

Q: If foreigners are restricted in their ability to buy investments in a country then that government is imposing: A. controls on capital inflows.B. controls on capital outflows.C. controls on both capital inflows and outflows.D. fixed exchange rates.

Q: More than half of all U.S. dollars can be found a. in foreign countries.b. in the United States.c. in the underground economy. d. in bank vaults.

Q: Which of the following statements is correct? A) Open market purchases are expansionary and open market sales are contractionary. B) Open market purchases are contractionary and open market sales are expansionary. C) Both open market purchases and open market sales are expansionary. D) Both open market purchases and open market sales are contractionary.

Q: Earning interest on past interest is referred to as a. present value.b. super interest. c. compounding. d. discounting.

Q: If foreigners are restricted in their ability to sell investments in a country then that government is imposing: A. controls on capital inflows.B. controls on capital outflows.C. controls on both capital inflows and outflows.D. fixed exchange rates.

Q: How does the interest paid on reserves set a floor for the federal funds rate?

Q: If domestic residents are restricted in their ability to purchase foreign assets then their government is imposing: A. controls on capital inflows.B. controls on capital outflows.C. controls on both capital inflows and outflows.D. fixed exchange rates.

Q: Consider the following production functionY= A×Ka×L1−a.If a = 0.3, and over the past year total factor productivity grew 2.3 percent, capital grew 2 percent, and labor grew 3 percent, what was the growth rate of output?a. 0 percent b. 5 percent c. 2 percent d. 7 percent

Q: What new policy tools for controlling reserve balances did the Fed introduce during the Financial Crisis of 2007-2009?

Q: Which of the following would be an example of a capital outflow control? A. Mexico limiting the number of U.S. dollars an American can bring into the countryB. Mexico excludes foreigners from purchasing short-term debtC. Mexico limiting the number of pesos its citizens can take out of the countryD. All of the answers given would be examples of capital outflow controls

Q: Consider the following production functionY= A×Ka×L1−a.If a = 0.4, and over the past year total factor productivity (TFP) grew 2.6 percent, capital grew 2 percent, and labor grew 1 percent, what was the growth rate of output over the year?a. 2 percent b. 3 percent c. 4 percent d. 5 percent

Q: Which of the following interest rates tends to fluctuate the most? A) interest rate on corporate bonds B) interest rate on 10-year Treasury bonds C) mortgage interest rate D) federal funds rate

Q: Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation- adjusted) terms in one year. The nominal interest rate is 4 percent and the expected inflation rate is 2 percent. What is the present value of the bond? (Round off your answer to the nearest dollar and pick the answer closest to the one you calculate.)a. $1,415 b. $1,442 c. $1,471 d. $1,530

Q: During the 1990s, the country of Chile required foreigners wishing to invest in the country to make a one-year, zero-interest deposit in the Chilean central bank equal to at least 20 percent of the investment. This is an example of: A. a capital outflow control.B. a capital inflow control.C. an exchange rate mechanism.D. a currency board.

Q: As a result of an open market purchase, bank reserves A) rise and interest rates fall. B) fall and interest rates rise. C) and interest rates both rise. D) and interest rates both fall.