QUESTION 6If the banking system has a large amount of excess reserves, which action would the Federal Reserve most likely take to raise the federal funds rate?Raise discount rateO Raise interest paid on excess reservesO Increase tax rates for individuals and familiesO Increase reserve requirement ratioO Open market sale of securities

To control the supply of bank reserves, banks generally use open market operations. for purchasing…

Answered: QUESTION 6 If the banking system has a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question 40 The rate of interest that banks charge when they lend money to other banks, typically overnight, is called the Question 40 options: a) legal reserve requirement b) prime rate c) discount rate d) federal funds rate
Question 42 When the Fed purchases government securities, it Question 42 options: a) automatically raises the discount rate b) automatically raises the legal reserve requirment c) decreases banks’s reserves and makes possible a decrease in the money supply d) increases banks’ reserves and makes possible an increase in the money supply
QUESTION 7 First National Bank has assets that are more rate-sensitive than its liabilities. As interest rates rise, then we should expect the bank profits to: A. Remain unchanged B. Fall C. Rise
27.Which of the following statements are true?Statement I. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-term securities tend to hold some money market securities because this enables them to maintain liquidity. Statement II. Financial institutions manage their liquidity by participating in money markets. They may issue money market securities when they experience cash shortages and need to boost liquidity. They can also sell holdings of money market securities to obtain cash.Statement III. The value of a money market security represents the future value of the present cash flows generated by that security. Since money market securities represent debt, their expected cash flows are typically known.Statement IV. The pricing of money market securities changes in response to a shift in the required rate of return by investors. The…
What are some of the ways that banks can borrow short-term funds when they need "liquidity"?(Select all that apply; three of the answers below are correct.) Reference: Chapters 11 & 12 They can borrow directly from the Securities & Exchange Commission through the "regulatory" market. They can borrow from the Department of Treasury through the "Treasury" window. They can borrow another bank's reserves through the "fed funds" market. The can engage in a "sale & repurchase agreement" (or "repo") by selling some of their securities to another financial insitution and promising to buy them back the next day. They can borrow directly from the Federal Reserve through the "discount window".
QUESTION 3 Which of the following actions cannot be used by banks to increase reserves? A. Buy Treasury debt B. Sell loans C. Call loans D. Sell Treasury debt
13. Which of the following powers or tools of Federal Reserve monetary policy has the greatestimpact on the money supply?a.discount rateb.Regulation Qc.open market operationsd.bank examinatione.All of the above have about the same impact 14. The asset of Federal Reserve banks associated with open market operations isa.Federal Reserve notes.b.U.S. government securities.c.loans to member banks.d.float.e.None of the above.
5Now think of this process to repeat again and again in the banking system.A. What is the banking system’s money multiplier? B. Given the above money multiplier, by how much will the total money supply change due to the purchase of bonds by the BSP? 6. Assume this time that the government, through BSP, wants to use this P50,000 bond purchase to target an increase in the total money supply worth P350,000. Determine the required reserve ratio that will be needed in order to reach that target.
A4 Finance Suppose the FED has just learned that the Treasury will need to borrow a much larger amount of money than originally expected. Discuss how this incident could affect the degree to which the FED changes their monetary policy. If there were changes, would you agree with them?
A4) Finance Would you rather borrow at the federal funds market than from the discount window if your bank is in the 99th percentile of the distribution (i.e., considered to be among the riskiest counterparties in the federal funds market)? Please consider the cost of funds (interest rate) to be your primary consideration when making this decision and answering this question. a. Yes, I would prefer to borrow at the federal funds market. b. No, I would prefer to borrow at the discount rate window.
QUESTION #4 the following “T-accounts” with the following data $100 million in mortgage-backed securities (MBS) $200 million demand deposits $20 million in reserves held by banks $100 million in Treasury securities held by banks $50 million in Treasury securities held by the Fed $5 million in overnight borrowing by banks from the Fed Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities banks hold. Reflect those changes on the balance sheet (commitment to low long term interest rate environment, QE) and highlight in turquoise Households Banks Federal Reserve Firms ___A_______L___ ___A_______L___ ___A_____L___ ___A_____L___
Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase with the interest rate? A. States tend to increase franchise fees on banks as interest rates rise B. Reserve requirements increase as interest rates rise C. Banks earn more money as interest rates increase, so their federal income taxes increase. D. Banks could earn more money if they could lend the funds required to be held as reserves.

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