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)
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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)
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- Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?if we see an increase in default rates, what may that mean for the junk bond market and for companies that want/need to sell more junk bonds?Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation that the inflation is expected to decline in the near future? Explain.
- Which of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.If the U.S. Treasury deposits income tax receipts into its account at the Federal Reserve, then a. the money multiplier will decrease b. the money multiplier will increase c. the monetary base will decrease d. the monetary base will increase Expected inflation can be estimated as a. the return on a TIPS bond b. the return on a Treasury bond c. the return on a TIPS bond minus the return on a Treasury bond d. the return on a Treasury bond minus the return on a TIPS bond A decrease in the expected return on stocks will a. shift the demand curve for bonds leftwards b. shift the demand curve for bonds rightwards c. shift the supply curve for bonds leftwards d. shift the supply curve for bonds rightwards Which of the following is part of M2? a. Small time deposits b. Money market mutual funds c. Currency held by foreigners d. All of the aboveGive typing answer with explanation and conclusion Consider the prevailing condition of inflation (including changes in global oil price), the economy, budget deficit, decreases in expected remittance inflow, and the central bank monetary policy that could affect interest rate. Based on the prevailing conditions do you think bond price will increase or decreases in next six-month period. In the real economic environment which other factors may affect the bond price? Which factor in your opinion will have biggest impact on bond price? Assess the above given situations.
- Should the economy’s current fragile recovery gather momentum, it is likely the Federal Reserve will decide to subtract liquidity from the economy. How will it do that? By selling U.S. Treasury bonds By purchasing U.S. Treasury bonds By having the U.S. Treasury purchase goods and services By having the U.S. Treasury lower taxes By having the U.S. Treasury raise taxesApart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False Countries with strong balance sheets and declining budget deficits tend to have lower interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in the United States.If the treasury bonds in country A consistently yield more returns compared to those in country B, we would see __ . (assuming treasury bonds are risk-free) a. Country A goes bankrupt b. The currency in country A appreciates against the currency in country B over time c. The currency in country A depreciates against the currency in country B over time d. The currency exchange rate is unaffected.
- If the Federal Reserve sells more Treasury securities, overall interest rates go up. True FalseConsidering the Market for Loanable Funds, explain what the following statement means: “Bonds should be issued only if the potential increase in interest rates is attributed to a strong demand for loanable funds RATHER than the FED’s reduction in the supply of loanable funds.”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. Rise B. Fall C. Remain unchanged