Question 22The actors of the monetary policy process includes the central bank, commercialbanks, depositors, and borrowers.TrueFalseQuestion 23 (With Large Scale Asset Purchases, the FOMC is increasing reserve supply along thehorizontal portion of the reserve demand curve.TrueFalseQuestion 24An open market purchase leads to a leftward shift of the reserve supply curve.TrueFalseQuestion 25Assume that Firstbank has the following simplified balance sheet:AssetsReserves$4,000Loans$16,000Securities$20,000Assume that the reserve ratio (r) = 0.2.What is the amount of bank capital held by TestBank?$4,000$16,000$20,000$10,000LiabilitiesDemand deposits$6,000Time depositsBank capital$16,000$14,000????????

Monetary Policy: Monetary policy refers to the process of controlling the amount of money that is…

Answered: The actors of the monetary policy…

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter6: Interest Rates

Section: Chapter Questions

Problem 20SP: INTEREST RATE DETERMINATION AND YIELD CURVES a. What effect would each of the following events...

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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 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
18 The following are the monetary policy tools EXCEPT:* A. buying and selling of short-term sukuk B. change the interest rates C. change the reserve requirements D. change in government spending and tax rates
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?
QUESTION 15 What happens to the monetary base when the Fed buys Treasury bonds? A. Bank reserves do not change B. Bank reserves decline C. Bank reserves increase
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.
QUESTION 15 When considering long-term foreign exchange fluctuations which of the following cause- effect relationships is true? options A. As inflation decreases, the real interest rate decreases and the currency weakens. B. When unemployment decreases, the local economy is stronger and the currency strengthens. C.Greater liquidity and smaller spreads lead to stronger local currency. D.Interest rate increases indicate weaker monetary policies which make a country less attractive to foreign investors and result in weaker local currencies. QUESTION 15(B) The inside market at a pure order driven exchange is 40 bid, 40.5 asked for ABC. Brokers then submit a limit buy order at 40.125, and a limit sell order at 40.425. If you then submit a small buy market order, at what price will your order be filled? options A.40 B. 40.625 C. 40.5 D.40.425 E. 40.125
Q (B) Which of the following statements about central bank objectives are true? A. Central banks can have several objectives, but their actions need to provide a “nominal anchor” for the economy B. All statements are true C. A strict inflation target is a way to provide a “nominal anchor” for the economy D. In principle, one of the goals of a central bank could be to slow down climate change
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
[Question 20 Which one of the following is an example of unsystematic risk? Select one: A. Decrease in the national level of inflation B. An across the board increase in income taxes C. National decrease in consumer spending on entertainment D. Adoption of a national sales tax
8. Macroeconomic factors that influence interest rate levels Apart 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 The larger the federal deficit, other things held constant, the higher are interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. During recessions, short-term interest rates decline more sharply than long-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
INTEREST RATE DETERMINATION AND YIELD CURVES a. What effect would each of the following events likely have on the level of nominal interest rates? 1. Households dramatically increase their savings rate. 2. Corporations increase their demand for funds following an increase in investment opportunities. 3. The government runs a larger-than-expected budget deficit. 4. There is an increase in expected inflation. b. Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 4%; and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0 02(t 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the companys bond rating, from the table below. Remember to subtract the bonds LP from the corporate spread given in the table to arrive at the bonds DRP. What yield would you predict for each of these two investments? Rate Corporate Bond Yield Spread = DRP + LP U.S. Treasury 0.83% ---- AAA corporate 0.93 0.10% AA corporate 1.29 0.46 A corporate 1.67 0.84 c. Given the following Treasury bond yield information, construct a graph of the yield curve. Maturity Yield 1 year 5.37% 2 years 5.47 3 years 5.65 4 years 5.71 5 years 5.64 10 years 5.75 20 years 6.33 30 years 5.94 d. Based on the information about the corporate bond provided in part b, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. e. Which part of the yield curve (the left side or right side) is likely to be most volatile over time? f. Using the Treasury yield information in part c, calculate the following rates using geometric averages: 1. The 1-year rate 1 year from now 2. The 5-year rate 5 years from now 3. The 10-year rate 10 years from now 4. The 10-year rate 20 years from now

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The actors of the monetary policy process includes the central bank, commercial banks, depositors, and borrowers. True False