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FINN 3053 > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Banks that determine, implement, and control the monetary policy in their home countries.

A

central banks

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2
Q

The major monetary policy-making body of the Federal Reserve System.
- 12 members:

– 7 members of board of governors
– President of the NY district bank
– 4 other district presidents (rotating)

A

federal open market committee (FOMC)

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3
Q

Purchases and sales of U.S. government and federal agency securities by the Federal Reserve.

A

open market operations

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4
Q

Federal reserve bank president serve on the federal open market committee (FOMC), FRBs set and change discount rates

A

assistance in the conduct of monetary policy

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5
Q

FRBs have ___ & ___ authority over the activities of banks and other large financial institutions located in their district

A

supervision and regulation

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6
Q

FRBs write regulations to implement many of the major consumer protection laws and establish programs to promote community development and fair and impartial access to credit

A

consumer protection and community affairs

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7
Q

FRBs serve as the commercial bank for the ____ ____

A

US treasury

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8
Q

FRBs are responsible for the collection and replacement of ___ ___ from circulation

A

damaged currency

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9
Q

The interest rate on loans made by Federal Reserve Banks to financial institutions.

A

discount rate

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10
Q

Depository institutions’ vault cash plus reserves deposited at Federal Reserve Banks.

A

reserves

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11
Q

Currency in circulation and reserves (depository institution reserves and vault cash of commercial banks) held by the Federal Reserve.

A

monetary base
(Also referred to as money base)

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12
Q

Depository institutions’ vault cash plus reserves deposited at Federal Reserve Banks.

A

reserves

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13
Q

total reserves can be classified into two categories:

A

(1) required reserves
(2) excess reserves

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14
Q

The interest rate on short-term funds transferred between financial institutions, usually for a period of one day.

A

fed funds rate

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15
Q

Statement sent to the Federal Reserve Board Trading Desk from the FOMC that specifies the daily amount of open market purchases or sales to transact.

A

policy directive

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16
Q

provides payment and financial services to the US gov, the public, financial institutions, and foreign institutions
- clears checks, increasingly electronic

A

Federal reserve system

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17
Q

4 entities of the Fed:

A
  • board of governors
  • federal reserve district banks
  • member banks
  • federal open market committee
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18
Q
  • 7 member board
  • president appoints with senate approval
  • members: nonrenewable 14 year term
  • chairman & vice-chairman: renewable 4 year terms
A

board of governors

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19
Q
  • setting broad monetary policy
  • supervising and regulating banks
A

board of governors are in charge of: (2 things)

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20
Q

in charge of:
- official banks of the US treasury
- execute monetary policy
- supervise and regulate member banks
- supervise & regulate non-member banks
- clear checks
- wire transfers

A

federal reserve district banks

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21
Q
  • set discount rate for their district
  • make discount window loans to member banks
    –discount loans: fereral reserve lends money to banks
A

execute monetary policy

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22
Q

wire transfers: (3)

A
  • federal reserve wire (fedwire) DIRECT
  • automated clearing house (ACH) INDIRECT
  • fednow (near-instant transfer, 24/7) DIRECT
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23
Q
  • Provides payment and financial services to the US government, the public, financial institutions, and foreign institutions
    -Politically independent, providing long term safety and stability to the US financial system
A

The Fed

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24
Q
  • Formulation & conduct of monetary policy and the supervision and regulation of banks
  • Set money supply & interest rate targets
  • Sets bank reserve requirements and reviews and approves the discount rates set by the 12 federal reserve banks
A

Board of governors Primary responsibilities

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25
Q
  • 12 regional branches
  • Supervised by board of governors
  • 9 directors for each.. (responsible for appointing the president of the FRB)
A

district banks

26
Q
  • Execute monetary policy
  • Supervise and regulate member banks
  • Supervise and regulate non-member banks
  • Official banks of the Us treasury
  • Issue and circulate currency
  • Clear checks
  • Wire transfers
  • Conduct economic research
A

district banks responsibilities

27
Q
  • Banks which hold stock in their district banks (required, non-transferable)
A

member banks

28
Q
  • Sets Fed Funds rate target
  • Uses open market operations to influence fed funds rate
  • Formulate policies to promote full employment, economic growth, price stability, and a sustainable pattern of international trade
A

FOMC responsibilities

29
Q

Monetary Policy:

Tools to increase or decrease the economy (3)

A
  • discount rate
  • open market operations
  • reserve requirements
30
Q

3 lending programs are offered through the Fed’s discount window:

A
  • primary credit
  • secondary credit
  • seasonal credit
31
Q

available to generally sound depository institutions on a very short-term basis (typically overnight) at a rate above the FOMC’s target rate for federal funds

A

Primary credit

32
Q

available to depository institutions that are not eligible for a primary credit

A

Secondary credit

33
Q

available to depository institutions that can demonstrate a clear pattern of recurring intra-yearly swings in funding needs

A

Seasonal credit

34
Q
  • The interest rate on loans made by Federal Reserve Banks to financial institutions.
  • A member bank borrows directly from the Fed
  • Little Monetary impact day-to-day
  • Generally only used during recessions/ crises
A

Discount lending
(rate)

35
Q

Interest rate banks charge each other for overnight loans

A

Fed Funds rate targeting

36
Q
  • FOMC directs the FRB Trading Desk at the NY District Bank to trade
  • The Trading Desk buys or sells US Treasury Securities until the Fed Funds rate is near its target
A

Open market operations

37
Q

When the fed sells securities in the open market, it ____ banks deposits at the Fed

A

decreases

38
Q

When the fed purchases securities in the open market, it ___ reserve accounts deposits at the Fed

A

increases

39
Q

Determine the minimum amount of reserve assets (vault cash + bank deposits at fed banks) that depository institutions must maintain by law to back transaction deposit account held as liabilities on their balance sheet

A

Reserve requirements

40
Q

Money Supply =

A

Currency * (1/Reserve Requirement)

41
Q

Change in bank deposits =

A

(1/(New Reserve Requirement + c)*Change in Reserves

42
Q
  • Fed Funds target set to zero
  • Purchasing of ‘toxic’ assets
  • Guaranteeing of debt and lines of credit (to non-banks)
  • Quantitative Easing (purchasing Treasuries and MBSs)
A

2008 Financial Crisis

43
Q

Established FDIC, separated commercial and investment banking

A

Glass-steagall act (1933)

44
Q
  • Treasuries
  • Agency securities
  • Gold & Foreign Currency
  • Mortgage-backed securities
  • Miscellaneous
A

Federal Reserve Balance Sheet: Assets

45
Q
  • reserves
  • money (monetary) base
A

Federal Reserve Balance Sheet: liability

46
Q

Depository institutions reserve balances at the Fed plus vault cash

A

Reserves

47
Q

Through FRBs Implement federal laws intended to protect consumers in credit and other financial transactions.

A

Consumer Protection

48
Q
  • Banks use this to make deposit and loan payments, to transfer book entry securities among themselves, and to act as a payment agents on behalf of large corporate customers
  • Large dollar payments
A

fedwire

49
Q

Developed jointly by the private sector and the federal reserve system in 1970s and has evolved as a nationwide method to electronically process credit and debit transfer of funds

A

Automated clearinghouse (ACH)

50
Q

Represent the Fed’s holding of securities (Largest asset)

A

Treasuries
(issued by the US treasury)

51
Q
  • Monetary policy is generally only targeted at short term interest rates (OMO only utilize treasury bills)
  • Fed printed money and directly bought assets from banks (goal was to force cash into the economy)
A

Quantitative Easing

52
Q

Federal Reserve payment settlements (4)

A
  • government services
  • currency issuance
  • check clearing
  • wire transfer
53
Q

The Fed operates a central check clearing system for the US banks, routing interbank checks to depository institutions on which they are written and transferring the appropriate funds from one bank to another.

A

Check clearing

54
Q

An increase in the RR ratio means that depository institutions must hold ____ ____ against the transaction accounts (deposits) on their balance sheet.

A

more reserves

55
Q

when the RR ratio increases:

They are able to lend out a smaller percentage of their deposits than before → thus ___ credit availability and lending → leading to a multiple contraction in deposits and a ____ in the money supply.

A

decreasing; decrease

56
Q

Expansionary Activities:

Open market purchases of securities → reserve accounts of banks ____

A

increase

57
Q

Expansionary Activities:

Reserve requirement ratio decreases → increase in ___ ___

A

bank reserves

58
Q

Expansionary Activities:

Discount rate decreases → lowering of ___ ___ in the economy

A

interest rates

59
Q

Contractionary activities:

Open market sales of securities → reserve accounts of banks ___

A

decrease

60
Q

Contractionary activities:

Discount rate increase → interest rates increase in the ___ ___, making borrowing more ___

A

open market; expensive

61
Q

Contractionary activities:

Reserve requirement ratio increases → decrease in ___ ___ for all banks and limits the ____ of funds for additional loans

A

excess reserves; availability

FINN 3053 (14 decks)

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