Group 2 Report

Question 1

a financial institution that is responsible for
overseeing the monetary system and policy of a nation or group of nations, regulating its money supply, and setting interest rates.

Answer 1

Central banks

Question 2

Central banks enact _____ by easing or tightening
the money supply and availability of credit.

Answer 2

Monetary Policy

Question 3

central bank can be a lender of _____ to troubled financial
institutions and even governments.

Answer 3

last resort

Question 4

a set of actions to control a nation’s overall money supply and achieve economic growth.

Answer 4

Monetary policy

Question 5

Three strategies of monetary policy

Answer 5

• open market operations
• discount rate
• reserve requirements

Question 6

Monetary policy is commonly classified as either ________ or ________

Answer 6

Expansionary or Contractionary

Question 7

are the minimal amounts of cash that banks are required to keep on hand in case of unexpected demand.

are kept to prevent the panic that can arise if
customers discover that a bank doesn’t have enough cash on
hand to meet immediate demands.

Answer 7

Bank reserves

Question 8

are the additional cash that a bank keeps on
hand and declines to lend out.

Answer 8

Excess reserves

Question 9

Bank reserves may be kept in a ________

Answer 9

vault-on-site or sent to a bigger bank

Question 10

required to keep a certain amount of deposits on hand to cover possible withdrawals. It is the percentage that
banks must keep in reserve and are not allowed to lend.

Answer 10

Reserve requirements

Question 11

Also known as the actual or total reserves. Cash held by the bank for daily banking transactions (vault cash) and its deposits at the central bank.

Answer 11

Legal reserve

Question 12

Level of reserves that central banks require that member banks
hold to honor withdrawals.

Answer 12

Required reserve

Question 13

When a bank holds more in reserves than is required. Can be
used as new loans and/or purchase government bonds and
securities.

Answer 13

Excess reserves

Question 14

the total amount of cash and cash equivalents such as
savings accounts that is circulating in an economy at a given point in time.

Answer 14

Money supply

Question 15

What is the effect of Legal Bank Reserves
Requirements on Excess Reserves and
Money Supply

Answer 15

1. Decrease or Increase in Excess Reserves
2. Influence on Bank Lending Capacity
3. Impact on Liquidity
4. Interplay with Central Bank Actions

Question 16

the Bank Reserve
can change the deposit multiplier and thus bring about an increase or decrease in total bank deposits and hence in the
overall money supply.

Answer 16

Changing reserve requirements

Question 17

When the Bank Reserve requires a larger percentage of deposits to be held in reserve, bank’s demand a ______ quantity of reserves.

Answer 17

larger

Question 18

Increase in required reserves shrinks excess reserves which shrinks bank lending ability. Therefore, there is decrease in potential money supply.

The more money the bank has on its required reserves, the less money is circulating since the bank’s lending ability is limited.

Answer 18

Raising Reserve Requirements

Question 19

Decrease in required reserves expands excess reserves which expands bank lending ability. Therefore, there is an increase in potential money supply.

The less money the bank has on its required reserves, the more money is circulating since the bank’s lending ability is expanded.

Answer 19

Lowering Reserve Requirements

Question 20

the interest rate at which eligible financial
institutions, such as banks, can borrow funds directly from the
central bank.

is set higher than the interest rate, and is intended to be used as a last resort for banks who are unable to borrow in the interbank market.

Answer 20

Discount rate

Question 21

is a standing credit facility to help banks meet temporary liquidity needs by refinancing the loans they extend to their clients.

occurs when a short-term negotiable debt
instrument or loan is discounted for a second time.

Answer 21

Rediscounting

Question 22

means exchanging (rediscounting) securities against a price that had already been exchanged (discounted) before.

Answer 22

Rediscount

Question 23

Also known as the secondary discount rate, is the interest rate
at which banks can obtain funds by pledging their eligible loan portfolios or other financial assets as collateral to the central
bank.

Answer 23

Rediscount Rate

Question 24

refer to the interest rates charged by
a central bank when it provides liquidity to financial institutions, typically commercial banks.

Answer 24

Rediscount rates of loans

Question 25

Interest rates:

Answer 25

a.) Price stability b.) Monetary policy transmission c) Liquidity management

Question 26

Rediscount rate

Answer 26

a.) Liquidity provision b.) Credit availability c) Monetary policy transmission

Question 27

the interest rate the Federal Reserve charges commercial banks and other financial institutions for short-term loans.

Answer 27

Discount rate

Question 28

lowering the discount rate to increase the money supply

Answer 28

Expansionary monetary policy

Question 29

increasing the discount rate to reduce the money supply

Answer 29

Contractionary monetary policy

Question 30

* buying/selling of government securities * lending/borrowing against underlying assets as collateral * acceptance of fixed-term deposits * foreign exchange swaps

Answer 30

Monetary operations

Question 31

unconditional obligations of the Republic of the Philippines.

Answer 31

Government Securities

Question 32

Two kinds of Government Securities

Answer 32

(1) Treasury bills (2) Treasury bonds

Question 33

a monetary policy tool in which central banks buy and sell bonds to regulate the money supply in our economy.

Answer 33

Open market operation

Question 34

In open market operations, it adds money to the system, lowers rates, makes loans easier to obtain, and increases economic activity.

Answer 34

Buying securities

Question 35

In open market operations, it removes money from the system, raises rates, makes loans more expensive, and decreases economic activity.

Answer 35

Selling securities

Question 36

Types of Open Market Operations

Answer 36

(1) Permanent Open Market Operations (2) Temporary Open Market Operations

Question 37

refer to the Fed's outright purchase or sale of securities for or from its portfolio. Are used to achieve traditional goals.

Answer 37

Permanent Open Market Operations

Question 38

used to add or drain reserves available to the banking system on a short-term basis. They are for temporary transactions.

Answer 38

Temporary Open Market Operations

Question 39

a transaction where the Fed's trading desk buys securities and agrees to sell them back at a future date.

Answer 39

Repurchase Agreements

Question 40

involves the Fed selling securities with the agreement that it will buy them back in the future.

Answer 40

Reverse Repurchase Agreements

Question 41

involves direct purchase/sale of government securities by the BSP from/to the market for the purpose of increasing/decreasing money supply on a more permanent basis.

Answer 41

outright contract

Question 42

refer to negotiable monetary instruments issued by the BSP as part of its structural liquidity management operations.

Answer 42

BSP Securities

Question 43

refer to transactions involving the actual exchange of two currencies

Answer 43

Foreign Exchange Swaps

Question 44

is a liquidity absorption facility used by the BSP for active liquidity management.

Answer 44

Term Deposit Facility

Question 45

will absorb any residual system liquidity to prevent market interest rates from falling below the corridor

Answer 45

Overnight Deposit Facility

Question 46

provides collateralized overnight funding to BSP counterparties to clear end-of-day imbalances.

Answer 46

Overnight Lending Facility