Money, Banking, and the FED

Question 1

money with an alternative use

Answer 1

Commodity money

Question 2

Examples of commodity money

Answer 2

Buckskins, compressed tea wampun shells, bricks, tobacco

Question 3

Money by government decree (money with no intrinsic value)

Answer 3

Fiat money

Question 4

Examples of fiat money

Answer 4

US dollar, all modern paper currency, digital, value

Question 5

Money made of precious metals

Answer 5

Specie money

Question 6

Examples of specie money

Answer 6

Austrian Talers, Spanish Pesos, South African Kruggerands

Question 7

Standard unit of value of a country’s coinage

Answer 7

Monetary Unit

Question 8

6 Characteristics of money

Answer 8

Money must be:
1. durable
2. Portable
3. divisible into smaller parts
4. available
5. limited supply
6. University accepted

Question 9

3 functions of money

Answer 9

Money is a:
1. medium exchange
2. unit of account
3. store of value

Question 10

M1 includes:

Answer 10

coins, paper currency, checking and savings account (> $4 trillion)

Question 11

M2 includes everything in M1 plus…

Answer 11

CDs under 100k, mutual funds with less than 1 year maturity class (> $20 trillion)

Question 12

How do banks increase the money in circulation

Answer 12

Banks can only loan out 90% of what customers deposit, except the 10% Reserve Requirement set by the FED

Question 13

When and why did Congress create the FDIC

Answer 13

1933. If your bank goes bankrupt, FDIC will refund your money up to $250,000 per account

Question 14

Minimum cash the bank can keep on hand. the FED pays banks interest on this money it holds for banks

Answer 14

Required reserves

Question 15

Additional cash a bank keeps on hand.

Answer 15

Excess reserves

Question 16

If the Fed ups the interest rate it gives banks on excess reserves, it will give banks incentive to:

Answer 16

raise the rates they charge for consumer loans

Question 17

Government securities are

Answer 17

Government bonds

Question 18

The federal funds interest rate is for ____ lending to ______

Answer 18

the banks, the banks

Question 19

The discount rate is for ____ lending to ____

Answer 19

the FED, banks

Question 20

The prime interest rate is for ____ lending to ___

Answer 20

the banks, the customers

Question 21

A loan contract between a lender and a borrower for borrowed funds to be paid back plus interest within a maturity rate

Answer 21

Bond

Question 22

Who can issue bonds

Answer 22

Businesses and governments

Question 23

If you issue a bond, you are a

Answer 23

borrower

Question 24

If you buy a bond, you are

Answer 24

Lender

Question 25

How do you know if a bond is profitable

Answer 25

Current yield will help determine the money you are going to make on any investment

Question 26

How do you know if bond is risky

Answer 26

Standard + Poors, Moody's, + Fitch Based on the firm's credit history, past profits, current financial health

Question 27

How many branch banks

Answer 27

12 districts

Question 28

What district are we in

Answer 28

Atlanta, 6

Question 29

Who owns Fed

Answer 29

Member banks

Question 30

Who has the authority to regulate the Fed

Answer 30

Congress

Question 31

Who is the current Fed chairperson

Answer 31

Jerome Powell

Question 32

Who appoints the chairperson

Answer 32

President

Question 33

Who approves these appointments

Answer 33

Senate

Question 34

What economic indicator does the Fed use to control inflation and unemployment in the US

Answer 34

Interest rate

Question 35

When banks lower interest rates

Answer 35

Expansionary money policy

Question 36

When banks raise interest rates to discourage spending

Answer 36

Contractionary money policy

Question 37

What does fed use expansionary money policy

Answer 37

When there is high unemployment

Question 38

What does fed use contractionary money policy

Answer 38

When there is high inflation

Question 39

What three groups borrow money by issuing bonds

Answer 39

1. Corporations 2. Nonprofits 3. Governments

Question 40

If bond is rated low, what 2 ways could a borrower compensate an investor for the risk

Answer 40

1. raise the interest price 2. lower the purchase price

Question 41

junk bond

Answer 41

high yield, low rating, high interest rates

Question 42

What causes gov to issue bonds

Answer 42

When. gov overspends

Question 43

federal gov bonds you can invest in with small amounts of money

Answer 43

savings bonds

Question 44

fed gov bonds you can invest in, maturity dates 1-30 years

Answer 44

treasury notes and bons

Question 45

fed gov bonds you can invest in for a very short time periods

Answer 45

T-Bills

Question 46

bond issued by a city or state

Answer 46

Municipal bond

Question 47

is municipal bond safe

Answer 47

no cities are more likely to go bankrupt

Question 48

If interest rates fall, what happens to prices of existing bonds

Answer 48

Prices rise

Question 49

If interest rates rise, what happens to prices of existing bonds

Answer 49

Prices fall

Question 50

A seat on the Board of Governors comes open every ____ years and their terms are for ____ years

Answer 50

2, 14

Question 51

Is the fed independent or dependent

Answer 51

independent

Question 52

fed main job

Answer 52

Push interest rate down and up

Question 53

What does FOMC do

Answer 53

Decides to change interest rates or not