Research Shows Women Leaders Bring Higher GDP

Question 1

FEDERAL RESERVE SYSTEM

Answer 1

-Central Bank of the United States
-Composed of 3 key entities, including Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market committee
Chairperson: Janet Yellen
-“Sets the nation’s monetary policy, supervises and regulates banking institutions, maintains the stability of the financial system and provides financial services to depository institutions, the U.S. government and foreign official institutions.”

Question 2

FEDERAL RESERVE BOARD OF GOVERNORS

Answer 2

• Central, independent governmental agency in D.C.
• Seven members of the Board of Governors of the Federal Reserve System are nominated by President and confirmed by Senate
• Full term is 14 years [one term begins every two years, on February 1 of even-numbered years]

Question 3

Monetary policy

Answer 3

• Monetary policy consists of the actions of a central bank, currency board, or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates.
• Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves).
• There are two types of monetary policy: expansionary and contraction.
• Expansionary monetary policy increases the money supply in order to lower employee net, boost private-sector borrowing and consumer spending, and stimulate economic growth
• Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation, while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and business.

Question 4

12 FEDERAL RESERVE BANKS

Answer 4

• Operating arms of Fed
• Contributes to Monetary policy discussion by serving on Federal Open Market Committee (FOMC)—each bank president contributes to the discussion by serving on FOMC.
• Owned by commercial banks in district (legally private but functionally private), but serve public goals.
• Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis [each bank serves a specific district]
• Banks operate independently, but under the supervision of the Board of Governors.
• Each of the 12 Reserve Banks is separately incorporated and has a board of directors that consists of nine members.

The Reserve Banks carry out core functions of the Federal Reserve by:
+supervising and examining state member banks
+lending to depository institutions to ensure liquidity in the financial system
+providing key financial services and serving as a bank for the U.S. Treasury
+Examining certain financial institutions to ensure and enforce compliance with consumer protection and fair lending laws

• About 34% of these commercial banks in the U.S. are members of the Federal Reserve System (they are owners of the Fed, but they don’t have the usual rights of stockholders; they need to hold 6% of their capital as stock in the Reserve bank, but by law their dividend return is fixed at 6%0.
• Reserve Banks are primarily financed by interest earned on the Fed’s portfolio of income-producing government securities, plus interest on loans to depository institutions. Any excess earnings must be transferred to U.S. Treasury.

Question 5

FEDERAL OPEN MARKET COMMITTEE [FOMC]

Answer 5

• The FOMC is the policy-making branch of the Federal Reserve.
• Traditionally, the chair of the Board is also selected as the chair of the FOMC
• Voting members of the FOMC are the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and the other presidents of the four other Reserve Banks who serve on a one-year rotating basis.
• All Reserve Bank presidents participate in FOMC policy discussions whether they are voting members or not.
• The FOMC is the part of the Fed that makes the most important decisions on interest rates and other monetary policies—which is why they get the most attention in the media.

Question 6

5 Key Functions of the Fed:

Answer 6

1. Conducting the nation’s monetary policy
2. Helping maintain stability of the financial system
3. Supervising and regulating financial institutions.
4. Fostering payment and settlement system safely and efficiently.
5. Promoting consumer protection and community development.

Question 7

DOW JONES INDUSTRIAL AVERAGE

Answer 7

• Stock market index
• Price-weighted index; stocks of the 30 largest/most influential companies
• Originally computed by adding up per-share price of stocks of each company in index and dividing the sum of the number of companies (#average).
• No longer simple to calculate; over the years, the stock, splits, spin-offs, and other events have resulted in changes in the divisor.
• Represents about a quarter of the value of the entire U.S. stock market.
• Dow’s price-weighted function: a percent change in Dow should not be interpreted as a definite indication that the entire market has dropped by same percent.
• A change in Dow represents changes in investors’ expectations of the earnings and risks of the large companies included in the average.
• Attitude for large-cap stocks, often differs in attitude for small cap stocks, international stocks, or technology stocks, so basically Dow should not be used to represent sentiment in other areas of marketplace.
• On the other hand however, because the Dow is made up of some of the most well-known companies in the U.S., large swings in this index generally correspond to movement of the entire market, although not necessarily on the same scale.

Question 8

S&P 500

Answer 8

• Standard & Poor 500 index
• Standard & Poor’s Index—larger and more diverse than the DJIA.
• Made up of 500 of the most widely traded stocks in the U.S.
• Represents about 80% of the total value of U.S. stock markets.
• S&P 500 index gives a good indication in the U.S. marketplace as a whole.
• Market-weighted, capitalization-weighted (in other words, if the total market value of all 500 companies in the S&P drops by 10% the value of index also drops by 10%).
• Includes companies in a variety of sectors, including energy, industrials, information technology, healthcare, financials, and consumer staples.

Question 9

WILSHIRE 5000

Answer 9

• “Total stock market index”
• “Total market index”
• Almost all publicly-traded companies with headquarters in the U.S. that have readily available price data included in the Wilshire 5000.
• Index is made up of extremely diverse stocks from every industry.
• Extremely comprehensive measure of entire U.S. market.

Question 10

NASDAQ

Answer 10

• Most investors know that Nasdaq is the exchange on which technology stocks are traded.
• Nasdaq composite index-market-capitalization weighted index of all stocks traded on Nasdaq.
• Some companies included are not based in the U.S.
• Technology is king, but the Nasdaq also includes stocks from financial, industrial, insurance, and transportation industries.
• Includes speculative companies with small market capitalization.
• Movement indicates performance of technology industry as well as investor’s attitude toward more speculative stocks.

Question 11

RUSSELL 2000

Answer 11

• Not dominated by a single industry
• Market-capitalization-weighted index of the 2,000 smallest stocks in the Russell 2000, 2,000 largest publicly-traded companies, based on market cap in the U.S. stock market.
• Russell 2k based indicator of daily performance of small companies on the market.