Slides 1-4 Flashcards
Money is a medium of exchange, store of value, unit of account and ___.
Standard of deferred payment
The four main characteristics of money are that it should be ___, ___, ___ and ___.
Portable, Durable, Scarce, Not Easily Counterfeited
Other than M1 or M2, another measure of money supply is MZM which is ___.
M2 minus small time deposits plus institutional MMMFs
Banks make loans in ___, but favor risk free Treasury securities in ___.
Good times, Bad times
The first 10.3 have a ___ rr, next up to $44.4 million have a ___ rr, and amounts over $44.4 million have a ___ rr.
0, 3%, 10%
The four ways excess reserves are used include ___, ___, ___ and ___.
Held by bank earning interest from the Fed, lent in the federal funds market, Used to buy securities, Used to make new loans
Total Reserves = ___+___ or alternatively = ___+___
Vault Cash + Reserve Balances with Fed; or Excess + Required
Banks lend excess reserves to each other in the ___, and are charged interest rate called the ___.
Federal funds market, Federal Funds Rate
When banks cannot make their reserve requirement, they are faced with five options being: ___, ___, ___, ___ or ___.
Borrowing in the fed funds market, Borrowing from the fed at the discount rate, Selling securities owned by bank, Reducing outstanding loans, Issuing CDs
The supervisory rating system CAMELS stands for ___.
Capital adequacy, Asset quality, Management and admin, Earnings, Liquidity, Sensitivity to market risk
Core deposits represent an increasingly (smaller/larger) portion of bank funding.
Smaller
Liquidity or Reserve management is ensuring that the bank maintains an appropriate level of reserves, ensure sufficient excess reserves but also the ___.
Buying and selling of reserve balances to minimize cost of holding near zero-interest earning assets.
When banks borrow in the fed funds market overall reserves (do/don’t) change but when banks borrow from the fed the volume of bank reserves ___.
Don’t change, but borrowing from Fed direct the volume of bank reserve increases.
Three Asset management strategies include: ___, ___ and ___.
Balancing returns against risk, Diversification and Managing Liquidity
Other than managing cost of funds via mix of liabilities, core deposits, and managed liabilities (e.g. Eurodollars), a liability management strategy also includes ___.
Managing the maturity structure of liabilities (i.e. don’t let all liabilities mature on the same day)
Because banks’ liabilities typically tend to roll over or reprice faster than assets, when interest rates rise the value of both assets and liabilities ___ but the effect is likely to be larger for ___ than for ___.
Fall, Larger for Assets than for Liabilities
Basis risk means the risk that ___.
Not all interest rates will move together
If a bank has more rate-sensitive ___ than ___, a rise in interest rates will ___ bank profits and a decline in interest rates will ___ bank profits.
Liabilities than Assets, A rise will reduce profits, A decline will raise profits
The Dollar Interest-Sensitive Gap = ___
Int-Sens Assets - Int-Sens Liabilities
The Relative Int-Sensetive Gap = ___
Dollar IS Gap/Bank Size
The Interest Sensitivity Raio = ___
Interest Sensitive Assets/Interest Sensitive Liabilities
A liability sensitive has: +/- Dollar Int Sensetive Gap, +/- Relative IS Gap, Int Sensitivity Ratio ( than 1)
Negative, Negative Less than 1
For an Asset-Sensitive Bank, as interest rates rise, NIM (rises/falls)
Rises
For a Liability-Sensitive Bank, as interest rates rise, NIM (rises/falls)
Falls
When interest rate sensetive assets = interest rate sensetive liabilities, the interest sensitivity ration is For an Asset-Sensitive Bank, as interest rates rise, NIM is ___.
One
The Fed Funds rate is a measure of the ___ of funds to banks.
Marginal cost
The Fed determines the supply of ___, by buying or selling ___.
Bank reserves, By buying or selling securities
The Fed buying securities shifts the supply curve to the (right/left), selling securities shifts the curve to the (right/left).
Buying=Right Shift, Selling=Left Shift
Buying securities increases ___ and drived the Fed funds rate ___.
Increases reserves, Lower
Required Reserves = ___
Mandated Required Reserves Ration x Reservable Deposit Liabilities (Transactions Deposits)
The demand for excess reserves is determined by the ___, for which a rise in will shift the demand curve ___, unless the increase will cause the Fed funds rate to rise.
Degree of uncertainty, Outward shift
Money market instruments include Fed funds, CDs, Eurodollars, commercial paper, ___ and ___.
T-Bills and Repurchase Agreements (and Reverse RPs)
Recently, the growth in the Eurodollar market is related to the sizable ___.
US Current Account deficit and increased holdings of dollars by foreigners
LIBOR is nothing more than a ___, which also represents the ___ of term funds to banks.
Survey of Eurodollar rates, represents the marginal cost of term funds (much like Fed Funds)
The most prominent purchases of Money Market Instruments are ___.
Money market funds
