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Money & Banking II > Slides 15-17 > Flashcards

Slides 15-17 Flashcards

1
Q

Low mortgage rates, and particularly adjustable rates, provided a boost to ___.

A

Home sales

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2
Q

In early August 2007, Structured Investment Vehicles were unable to roll over ___.

A

Commercial paper

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3
Q

To blame for the 2008 crisis is the fed for keeping rates ___, securitization of ___, ___ agencies, risky mortgage instruments and a naive public.

A

Keeping rates too low for too long, securitization of mortgages, rating agencies

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4
Q

What forced borrowers to show up at the doorsteps of banks was the inability of issuers to roll-over ___.

A

Commercial paper

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5
Q

Banks faced with increased ___ requirements, aggressively attempted to increase so-called “___-Liabilities”

A

Funding, managed

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6
Q

The Eurodollar was born out of an incentive for US banks to circumvent reserve requirements and regulation ___.

A

Q

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7
Q

LIBOR is the ___ rate for a subset of London banks.

A

Eurodollar rate

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8
Q

LIBOR setting are based on a survey of ___ London banks; the BBA averages the middle ___ responses.

A

16, 8

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9
Q

Bidding for ___ caused a rise in term interbank funding rates, such as Eurodollars or LIBOR.

A

Managed Liabilities

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10
Q

LIBOR rates are analogous to ___ rates.

A

Eurodollar

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11
Q

LIBOR represents the ___ funds to banks (similar to ___).

A

Marginal cost of term funds, similar to Fed Funds

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12
Q

Many business loans and adjustable rate sub-prime mortgages are priced at a spread over ___.

A

The LIBOR rate

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13
Q

Banks’ sudden surge in assets triggered ___ requirements rendering strains in the ___ funding market.

A

Funding/liquidity, inter-banks

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14
Q

In response to funding strains and stress on bank capital positions, banks did what?

A

Tightened lending standards

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15
Q

In addition to credit becoming less available, it become more ___.

A

Costly

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16
Q

When banks borrow from the discount window, bank reserves (increase/decrease).

A

Increase

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17
Q

Prior to 2003, the discount rate was set (above/below) the Fed Funds rate.

A

Below

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18
Q

Prior to 2003, the discount rate served as an ___ on the Fed funds rate.

A

Anchor

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19
Q

Banks were forced to borrow from the discount window because the provision of non-borrowed reserves was ___ the demand for combined demand for required and excess reserves.

A

Was below

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20
Q

The larger the volume of forced discount window borrowing, the ___ the spread between the discount rate and the Funds rate.

A

Greater

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21
Q

The higher the implicit costs of borrowing from the fed, the ___ the spread between the Funds rate and the discount rate for a given level of borrowing.

A

The Larger

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22
Q

The FOMC would establish “___,” instructing the Open Market Desk to provide nonborrowed reserves in such volumes as to force a particular volume of discount window borrowings.

A

Borrowing Objectives

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23
Q

By establishing Borrowing Objectives, the FOMC was attempting to foster a particular ___ between the funds rate and the discount rate.

A

Spread

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24
Q

Beginning January 2003, the discount rate became a ___ rate, being set ___ percent (above/below) the prevailing Fed funds target.

A

Penalty; 1%, Above

25
Q

The penalty rate was an attempt to remove any ___ costs of borrowing, and banks were no longer ___ from borrowing at the discount window.

A

Implicit, discouraged

26
Q

The penalty rate approach was thought of as putting a ___ on the Fed funds rate.

A

Putting a ceiling

27
Q

Cutting the discount rate only impacts the funds rate only if banks are ___.

A

Are already borrowing heavily from the window

28
Q

As a crisis-related countermeasure, the fed reduced the spread between the funds rate target and the discount rate from 1% to 0.50%, and the intent was to encourage ___, so that stress in the ___ markets would ease.

A

Borrowings, inter-bank funding markets

29
Q

Banks were concerned that if it became known that they were accessing the discount window, they would be perceived as suffering ___ problems.

A

Liquidity

30
Q

To ease terms at discount window, the Fed instituted the ___ ___ Facility, and the PDCF which stands for ___.

A

Term Auction Facility, Primary Dealer Credit Facility

31
Q

The PDCF ensured ___ to dealers with appropriate collateral.

A

Liquidity

32
Q

As a crisis-response, the Fed activated currency Swap Lines, providing dollar related credit to foreign central banks to enable a ___ of these dollars to banks outside the US.

A

Re-lending

33
Q

The rise in bank reserves associated with liquidity provisions would have resulted in a fed funds rate plunge to zero, if not for ___.

A

Payment of interest on reserves

34
Q

By paying interest on reserves IOR, the fed could expand its ___ ___ without having the funds rate fall to zero. The thinking was that IOR would put a ___ on the funds rate, even when there was an abundance of excess reserves in the banking system.

A

Balance Sheet, Floor

35
Q

If the fed pays 0.25% interest on reserve balances, this lifts the floor on funds from zero to ___.

A

0.25%

36
Q

The Fed will move towards managing the Fed funds rate within a “___” sometime in the years ahead,

A

Corridor

37
Q

The discount rate serves as the theoretical ___ on the funds rate.

A

Ceiling

38
Q

The IOER serves as a theoretical ___ on the funds rate.

A

Floor

39
Q

Together the IOER and the Discount Rate define a “___” for the fed funds rate.

A

Corridor

40
Q

A shift in the demand for reserves (causes/does not cause) the funds rate to shift to trade above ceiling.

A

Does not

41
Q

As a rebuttal to the term quantitative easing, Bernake deemed that securities purchases work by affecting the ___ on the acquired securities, via ___ effects on investors portfolios, on a wider range of assets.

A

Yields, substitution

42
Q

Quantitative easing is the targeted expansion of ___, which are the same as ___, with the intention of influencing money and ___ growth.

A

Fed liabilities, same as bank reserves/monetary base, credit

43
Q

In contrast to QE, LSAP (Large Scale Asset Purchases) was aimed at the ___ side of the Fed’s balance sheet with the intention of lowering ___ and private sector borrowing costs.

A

Asset-side, longer term interest rates

44
Q

The QE expression is used to mean an expansion of the Fed’s ___.

A

Security holdings

45
Q

When the Fed buys securities, bank reserves increase. But the Fed’s main goal was rather to influence longer-term ___ and ___ costs.

A

Interest rates, private borrowing costs

46
Q

LSAP1 or QE1 was initiated to reduce the cost and increase the availability of credit for the purchase of ___.

A

Houses

47
Q

LSADP2 or QE2 was a plan to buy an additional $600b in Treasury securities, aimed to promote a stronger pace of economic recovery and ensure that inflation was at levels consistent with its ___ (e.g. diminishing ___ risk).

A

Mandate, deflationary risk

48
Q

Under the maturity extension program, the Fed would sell $400b of ___-term securities by the end of Jun 2012, and use the proceeds to buy $400b of ___-term securities.

A

Shorter-term, longer-term

49
Q

The intent of the maturity extension program was to extend the ___ of the securities in the Fed’s portfolio from about 5 years to 100 months.

A

Average maturity

50
Q

LSAP3 or QE3 was a plan to buy $40b of Agency MBS per month. The purchases would continue until there was evidence of ___ in labor market conditions.

A

Sustained improvement

51
Q

Additions to SOMA have recently been ___-term securities.

A

Longer

52
Q

The average maturity of the Fed’s holdings have recently exceeded ___-years compared to only about 3.5 years prior to the onset of the crisis.

A

10

53
Q

Prior to Lehman failure, reserve balances were effectively unchanged, but after Lehman, reserve balances ___.

A

Surged

54
Q

Monetarists believe the Fed influences the economy through the ___ side of its balance sheet (which are bank reserves and the ___). These types refer to recent policy as (QE/LSAP).

A

Liability, monetary base, QE

55
Q

Keynesians view policy as working more through ___ channels, and are likely to refer to recent policy as (QE/LSAP).

A

Interest rate, LSAP

56
Q

In Operation Twist of 1961, the Fed used its ___ ___ to influence longer term rates.

A

Balance sheet

57
Q

Operation twist was an attempt to promote higher ___-term rates for ___ reasons, while pushing ___-term rates lower to promote economic activity.

A

Short-term, international, long-term

58
Q

The fed promoted higher short-term rates while pushing longer-term rates down by selling ___ and buying ___ & ___.

A

Selling Bills, Buying Notes & Bonds

59
Q

Monetary policy affects spending and inflation with a ___, and thus policy decisions must be based on an assessment of medium-term economic prospects.

A

Lag

Money & Banking II (4 decks)

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