Test 1

Question 1

M1

Answer 1

Currency + Coins + Transaction Deposits (Checking Deposits+ Now[Negotiable order withdrawal]+money market deposit accounts) + Travelers Check(TR)

Question 2

M2

Answer 2

M1 + Money Market Accounts + Money Market Mutual fund + small denomination time deposits + Small Savings Deposits + Overnight Repurchase agreements + Overnight Euro Dollars

Question 3

Depository Institutions

Answer 3

Banks, Savings & loan Associations, Credit Unions, Mutual Savings Banks (Financial Coops)

Question 4

Non-Depository Institutions

Answer 4

These are contraction institutions comprised of Insurance companies, Public and Private pention Funds, Investment companies, Finance companies, Mutual funds

Question 5

Financial Markets

Answer 5

Stock Market, Bond market, Money Market(short term) and capital Market(long term)

Question 6

Liabilities of depository institutions

Answer 6

Sources of money; Deposits(Transaction deposits, Negotiable order withdrawal accounts, Money Market demand accounts) and Non-Transaction Deposits(savings, small time deposits, and large time deposits)

Question 7

Assets of depository institutions

Answer 7

Uses of funds; Business and consumer loans, government securities (T-Bill, notes bonds), municipal bonds

Question 8

Liabilities of Non-depository institutions

Answer 8

these are contractional organizations; premiums from policies

Question 9

Assets of Non-depository institutions

Answer 9

Bonds, Mortgages, Municipal bonds, Corporate bonds and stocks, treasuries and securities

Question 10

Treasury Bills

Answer 10

Maturity 3 months to 1 year, Issued by U.S. treasury to raise funds to pay bills and meet operating expenses and redeem maturing bills; these are sold at a discount

Question 11

Commercial paper

Answer 11

short term promissory note issued by major corporations to seek funds to meet on-going expenses; typically run for 6 months or less

Question 12

Capital Market Instruments

Answer 12

Long term instruments; Treasury notes and bonds, Municipal Bonds (munies), Corporate Bonds(convertable and non-convertable), Stock/Equity(Preferred stock and common stock), mortgages

Question 13

Money Market Instruments

Answer 13

short term instruments; Treasury Bills, Commercial Paper, Negotiable Certificates of Deposits (C.D.s), Fed Funds, Repurchase agreements, Euro dollars

Question 14

nominal interest rate

Answer 14

i=π^e+r

Question 15

Federal Funds

Answer 15

Fed Funds; pool of excess reserves from federal reserve banks.

Question 16

Repurchase agreements

Answer 16

Bank “sells” treasury bond for a set amount of money to a company and promises to repurchase the same bond after a specified period of time

Question 17

Eurodollars

Answer 17

Pool of bank ‘dollar’ deposits kept in foreign bank by U.S.citizens, U.S. businesses, Financial institutions, Foreigners (Individuals, Businesses, Government Entities)

Question 18

Bond Demand Function

Answer 18

Bond Demand = F(Price demand / Wealth, Expected interest, Risk of bonds, Liquidity of bonds)

Question 19

Bond Supply Function

Answer 19

Bond Supply = F(Price Demand / Expected profitability of businesses, Expected rate of inflation, Treasury budget activities (Deficit, Surplus)

Question 20

Federal funds rate

Answer 20

Fed fund rate: interest rate at which banks loan funds put in the federal reserve to other banks to meet the federal reserve requirement