Test 3

Question 1

This phenomenon of spreading panic on the part of depositors in banks is called ____________.

Answer 1

Contagion

Question 2

Which of the following is one of the two main forms of safety nets our government provides for the banking industry

Answer 2

Serving as Lender of Last Resort

Question 3

During the financial crisis, the Federal Reserve allowed some non-depository institutions to access its lending facilities. In the absence of new oversight, the access to central bank loans granted by the Fed in the crisis will ______________.

Answer 3

Encourage these borrowers to take greater risks in the future

Question 4

When the case of an insolvent institution is resolved by the FDIC using the purchase-and-assumption method, which of the following is true?

Answer 4

The FDIC sells the failed bank to a solvent bank at a negative price

Question 5

Too big to fail actually means ___________________.

Answer 5

Too complex to be shut down or sold in an orderly fashion to another institution

Question 6

The first screen, put in place to make sure the people who own and run banks are not criminals, is to require _______________.

Answer 6

New banks to obtain a charter

Question 7

Regulators have long believed that excessive competition within the banking industry facilitates instability and can contribute to problems of insolvency and bank runs. What is it about excessive competition that regulators fear?

Answer 7

Competition leads to higher interest rates on deposits and lower interest rates on loans

Question 8

Following the consolidation resulting from the financial crisis of 2008, roughly ____% of deposits at US commercial banks were held in only four banks (Bank of America, JP Morgan, Wells Fargo, and Citi)

Answer 8

40%

Question 9

We know that banks held large amounts of mortgage backed securities before and during the crisis. Assuming these mortgage backed securities had AAA ratings, what benefit did this provide the banks?

Answer 9

It reduced the amount of capital the banks were required to hold

Question 10

The most important part of a bank examination is _______________________.

Answer 10

The evaluation of past due loans

Question 11

What is it called when many institutions have exposure to the same specific risk factor?

Answer 11

Common exposure

Question 12

Which of the following is NOT a part of the Federal Reserve System of the US?
12 regional Federal Reserve Banks
The Board of Governors of the Federal Reserve
The Federal Open Market Committee
The Governing Council of the Federal Reserve

Answer 12

The Governing Council of the Federal Reserve

Question 13

Which Federal Reserve Regional Bank serves Utah?

Answer 13

San Francisco

Question 14

Which of the following Regional Banks is the Federal Reserve System’s point of contact with the financial markets?

Answer 14

New York

Question 15

The chairperson of the Board of Governors of the Federal Reserve serves a ______ term and may be reappointed to more than one term.

Answer 15

4 year

Question 16

Which of the three branches of the Federal Reserve System performs the following functions?

• Sets the reserve requirement
• Approves/disapproves discount rate recommendations
• Invokes emergency powers to lend to nonbanks when circumstances are deemed “unusual and exigent”

Answer 16

The Board of Governors of the Federal Reserve

Question 17

The FOMC could control any interest rate, but the rate it has traditionally chose (ignoring the past several years) to control is the ___________?

Answer 17

Fed funds rate

Question 18

Which of the following are goals that Congress established for the Federal Reserve?
I. Maximum employment
II. Stable prices
III. Moderate long-term interest rates

Answer 18

I, II, and III

Question 19

The _________________ is the most important member of the Federal Open Market Committee.

Answer 19

The chair of the Board of Governors of the Federal Reserve System

Question 20

Which of the following contains anecdotal information about current business activity and is published (and made publicly available) about two weeks prior to each upcoming FOMC meeting?

Answer 20

beige book

Question 21

Which of the following entities in the European System of Central Banks is most similar to the FOMC in the US Federal Reserve System?

Answer 21

Governing council

Question 22

“The primary objective of the European System of Central Banks shall be ___________________.”

Answer 22

to maintain price stability

Question 23

Which of the following is considered an asset on the balance sheet of the Federal Reserve?

Answer 23

Loans issued to banks by the Federal Reserve

Question 24

There are two types of reserves: those that banks are required to hold, called required reserves, and those they hold voluntarily, called ___________ reserves.

Answer 24

Excess

Question 25

When the Federal Reserve buys or sells securities in financial markets, it engages in _______.

Answer 25

Open market operations

Question 26

The monetary base = ___________________________.

Answer 26

Currency in the hands of the public + reserves in the banking system C + R

Question 27

When the Federal Reserve buys $1 million worth of Treasury bills from a US commercial bank through its open market operations ____________________________.

Answer 27

The reserves portion of its liabilities increases by $1 million

Question 28

_________________ loans are loans the Fed makes when banks need short-term cash.

Answer 28

Discount

Question 29

Based on the formula that estimates the money supply as a function of the deposit expansion multiplier and the monetary base, which of the following would increase the money supply? An increase in the amount of cash that consumers hold relative to their deposits A decrease in the required reserve ratio An increase in the amount of excess reserves banks hold relative to deposits A decrease in the monetary base

Answer 29

A decrease in the required reserve ratio

Question 30

Total required reserves at US banks are $65,965 million Total excess reserves at US banks are $1,120,371 million Total deposit accounts at banks are $1,029,500 million Cash in the hands of the public is $943,800 million What is the excess-reserves-to-deposit ratio?

Answer 30

1.0883

Question 31

ssuming that banks hold no excess reserves and there is no cash in the hands of the non-banking public, what is the money multiplier if the required reserve ratio is 8.5%?

Answer 31

11.765

Question 32

Assume that a financial crisis leads to the following: banks decide to hold higher excess reserves and the non-banking public decides to carry more cash in their wallets and homes. Which of the following would result? I. The cash to deposit ratio would increase II. The excess reserves to deposit ratio would increase III. The money multiplier would increase

Answer 32

1 and 2

Question 33

Since the Federal Reserve can only control two of the four variables that determine the money supply, it no longer targets the money supply as policy tool. Instead, for short-run policy, ________________ have become the monetary policy tool of choice for the Federal Reserve.

Answer 33

Interest rates

Question 34

Between September 2007 and December 2008, the FOMC lowered its target for the federal funds rate 10 times. What was the target fed funds rate range by the end of the 2008?

Answer 34

0.00 - 0.25%

Question 35

Reserves are injected into the banking system through ____________.

Answer 35

An increase in the size of the Fed’s balance sheet

Question 36

``` Which of the following is NOT a CONVENTIONAL policy tool of the Federal Reserve? The target federal funds rate The discount rate The term auction Facility The deposit rate ```

Answer 36

The term auction Facility

Question 37

``` If the Fed wishes to lower the market fed funds rate through open market operations, it will do which of the following? Decrease the supply of reserves Increase the supply of reserves Decrease the demand for reserves Increase the demand for reserves ```

Answer 37

Increase the supply of reserves

Question 38

The Federal Reserve allows the market fed funds rate to fluctuate around its target within a corridor or channel. What serves as the ceiling for this corridor?

Answer 38

The discount rate

Question 39

Seasonal credit is used primarily by _______________ banks in the Midwest.

Answer 39

Small agricultural

Question 40

________________ is extended on a very short-term basis, usually overnight, to institutions that the Fed’s bank supervisors deem to be sound.

Answer 40

Primary credit

Question 41

Today, the reserve requirement exists primarily to _________________.

Answer 41

Stabilize the demand for reserves and help the Fed maintain the market fed funds rate close to the target

Question 42

The European equivalent of the Fed’s target fed funds rate is _______________.

Answer 42

The minimum bid rate

Question 43

Central bankers use the term ___________________ to refer to instruments that are not directly under their control but lie instead somewhere between their policymaking tools and their objectives.

Answer 43

Intermediate targets

Question 44

__________________ occurs when the central bank expands the supply of aggregate reserves to the banking system beyond the level that would be needed to maintain its policy rate objective.

Answer 44

Quantitative easing