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Exam 20: Money, Financial Institutions, and the Federal Reserve

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Question 121

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News reports indicate that the Fed plans to announce its third increase in the discount rate in the past five months. Additional reports suggest that the Fed may also increase the reserve requirement in the near future. Apparently the Fed perceives the number one problem facing the economy is:

A) the size of the federal deficit.
B) unemployment.
C) excessively high interest rates.
D) inflation.

E) B) and C)
F) A) and C)

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Question 122

Multiple Choice

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Open market committee operations involve:

A) Monitoring the reserve requirement.
B) the buying and selling of bonds.
C) increasing and decreasing interest rates.
D) participating with the IMF.

E) B) and C)
F) A) and C)

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Question 123

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The Federal Reserve System consists of Federal Reserve banks.

Nonbanks accept deposits, but do not offer lending services, brokerage services, or insurance services.

A is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans.

When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to Europe will decrease.

The FDIC exists to maintain the public's confidence in the banking system.

When the FED increases the reserve requirement it forces banks to increase the number of loans they make.

Prior to the Civil War, the United States had two unsuccessful attempts at a central bank.

A demand deposit is the technical name for a checking account.

Electronic cash is the newest form of money.

A banker's acceptance represents a promise that a bank will pay a specified amount at a specified time if certain conditions are met.

Next month, Commerce Bank plans to increase the amount of new loans it makes. As a member bank of the Federal Reserve, Commerce can borrow from the Fed. Commerce will charge the customer an interest amount greater than the discount rate.

H & Q Importers arranged to have a French winery ship a large quantity of fine wine to the United States. By signing a(n) H & Q authorized its bank to make full payment to the French winery if and when the wine arrives at the H & Q warehouse in Boston.

Which of the following is not included in the M-1 or M-2 definitions of the money supply?

Today, a regular is a place where you can exchange goods for other goods. You submit your goods and you receive trade credit that you can use to buy other goods.

Chipper's Golf resort is in the process of purchasing rare Kauri wood from New Zealand to be made into an impressive mantle on the fireplace of its new clubhouse. Before disbursing payment to the New Zealand dealer, the director of the construction project is concerned about the timeliness of delivery as well as the quality of the slab of wood once it is delivered. As the representative of Chipper's bank, you suggest that the Golf resort sign a(n) :

The Fed announces that it intends to implement policies to increase interest rates. Which of the following correctly identifies the most likely result of higher U.S. interest rates?

Large pension funds represent a powerful force in U.S. financial markets.

When the Fed increases the reserve requirement, banks: