Money Banking and Financial Markets Final Exam 2025

The most common type of discount lending that the Fed extends to banks is called - Primary Credit The European System of Central Banks signals the stance of its monetary policy by setting a target for the - -overnight cash rate Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is an ________ open market ________, everything else held constant - -dynamic; sale In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ________ the ________ curve of reserves and causes the federal funds interest rate to fall, everything else held constant. - -decreases; demand In the market for reserves, a lower discount rate - -shortens the vertical section of the supply curve of reserves. The discount rate is - -the interest rate the Fed charges on loans to banks To lower long-term interest rates, in 2010 the Fed started its new open market operation program to purchase - -long-term Treasuries The equivalent to the Federal Reserve's discount rate in the European System of Central Banks is the - -marginal lending rate Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate - -increases the federal funds rate. After 2003, The Federal Reserve usually keeps the discount rate - -above the target federal funds rate. The Fed's open market operations normally involve only the purchase of government securities, particularly those that are short-term. However, during the crisis, the Fed started new programs to purchase - -mortgage-backed securities and long-term Treasuries. The policy tool of changing reserve requirements is - -no longer used Money Banking Money Banking Even economists have no single, precise definition of money because - -the "moneyness" or liquidity of an asset is a matter of degree. Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average. - -more; lower A rising stock market index due to higher share price - -increases people's wealth and as a result may increase their willingness to spend. Kevin purchasing concert tickets with his debit card is an example of the ________ function of money - -medium of exchange Compared to an economy that uses a medium of exchange, in a barter economy - transaction costs are higher There is a ________ association between inflation and the growth rate of money ________. - -positive; supply When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost 100 British pounds would have cost $130. With a weaker dollar, the same Shetland sweater would have cost - -more than $130. American farmers who sell beef to Europe benefit most from - -an increase in the dollar price of euros A person's house is part of her - -wealth If an individual uses money from a demand deposit account to purchase a U.S. savings bond - -M1 decreases and M2 decreases A feature of Bitcoin, a new type of electronic money, that make it attractive as a medium of exchange is - -anonymous transactions. Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon." - -monetary 1 out of 1 points If the price level doubles, the value of money - -falls by 50 percent. Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as - -financial intermediation. An electronic payments system has not completely replaced the paper payments system because of all of the following reasons EXCEPT - -transportation costs Money Banking Money Banking The business term for economies of scope is - -synergies The large number of banks in the United States is an indication of - -lack of competition within the banking industry. Financial innovations occur because of financial institutions search for - -profits. The legislation overturning the Glass-Steagall Act is - -the Gramm-Leach-Bliley Act The spectacular growth in international banking can be explained by - -the rapid growth in international trade Eurodollars are - -dollar-denominated deposits at any foreign bank or foreign branch held outside of the US In a ________ banking system, commercial banks engage in securities underwriting, but legal subsidiaries conduct the different activities. Also, banking and insurance are not typically undertaken together in this system. - -British-style universal Adjustable rate mortgages - -benefit homeowners when interest rates are falling Allowing bank branching across state lines gives banks greater ability to coordinate bank operations. This makes it easier for them to receive the benefits of - -economies of scale. Which of the following is a TRUE statement concerning bank holding companies? - Bank holding companies have experienced dramatic growth in the past three decades. The U.S. banking system is considered to be a dual system because - -it is regulated by both state and federal governments. Which of the following statements concerning bank regulation in the United States is TRUE? - -The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System A financial innovation that developed as a result of banks avoidance of bank branching restrictions was - -bank holding companies Bank consolidation will likely result in - -increased competition A major difference between the United States and Japanese banking systems is that - Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. Money Banking Money Banking Both ________ and ________ were financial innovations that occurred because of interest rate volatility. - -adjustable-rate mortgages; financial derivatives Like the dual banking system for commercial banks, thrifts can have either ________ or ________ charters - -state; federal A debit card differs from a credit card in that - -a credit card is a loan while for a debit card purchase, payment is made immediately. A major controversy involving the banking industry in its early years was - -whether the federal government or the states should charter banks. A(n) ________ is a subsidiary of a U.S. bank that is engaged primarily i