Expert Answers

1. The primary purpose of a central bank is to control a nation’s:_
2. The Fed’s largest single liability is the: _ asset not related to monetary
3. A Fed asset not related to monetary policy is
4. The Federal Reserve controls
5. The FOMC or  has ____members.
6. The document by which the FOMC instructs the trading desk is called a ___
7. Among U.S. commercial banks, all ______banks are members of the Federal Reserve System while some _________ banks are members.
8. Total reserves equal required reserves plus .
9. There are ______federal reserve banks.
10. Borrowing from the Fed is called “_ _________ ”
11. Which of the following powers or tools of the Fed impacts the monetary base most significantly?
a. discount rate
b. Reg Q
c. open market operations
d. Bank examination

12. The monetary base excludes which Fed balance sheet items?
a. U.S. Treasury securities b. “Agency” securities”
c. “DACI”
d. all of the above

13. M2 includes:
a. currency in circulation b. demand deposits
c. both of the above d. none of the above

14. Which of the following is not a channel of transmission of monetary policy?
a. Reg Q interest rate ceilings
b. consumer spending for durable goods and
housing
c. net exports d. business investment in real assets

15. “Easing” monetary policy would have what impact on the value of the dollar against other currencies?
a. increase
b. decrease
c no effect
d. none of the above

16. The money market security with the lowest yield to the investor is likely to be:
a. a Treasury bill.
b. commercial paper.
c. agency issues.
d. negotiable CDs.

17. All of the following represents a characteristic of money market instruments except:
a. low default risk b. guaranteed marketability
c. debt obligation d. short term

18. The fed funds rate is very important to the economy because
a. it measures the return on the most liquid of all the financial assets traded
b. it is closely related to the conduct of monetary policy
c. it measures directly the availability of excess reserves in the banking system
d. all of the above

19. All of the following money market participants are major investors in money market securities except:
a. Federal Reserve banks. b. the U.S. Treasury.
c. commercial banks. d. corporate business.

20. A competitive bid in the Treasury securities auction market has all of the following characteristics except:
a. the bidder specifying the quantity of bills desired
b. the price the investor wishes to pay
c. large, institutional investors
d. bids for a maximum of $5,000,000

31. A British importer of U.S. computer equipment would take which action in the foreign exchange markets?
a. supply dollars b. demand dollars
c. demand pounds d. both a and c above
e. none of the above

32. Capital accounts transactions are all of the following except they:
a. are made with the expectation of a future gain or to settle a debt.
b. are reversible.
c. represent a flow of income.
d. represent a geographic repositioning of wealth.

33. Under freely floating exchange rates a government would
a. do nothing.
b. sell assets to foreign investors for foreign exchange to buy the domestic currency.
c. buy assets to foreign investors for domestic currency.
d. intervene in the markets for the benefit of its exporters
34. The Eurocurrency market serves as a place to store excess liquidity for multinational corporations, countries and individuals because of all of the following except:
a. Lack of regulation allows investors to hold debt securities in bearer form.
b. The presence of a withholding of tax.
c. Investments earn higher returns.
d. Eurocurrency deposits are highly liquid because of very short maturities with nearly 90 percent of deposits being less than 180 days.

35. A __________ draft would be paid on demand; whereas a bank would pay a __________ draft at maturity as stated in the
a. time; sight; bill of lading
b. sight; time; bill of lading
c. time; sight; letter of credit
d. sight; time; letter of credit

36.Which of the following affects the level of insurance premiums?
a. probability of loss b. value of loss
c. expected operating expenses
d.all of the above

37. Which of the following is likely to be a material component of an insurer’s revenue?
a. interest on bonds b .interest on mortgages
c. dividends on stocks
d. all of the above
38. “Objective risk” is
a. synonymous with “pure risk”
b. determined according to principles of probability and statistics
c. uninsurable
d. synonymous with “speculative risk”

39. The “Law of Large Numbers” is
a. a statistical principle relied on by insurers in managing objective risk
b. an informal rule of thumb for valuing pure risks
c. a principle of portfolio diversification that helps manage interest rate risk
d. none of the above

40. “Qualified” pension plans would have an incentive to invest in all the following except
a. municipal bonds
b. corporate bonds
c. preferred stocks
d. mortgages