Question 42 When the Fed purchases government securities, it Question 42 options: a) automatically raises the discount rate b) automatically raises the legal reserve requirment c) decreases banks’s reserves and makes possible a decrease in the money supply d) increases banks’ reserves and makes possible an increase in the money supply

Government securities are government borrowing financings that are used to fund everyday activities…

Answered: Question 42 When the Fed purchases…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 42

When the Fed purchases government securities, it

Question 42 options:

a)	automatically raises the discount rate

b)	automatically raises the legal reserve requirment

c)	decreases banks’s reserves and makes possible a decrease in the money supply

d)	increases banks’ reserves and makes possible an increase in the money supply

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D Question 7 Prior to the 2008 financial crisis, if the central bank is interested in performing an expansionary monetary policy, which of the following methods could it adopt? Selling bonds, decreasing the discount rate, or increasing the reserve requirement O Buying bonds, increasing the discount rate, or decreasing the reserve requirement O Selling bonds, increasing the discount rate, or increasing the reserve requirement O Buying bonds, decreasing the discount rate, or decreasing the reserve requirement
QUESTION 15 Securitization enables a bank to: O a. Move assets off its balance sheet O b. Shift credit risk onto investors Oc. a and c O d. Increase its credit risk QUESTION 16 By far the largest market for OTC derivatives is in: O a. equity derivatives O b. foreign exchange options Oc. commodity derivatives Od. interest rate swaps
All other things being equal, which of the following would cause interest rates to rise? a. The economy slides into a recession. b. The federal government's budget deficit declines. c. The rate of inflation decreases. d. The Federal Reserve contracts the money supply.
Question 12 True or False? The foreign currency hedge accounting guidance allows for the use of nonderivative instruments as the hedging instrument for hedges of net investments and foreign currency cash flows hedges, but not for foreign currency fair value hedges of firm commitments True False
8. Macroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity—influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements True False The larger the federal deficit, other things held constant, the higher are interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. During recessions, short-term interest rates decline more sharply than long-term interest rates. The Federal Reserve’s ability to use monetary policy to control economic activity in the United States is limited because US interest rates are highly dependent on interest rates in other parts of the world.
Question 4 a. b. The Bank of England (BOE) which is the central of the UK announced that it would slow down the pace of increasing interest rate because there was sign that the labour market was slowing down. The market quote for GBP (with bid and ask) is: GBP 1.1954/1.1967 What would you do if you want to trade according to the news? State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings) You will need to pay a EUR bill for goods imported from Italy in 3 months. You have USD and want to fix the exchange rate today by using forward. You get a market quote (with bid and ask) of: Spot EUR/USD 3-month swap points 1.0655/1.0673 55.59 / 62.09 State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings)
[Related to Solved Problem 5.2b] Use the data on Treasury securities in the following table to answer the question: 1 year 0.39% Date 2 year 3 year 03/05/2010 0.88% 1.56% Source: U.S. Department of the Treasury. Assuming that the liquidity premium theory is correct, on March 5, 2010, what did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.04% and the term premium on a three-year Treasury note was 0.06%? The expected interest rate is %. (Round your response to two decimal places.)
D3) Finance Use covered interest rate parity (CIP) to show that a fixed exchange rate and free capital flows imply that a central bank cannot set the interest rate independently from the interest rate set by the reference currency's central bank.
question 1 What does the yield spread between commercial paper and Treasury bills of the same maturity reflect? options A Only differences in liquidity. B. Only differences in credit risk. C Differences in both liquidity and credit risk. D.Differences in duration. E Differences in liquidity, credit risk, and number of international investors. QUESTION 1 ( B ) When is cornering risk higher? options A When there are political shocks. b When market volatility increases. C When the likelihood of trading with a trustworthy counterparty decreases. D.When inventories of the underlying asset become scarce
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QUESTION 15 What happens to the monetary base when the Fed buys Treasury bonds? A. Bank reserves do not change B. Bank reserves decline C. Bank reserves increase

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