The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money fromm the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? 1.35 federal funds rate: Incorrect .55 % discount rate: Incorrect What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will also increase. They will remain unchanged. They will become irrelevant. 86

The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money fromm the Federal Reserve at a rate of 1.35%. Second, it could borrow money from other banks at a rate of 0.55%. What is the federal funds rate, and what is the discount rate? 1.35 federal funds rate: Incorrect .55 % discount rate: Incorrect What will happen to other short-term interest rates if the Fed increases its federal funds rate target? They will also increase. They will remain unchanged. They will become irrelevant. 86

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that a bank holds $15m in treasury bonds $10m in reserves $30m of checkable deposits $20m of time deposits $6m of capital How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose that checkable deposits and reserves pay 0 interest The interest rate on treasuries is 3% The loan pays 7% Time deposits pay 5% How much profit does the bank make? What is the bank's return on assets? 3.2% 2.9% 3.7% 2.6%
Explain which interest rate sets the upper limit on the federal funds rate. The upper limit on the federal funds rate is the _______ because _______. A. discount rate; the discount rate must be 1 percent higher than the federal funds rate B. interest on reserves rate; a bank will borrow reserves only if the federal funds rate is less than the interest on reserves rate C. discount rate; a bank will borrow reserves only if the federal funds rate is less than the discount rate D. long-term real interest rate; the loanable funds market determines the federal funds rate range
10. If the reserve ratio is 20% and the banking system has excess reserves of $50, the maximum amount of new deposits that can be created through lending is $ Type your answer here
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5. If reserves are scarce, how would the federal funds rate change (increase or decrease) if the Fed: 1) sells mortgage-backed securities 2) decreases the (minimum) reserve requirements 3) conducts overnight repo operations 4) conducts overnight reverse repo operations
No written by hand solution
Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an asset to commercial banks but a liability to the Federal Reserve Banks. What are excess reserves? How do you calculate the amount of excess reserve held by a bank? What is significance of excess reserves?
9 If the interest rate................... opportunity cost of holding money decreases, and the quantity demanded of money increases; decreases decreases; increases £0000 increases; also increases does not change; does not change 10 If the total deposits-on-demand in Bank A total $500 mil and the required reserve ratio is 2.5 percent, then required reserves at Bank A equal more than 1,300,000,000 equal to 13,000,000 less than 13,000,000 more than 13,000,000
9. Which of the following is not an administered rate? a. Discount rate b. ON RRP offering rate c. Federal funds rate d. Interest on reserve balances rate
Near moneys are a. Paper money b. Flat money c. Highly liquid financial assets d. Any financial assets