Chapter 15 example #79370

Until​ 1946, residents of the island of Yap used large​ doughnut-shaped stones as financial assets. Although prices of goods and services were not quoted in terms of the​ stones, the stones were often used in exchange for particularly large​ purchases, such as payments for livestock. To make the​ transaction, several individuals would place a large stick through a​ stone's center and carry it to its new owner. A stone was difficult for any one person to​ steal, so an owner typically would lean it against the side of his or her home as a sign to others of accumulated purchasing power that would hold value for later use in exchange. Loans would often be repaid using the stones. These stones performed the following functions of money ​:

During the​ 1945-1946 Hungarian​ hyperinflation, when the rate of inflation reached 41.9 quadrillion percent per​ month, the Hungarian government discovered that the real value of its tax receipts was falling dramatically. To keep real tax revenues more​ stable, it created a good called a​ "tax pengö", in which all bank deposits were denominated for purposes of taxation. ​Nevertheless, payments for goods and services were made only in terms of the regular Hungarian​ currency, whose value tended to fall rapidly even though the value of a tax​ pengö remained stable. Prices were also quoted only in terms of the regular currency.​ Lenders, however, began denominating loan payments in terms of tax​ pengös. The tax​ pengö functioned as money in Hungary in 1945 and 1946

Money may serve as a​ "standard of​ value" that allows for comparison of the relative worth of various goods and services. What function of money does this​ describe?

A credit card is not considered money because

Paul needs to decide between buying a new home gym for​ $1,800 or being able to go on a Canadian vacation for​ $1,000 and still having enough left over to buy a new set of free weights for​ $800. Paul opts for the new set of free weights and the Canadian vacation. Paul has used money in what ways in making his​ decision?

Which of the following assets is the least​ liquid?

Which of the following assets is the most​ liquid?

The opportunity cost of money holdings is

Which of the following statements is true when considering​ liquidity?

When sellers accept money as payment in market​ transactions, money is serving as a

When money is used as a standard of value that allows people to compare the relative worth of various goods and​ services, it is serving as a

When money is set aside to be used for future​ purchases, it is serving as a

When money is used as a means of settling debts maturing in the​ future, it is serving as a

Money is the least liquid asset.

The value of the U.S. dollar is based on

Money is defined by its​ functions, which are as a​ __________ of​ __________, __________ of​ __________, __________ of​ __________, and​ __________ of​ __________ __________.

Money is a highly _______ asset because it can be disposed of with low transaction costs and with relative certainty as to its value.

Modern nations have ______ monetary systemslong dash—national currencies are not convertible into a fixed quantity of gold or silver.

Money is accepted in exchange for goods and services because people have confidence that it can later be exchanged for other goods and services. In​ addition, money has _____ value.

M1

M2

A​ $1,000 balance in a transactions deposit at a mutual savings bank. This item is counted in

A​ $100,000 certificate of deposit issued by a New York bank. This item is counted in

A​ $10,000 time deposit an elderly widow holds at her credit union. This item is counted in

A​ $50 traveler's check. This item is counted in

A​ $50,000 money market deposit account balance. This item is counted in

A​ $20 Federal Reserve note is counted in

An example of a fiduciary monetary system is

A currency will cease to function as money if

There are two major ways of measuring​ money, M1 and M2. Which statement is true about the measuring of M1 and​ M2?

The M1 measurement of the money supply includes all of the following components except

The M2 measurement of the money supply includes all of M1 plus several other highly liquid assets. Which of the following is not one of those assets which is included in​ M2?

The money supply can be defined in a variety of​ ways, depending on whether we use the transactions approach or the liquidity approach. Using the transactions ​approach, the money supply consists of​ currency, transactions​ deposits, and​ traveler's checks. This is called

___________ deposits are any deposits in financial institutions from which the deposit owner can transfer funds using a debit card or checks.

When we add savings​ deposits, small-denomination time​ deposits, and retail money market mutual fund balances to ______ we obtain the measure known as _____________.

A manager of a savings and loan association responds to reports of a likely increase in federal deposit insurance coverage. She directs loan officers to extend mortgage loans to less creditworthy borrowers. This situation poses

A loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his​ ex-wife. This situation poses

An individual who was recently approved for a loan to start a new business decides to use some of the funds to take a Hawaiian vacation. This situation poses

Financial intermediaries

Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The​ bank, as a financial​ intermediary, is facing a problem of

Obviously financial intermediaries need to collect money from a variety of sources so they can redirect it where it can be used efficiently. The primary source of funds for a financial intermediary are known as its

The financial intermediary with liabilities of shares and checkable deposits and assets that include consumer debt and long term mortgage loans is a

Which of the following is a major reason why financial​ intermediaries, such as​ banks, exist?

Individuals purchasing new bonds issued by a corporation is an example of direct finance for the corporation.

Liabilities refer to amounts​ owed, and assets refer to amounts owned.

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is known as

In the United​ States, the dollar volume of payments using checks exceeds the volume using debit cards.

____________ intermediaries, including depository institutions such as commercial banks and savings​ institutions, insurance​ companies, mutual​ funds, and pension​ funds, transfer funds from ultimate lenders​ (savers) to ultimate borrowers.

Financial intermediaries specialize in tackling problems of ______________ information. They address the ________________ problem by carefully reviewing the​ credit-worthiness of loan​ applicants, and they deal with the ____________ problem by monitoring borrowers after they receive loans. Many financial intermediaries also take advantage of cost reductions arising from the centralized management of funds pooled from the savings of many individuals.

The Fed acts like a private banking institution when it

The Fed acts like a government agency when it

Which of the following is not a duty of the a central​ bank?

Due to the​ Gramm-Leach-Bliley Act of 1999

Which of the following statements is true when considering national banking structures around the​ world?

Which of the following statements is true when considering central​ banks?

What is the basic structure of the Federal Reserve​ Bank?

Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve​ system?

Which of the functions of the Federal Reserve is appropriately matched with its correct​ institution?

If you live in​ Atlanta, Georgia, and you purchase a computer in Los​ Angeles, California, while there on​ vacation, which of the following paths would your check take before it finally​ clears?

Which of the following does not describe some of the functions of the Federal Reserve​ Bank?

When the Fed acts as the lender of the​ "last resort" it means that

Which of the following statements is ​incorrect?

When a temporarily illiquid bank which is otherwise in good financial condition borrows money from the Fed in an attempt to prevent a loss of confidence in the bank or in other​ banks, this is an example of the Fed

The central bank in the United States is the ____________, which was established on December​ 13, 1913.

here are 12 Federal Reserve district​ banks, with 25 branches. The Federal Reserve System is managed by the ______________ in​ Washington, D.C. The Fed interacts with almost all depository institutions in the United​ States, most of which must keep a certain percentage of their transactions deposits on reserve with the Fed. The Fed serves as the chief regulatory agency for all depository institutions that have Federal Reserve System membership.

The functions of the Federal Reserve System are to supply fiduciary ________, provide​ payment-clearing services, hold depository institution __________​, act as the​ government's fiscal​ agent, supervise depository​ institutions, regulate the supply of​ money, intervene in foreign currency​ markets, and act as the ___________.

Loans to a private company are

Borrowings from a Federal Reserve district bank are

Deposits with a Federal Reserve district bank are

U.S. Treasury bills are

Vault cash is

Loans to other banks in the federal funds market are

Transactions deposits are

potential money multiplier

EXCESS RESERVES = LOANS TO ITS CUSTOMERS

change in total deposits

An auto loan to an individual is an __________ to a commercial bank.

Funds borrowed from a credit union in the federal funds market is a ________ to a commercial bank.

A​ customer's savings deposit is a ___________ to a commercial bank.

The​ bank's required reserve is an ________ to a commercial bank.

Which of the following statements is true concerning a fractional reserve banking​ system?

Required reserves

Ancient goldsmiths are credited with

Excess reserves

A​ bank's only liabilities are ​$14 million in transactions deposits. The bank currently meets its reserve​ requirement, and it holds no excess reserves. The required reserve ratio is 0.08. Assuming that its only assets are legal​ reserves, loans, and​ securities, calculate the value of loans and securities held by the bank.

total assets

total assets

Suppose that there is a checkable deposit intoYourBank. Which of the following statements is an accurate description of the changes that occur at​ YourBank?

required reserved

Open market operations

The Fed sells ​$30 comma 000 comma 30,000,000 in bonds to​ Jim, a bond dealer who pays for the bonds with a check drawn on his bank. Assume a 1010​% required reserve ratio. Which of the following statements correctly records this transaction at​ Jim's bank with respect to the​ bank's reserves?

The Fed sells ​$10,000,000 in bonds to​ Jim, a bond dealer who pays for the bonds with a check drawn on his bank. Assume a 55​% required reserve ratio. Which of the following statements correctly records this transaction at​ Jim's bank with respect to the​ bank's reserves?

The required reserve ratio is 0.20. If the Federal Reserve buys​ $1,000,000 worth of bonds from a bond dealer who has her account at Bank XYZ above and she deposits the entire​ $1,000,000 into a checking account at Bank​ XYZ, what will be the new required and excess reserves for this bank​ (assume no new loans are​ made)? (Remember that required reserves are found by applying the required reserve ratio to the amount of total checkable​ deposits.) Total checkable deposits at Bank XYZ grow by ​_________ because of this deposit from the broker.

Bank XYZ is now required to hold an additional ​$_________ as required reserves due to this​ $1,000,000 deposit into a checking account.

Suppose all banks have zero excess reserves. The Fed buys bonds for​ $1 million and a bond dealer deposits the check in his or her bank. The required reserve ratio is 10 percent. The bank loans out the maximum it is allowed to a local business. The business writes a check for the full amount for​ supplies, which is then deposited in another bank. The largest loan the second bank can make​ is:

Assume that the required reserve ratio is 8 percent. What is the total possible expansion of the money supply after a $1 million bond purchase by the​ Fed?

Which of the following statements is true concerning the potential money​ multiplier?

On a​ bank's balance​ sheet, ________ are assets and​ ________ are liabilities.

If the Fed engages in an open market sale with a bond​ dealer, the bond​ dealer's bank's transactions deposits liabilities will​ ________ and the money supply will​ ________.

The potential money multiplier is equal to

__________ of depository institutions consist of their vault cash and deposits that they hold with ________ district banks.

The fraction of transactions deposit liabilities that depository institutions hold as reserves is the

The _______________is equal to 1 divided by the reserve ratio.

Stockbrokers monitor the companies after investing funds in​ them, in order to

Commercial banks screen their borrowers before a loan can be​ approved, in order to

Money market mutual funds combine the savings of many​ individuals, in order to

An individual with several children who has just learned that she has lung cancer applies for life insurance but fails to report this recent medical diagnosis. This situation poses

A corporation that recently obtained a loan from several banks to finance installation of a new computer network instead directs some of the funds to executive bonuses. This situation poses

A​ state-chartered financial institution exempt from laws requiring it to have federal deposit insurance decides to apply for deposit insurance after experiencing severe financial problems that may bankrupt the institution. This situation poses

Which of the following is a true​ statement?

The Federal Deposit Insurance Corporation​ (FDIC)

What are the features of federal deposit​ insurance?

Which of the following is a situation of moral hazard created by the existence of the​ FDIC?

All deposits in U.S. banks are insured by the Federal Deposit Insurance Corporation.

Federal deposit insurance currently covers up to​ $250,000 per depositor per institution.

The FDIC possesses regulatory powers to offset​ risk-taking temptations to depository institution managers.

Because of the​ FDIC, the federal government is not exposed to asymmetric information problems.

Since​ 2010, the FDIC has been able to assess premium rates on​ banks' total liabilities.

To limit the fallout from systemwide failures and bank​ runs, Congress created the ______________ in 1933. Since the​ advent, there have been no true bank runs at federally insured banks.

Federal insurance of bank deposits insulates depositors from​ risks, so depositors are ___________ concerned about riskier investment strategies by depository institutions.​ Thus, bank managers have an incentive to invest in _________ assets to make _________ rates of return.

On the one​ hand, the Federal Deposit Insurance Reform Act of 2005 expanded the __________ risks associated with deposit insurance by increasing limits for insured retirement deposits and indexing limits for other deposits to inflation. On the other​ hand, the law granted the FDIC greater discretion to assess​ risk-based deposit insurance ______ intended to restrain ______ risks.