Banking, Financial Markets, and Monetary Policy: Key Concepts and Regulations

Which are the following are NOT a specific benefit of

FI

Higher investment returns than direct investments

When a commercial bank makes a loan which of the

following happens?

Creates Money and The deposit in the economy goes up.

Banks assets tend to have _________ maturities and ______ liquidity than as bank liabilities.

longer, less

How does a bank create money?

By making loans

What are the benefits of money relative to

other assets?

Very liquid

What are the costs of money relative to

other assets?

Expected returns on money is lower

What type of market securities are loans considered?

Capital

What type of market securities are deposits considered?

Money

What type of market securities is bank equity considered?

Risky Capital

Suppose you deposit $100 in a bank, which of the

following will occur?

The bank's liabilities will increase by $100.

The largest single category of loans on the typical

bank's balance sheet in 2019 was:

Real Estate Loans

An example of off balance sheet activity includes:

-letter of credit

-purchasing a futures contract

Which of the following regulations was created due

to the Great Depression?

The Banking Act aka Glass-Steagall Act

What are main two types of offering?

Public Offering

Private Placement

The process of creating a secondary market for

securities or contracts is termed brokerage.

False

In a best efforts offering, the investment banker

acts as an agent for the issuer rather than as a

principal.

True

A market maker buys IBM at $185 for his own

account and sells the stock later in the day at

$187. He is acting as a broker in this transaction.

False

If you buy 100 shares of IBM stock in anticipation

that earnings will increase by more than

anticipated, you are engaging in what is termed a

risk arbitrage.

True

Investment firms that pool money from individuals

and/or institutions and invest equity funds in start-

up firms are called:

Venture Capital Firms

The ________ insures losses of funds deposited

with securities firms in the event of failure of a

securities firm.

SIPC

Open-end mutual funds guarantee ________

To redeem investor's shares upon demand at

current NAV.

With an open-end fund, you:

Buy and sell shares from and to the fund

The dual mandate of the Fed is:

Maximum stable employment and stable prices

Structure of The Federal Reserve System

-The Federal Reserve banks

-The Board of Governors of the Federal Reserve System

-The Federal Open Market Committee (FOMC)

The president of the Federal Reserve Bank of

New York is always a voting member of the

FOMC

True

Federal Reserve interest rate decisions can be

vetoed by the U.S. president

False

Federal Reserve Board members are appointed

by the U.S. president and confirmed by the

Senate for a nonrenewable 14-year term.

True

One of the objectives of the FOMC is to formulate

policies to promote 100 percent employment.

False

Federal Reserve banks are public institutions, and any

American citizen can buy their stock.

False

The major asset of the Federal Reserve is currency

outside banks and the major liability is U.S. Treasury

securities.

False

If the FOMC wished to generate faster economic growth,

they could issue a policy directive to the Federal Reserve

Board Trading Desk to purchase U.S. government

securities.

True

Changes in reserve requirements have less predictable

effects on the money supply in comparison to changes in

open market operations

True

How are Hedge Funds and Mutual Funds different? - Regulation

Mutual Funds are more heavily regulated than Hedge Funds are.

How are Hedge Funds and Mutual Funds different? - Investment Strategy

Hedge Funds have a more flexible investment strategy and it's more aggressive.

How are Hedge Funds and Mutual Funds different? - Investors

Mutual - Retail investors

Hedge - More wealthy investors

What is Pure Abitrage?

Trading the same asset with different prices to make riskless profit

When the Fed wants to boost the economy it

should do what?

Set funds below neutral rate of interest rate.

How should the Fed boost the economy?

By buying securities in the open market

What is the Glass-Steagell Act mainly about?

It separates commercial banks from investments banks

What is the Glass-Steagell Act mainly about?

It created the FDIC

What was the purpose of TARP?

To stabilize the financial system

Name at least two features of the banks balance sheet cause them to be subject to bank runs.

Banks are highly leveraged and loans have default risk.

Why did the government force ALL large banks to take capital?

If a bank took capital it would signal that they lack capital which subjects them to bank runs.

What is Letter of Credit?

A letter from a bank guaranteeing that a buyer's payment to a

seller will be received on time and for the correct amount