Key Concepts in Financial Markets and Banking Regulations

What happens to the demand for loanable funds when interest rates increase?

It decreases.

According to market segmentation theory, will short-term investors switch to longer-term investments?

No, they will not.

What effect does an improvement in economic conditions have on the supply and demand curves for funds?

Supply curve shifts down and to the right; demand curve shifts up and to the right.

What is the use of Additional Tier 1 Capital for a US Bank?

Reduces Risk to Depositors.

For any positive interest rate, how does the present value of a given annuity compare to the sum of the cash flows?

It is less than the sum of the cash flows.

Who decides the Fed funds rate in the US Federal Reserve System?

FOMC.

What does CET1 (core) capital include?

Common stockholders' equity and retained earnings.

To be well-capitalized, what are the minimum required ratios for a bank?

Leverage ratio of at least 5%; Tier 1 risk-based capital ratio of at least 8%; total risk-based capital ratio of at least 10%.

Does the US Treasury provide deposit insurance in the United States?

No.

What is the largest market available for purchased funds?

Fed Funds Market.

How do bank assets compare to bank liabilities in terms of maturities and liquidity?

Bank assets tend to have longer maturities and lower liquidity.

What is the Fed funds rate?

The rate that banks charge each other on loans of excess reserves.

Which of the following is not an off-balance sheet activity?

Consumer Loan.

How do households generally respond to increases in income and wealth regarding funds supply?

They generally supply more funds to the markets.

Who is the primary responsibility of the FDIC towards?

Depositors.