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Part III - 13 Q's

Econ Activity, Govt Policy & Behavior of Interest Rates

QuestionAnswer
Objectives of Federal Reserve monetary policy: 1. Price stability 2. Long-term economic growth 3. Stabilize foreign exchange markets
Operating tools of the Federal Reserve 1. Open market operations 2. Discount Rate 3. Reserve requirements 4. Margin requirements
The purchase or sale of securities, primarily U.S. Treasury securities, in the open market to influence the level of balances that depository institutions hold at the Federal Reserve banks. Open Mmarket operations
Requirements regarding the percentage of certain deposits that depository institutions must hold in reserve in the form of cash or in an account at a Federal Reserve bank. Reserve Requirements
Extensions of credit to depository institutions made through the primary, secondary, or seasonal lending programs. Discount rate (or discount window lending)
Oversees open market operations, which is the main tool used by the Federal Reserve to influence overall monetary and and credit conditions. Federal Open Market Committee (FOMC)
The goals of ____ _____ should seek to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates. monetary policy
Currency and traveler's checks M1
M1, savings deposits and money market deposits accounts, small time deposits (short-term CD's), retail money market mutual funds M2
M2, large time deposits (long-term CD's), institutional money market mutual funds, repurchase agreements, Eurodollars M3
Open market operations are the most powerful and often used tool for controlling the funds rate. True
For open market operations to work effectively, the Federal Reserve must be able to buy and sell quickly, at its own convenience, in whatever volume may be needed to keep the federal funds rate at the target level. true
Carries out the open market operations. They are auth to conduct business with U.S. sec dealers and with foregin official and intl institutions that maintain accts at the FRB of NY. The dealers which the _ transacts business are called primary dealers. Open Marketing Trading Desk "Desk"
The FRB acquires a security from a primary dealer under an agreement to return the security on a specified date. Repurchase agreement
These transactions involve selling a Treasury security to a primary dealer under an agreement to receive the security back at a specified date. Reverse repurchase agreement
Changes in __ ___ can affect the money stock, by altering the volume of deposits that can be supported by a given level of reserves, and bank funding costs. Reserve requirements
Increase in reserve requirements: 1. Reduces excess reserves 2. Induces a contraction in bank credit and deposit levels 3. Raises interest rates It also pushes up bank funding costs by increasing the amount of non-interest bearing assets that must be held in reserves.
Decrease in reserve requirements: 1. Initially leaves banks with excess reserves 2. Can encourage an expansion of bank credit and deposit levels 3. Reduce interest rates
The interest rate at which an eligible depository institution may borrow funds, typically for a short period, directly from a Federal Reserve Bank. Discount rate
Buying stocks or securities with borrowed money (usually from a broker firm or bank). The ___ ___ is the minimum amount the buyer must put up (rather than borrow). It is set by the FRB. Margin requirement
A central banks' actions to influence the availability and cost of money and credit, as a means of helping to promote national economic goals. Monetary policy
Requirements set by the Board of Governors for the amounts of certain liabilities that depository institutions must set aside in the form of reserves. Reserve requirements
An entity which a broker dealer has reasonable grounds to conclude: 1. Has timely access to the publicly available material facts concerning a municipal securities transaction. sophisticated Municipal Market Professional (SMMP)
An entity which a broker dealer has reasonable grounds to conclude: 2. Is capabable of independently evaluating the investment risk and market value of the municipal securities at issue. SMMP
An entity which a broker dealer has reasonable grounds to conclude: 3. Is making independent decisions about its investments in municipal securities, and other known facts doe not contradict such a conclusion SMMP
SMMP may not: 1. Be a natural person 2. Must have total assets of $100 million invested in municipal securities in its portfolio or under management
Created by: swalmurph2