Economic conditions in Fredland have caused the demand for money to increase which haschanged the nominal interest rate.If the central bank wants to counteract this change, which of the following is an appropriateopen market operation to achieve that?Select one:O a. Raise the discount rate.O b. Increase taxes.O c. Decrease the reserve requirement.O d. Sell bonds.O e. Buy bonds.

Bond is a type of security issued by entities and govt organization to its investors whereby the…

Answered: Economic conditions in Fredland have…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

8. According to the Loanable funds' theory, how are interest rates determined?9. Compare and contrast three different money market securities in terms of issuer, return, risk and tradability/liquidity.10. Explain the role of non-depository financial institutions within the financial sector? Discuss the core functions of any three of these institutions.
A6) Finance For a bank, what is the tradeoff between having high vs. low capital reserve?
What are some of the ways that banks can borrow short-term funds when they need "liquidity"?(Select all that apply; three of the answers below are correct.) Reference: Chapters 11 & 12 They can borrow directly from the Securities & Exchange Commission through the "regulatory" market. They can borrow from the Department of Treasury through the "Treasury" window. They can borrow another bank's reserves through the "fed funds" market. The can engage in a "sale & repurchase agreement" (or "repo") by selling some of their securities to another financial insitution and promising to buy them back the next day. They can borrow directly from the Federal Reserve through the "discount window".
Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high interest rates? To reduce the exposure to diversification risk. To reduce the exposure to interest rate risk. To reduce the exposure to credit risk. To reduce transactions costs To reduce the free-rider problem.
A bank wants to implement a loan pricing model and has to look at several variables to consider. Please select the variable that is incorrectly described. a. A profit margin to provide the bank with an adequate return on capital. b. Risk premium to counter the effect of default risk. c. Cost of funding that include the cost of bonds issued. d. Operating costs that include the cost of interest paid to depositors.
Which of these statements about banks is true: i) Banks cannot convert all deposits in the Reserves Accounts into loans. ii) Banks can convert all deposits in the Reserves Accounts into loans. iii) Banks can create money iv) Banks can issue money. v) Commercial Banks decide on the reserves ratio O i and iii O ii and iii ii and iv i and v
Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.
The primary reason for the creation of the Federal Reserve System was: OA. to stabilize short-term interest rates. OB. to reduce or eliminate future bank panics. OC to eliminate state-chartered banks. OD. to create a single central bank similar to the Bank of England.
1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…
Securitisation of loans results in banks: 1. Transferring the credit risk of loans from their balance sheet to other financial institutions. II. Reducing due diligence in the loan appraisal process. III. Increasing the monitoring of these loans. IV. Freeing up capital so that they can bypass capital requirements. O Only II is true. O I, II and IV are true. O Only I and II are true. O Only I is true. O Only III is true.
Say you are a bank and want to reduce the duration of your assets. One way of doing so would be to use an interest rate swap to change the payments you receive from fixed to floating rate. Question 1 options: True False

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