The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. If a bank had capital of 10 percent when the Fed began raising rates and has no loans at risk of default, under what circumstances will its capital position be compromised? Please be specific.
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The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. If
a bank had capital of 10 percent when the Fed began raising rates and has no loans at risk of
default, under what circumstances will its capital position be compromised? Please be specific.
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- How do monetary financial institutions create liquidity, pool risk, lower the cost ofborrowing, and lower the cost of monitoring borrowers?Why is the composition of the Fed’s balance sheet apotentially important aspect of monetary policy duringan economic crisis?Suppose that a bank does the following: a. Sets a loan rate on a prospective loan with BR = 8.04% and ϕ = 4.15%. b. Charges a 0.26 percent loan origination fee to the borrower. c. Imposes a 14 percent compensating balance requirement to be held as noninterest-bearing demand deposits. d. Holds reserve requirements of 9 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan. Note: Convert your answer to percentage format. Enter your answer rounded to 2 decimals, and without any units. So, for example, if your answer is 3.4568%, then just enter 3.46.
- Which of the following is a traditional tool used by the Fed during recessions? quantitative easing higher interest rates O coins and paper currency O open market operations DELL F3 F4 F5 F6 F7 F8 #3 %$4 5. 9. Y. D LL“The only way that the Fed can affect the level of borrowed reserves is by adjusting the discount rate.” Is thisstatement true, false, or uncertain? Explain your answerSuppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds fromGreat Western Bank. Sketch out the balance sheet changes that will occur as Great Westernconverts the bond sale proceeds to new loans. The initial Great Western bank balance sheet con-tains the following information (all in $ millions): Assets – reserves 30, bonds 250, and loans 50;Liabilities – deposits 300 and equity 30.
- Which of these statements are true? The discount rate is normally equal to the federal funds rate. The federal funds ratre is normall higher than the discount rate. The Federal Funds rate is the rate that banks are charged when they borrow from the Fed. O The discount rate is normally higher than the federal funds rate.The Federal Reserve wants to increase the money supply by increasing the lending potential of commercial banks by $320 billion. It plans to use open-market operations to accomplish this goal. The current reserve requirement for commercial banks is 5 percent. Instructions: Enter your answer as a whole number. a. Will the Fed want to buy or sell government securities if sales or purchases of government securities are the only instrument used in the open-market operations? The Fed will want t (Clicca total of $1 billion in government securities. ue-rather than permanently transferring the ownership of securities to achieve its goal? commercial banks. buy b. What other option cell The Fed could use some amount of (Click to select) to effectively (Click to select)Assume that the reserve requirement is 20 percent. Also assume that banks do nothold excess reserves and there is no cash held by the public. The Fed decides that itwants to expand the money supply by $40 million.a. If the Fed is using open-market operations, will it buy or sell bonds?b. What quantity of bonds does the Fed need to buy or sell to accomplish the goal?Explain your reasoning
- The financial market is volatile and requires constant monitoring to ensure bank managers canbe reactive and proactive towards changing business and economic environments. Given this,examine how bank managers can employ financial forwards, futures and swap contracts toreduce the bank’s potential exposure to loss when market conditions change.as the federal funds rate rises, the banks; opportunity cost of holding excess reserves fall? true or falseA series of oil price increases in the 1970s drove the U.S. economy into stagflation. In response to these shocks, Paul Volcker, an inflation hawk and chairman of the Fed at the time, decided to __ bonds to sharply ______ its target for the Federal Funds Rate sell, decrease buy, decrease sell, increase buy, increase