Federal Reserve Trades – New York Bank

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Federal Reserve Trades – New York Bank

This quiz is about Federal Reserve Trades – New York Bank.

When the Federal reserve trades securities through open market operations via the New York Desk, during normal, no crisis times it ———–

  • Buys or sells directly with individuals
  • Tells the dealers exactly what they intend for interest rates through providing meeting minutes within two days of their  FOMC meeting
  • Changes the reserve requirement at the same time
  • Buys or sells through primary dealers, which hopefully changes rates economy-wide and eventually impacts businesses and individuals  (Answer)
  • All of the above

The majority of assets on the Federal Reserve’s balance sheet  are———

  • Securities held outright  (Answer)
  • Support for specific institutions
  • Buildings and equipment, along with all other assets
  • Agency debts and mortgage-backed securities
  • None of the above

The Fed wishes to normalize monetary policy and return interest rates to more normal levels. If the Fed wishes to temporarily impact rates towards normalization, the most likely mechanism to do this is ————-

  • Through buying real estate
  • A reverse repurchase agreement (Answer)
  • An outright purchase of treasury securities
  • By changing reserve requirements
  • None of the above

Since the Fed starting paying interest on reserves, you would expect,———–

  • This to be interpreted as an increased cost or tax on banks (Answer)
  • There would be more reserves, all else equal
  • The rates on reserve to be unrelated to and have no impact on all other rates
  • None of the above

The monetary policy tools the Fed directly controls that is not market determined is ————

  • The Fed funds rate
  • The discount rate
  • The reserve requirement
  • B & C (Answer)
  • All of the above

If a change in the discount rate is not anticipated, a lowering of the rate would likely —————

  • Raise mortgage rate
  • Cause markets to assume the Fed has changed to monetary policy of adding reserves (Answer)
  • Cause a sharp decline in the price of  T-bills, all else constant
  • Be followed by changing reserve requirements
  • None of the above

In general, the discount window is ————-

  • Used after exhausting other sources of short term credit for normal borrowing
  • At Primary credit terms for borrowers who are sound
  • Possibly for seasonal needs
  • All of the above (Answer)
  • None of the above

If long term rates are influenced by federal reserve actions, this is most likely because ———–

  • The Federal Reserve sets the long term rate directly
  • The treasury sets the long term rates directly
  • The short term rate changes influenced by the Fed are expected to persist  (Answer)
  • Banks are following directions from regulators to change long term rates
  • None of the above

The Fed uses reserve requirements to —————-

  • Change reserve levels on a day to day basis
  • Help control the money supply (Answer)
  • Hold reserve deposits against certificates of deposits
  • Require only small banks to hold reserves
  • None of the above

In a period of very high inflation the Fed would likely ———–

  • Take action to raise interest rates (Answer)
  • Take action to lower interest rates
  • Increase reserve requirements and decrease discount rates
  • Add reserves by congressional action
  • None of the above