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Exam 20: Money, Financial Institutions, and the Federal Reserve

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Question 1

True/False

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Thanks in part to the Federal Reserve System, few banks failed during the Great Depression.

A) True
B) False

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Question 2

Multiple Choice

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The Federal Reserve represents a "bankers' bank" because

A) it was created as a central clearinghouse for the transactions of the largest banks.
B) commercial banks compete with the Fed for business customers.
C) it lobbies Congress in support of banking reform legislation.
D) it holds the deposits of commercial banks and makes loans to banks that need additional funds.

E) B) and C)
F) B) and D)

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D

Question 3

Multiple Choice

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Which of the following explains why online banks often offer their customers better interest rates than traditional banks?

Theoretically, with the proper monetary policy, the U.S. economy can continue to grow without causing inflation.

The ________ insures holders of accounts in savings and loan associations.

Identify and discuss the tools and products that electronically transfer funds.

The Fed has just reduced the reserve requirement from 14% to 12%. Bigbux Bank holds $650 million in deposits. It will need to become more conservative with its lending procedures because it now must hold $78 million in reserves.

During Red's time as head of the Bank of Bramblewood, the bank offered three services: time deposits, demand deposits, and home and business loans. Under Patty's leadership, the bank offers those same services, a variety of investment opportunities such as mutual funds and bonds, and ________ through the Internet, which supports a number of services such as paying bills directly from customers' accounts, direct deposit, and transferring money.

The Federal Reserve System consists of ________ Federal Reserve banks.

As the bank has grown and expanded to other towns in its region, several of its business customers are participating in global trade. Which of the following services provided by the bank would help companies conduct international business?

International bankers make loans wherever they can get the maximum return for their money.

Electronic money is a newer form of money.

The reserve requirement represents the interest rate charged by the Federal Reserve for government-guaranteed student loans.

The strength of the U.S. dollar depends on the strength of the U.S. economy relative to the economies of other nations.

When a commercial bank fails, depositors lose all of their money.

The currencies of some countries, although durable and portable, are relatively unstable, which makes international exchanges difficult.

Due to the fact that investors did not individually purchase mortgage-backed securities (MBSs) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

Because they charge higher interest rates, commercial and consumer finance companies often fail to attract borrowers.

Certificates of deposit (CDs) represent demand deposits issued by banks.

The Fed announces that it intends to implement policies to increase interest rates. Which of the following correctly identifies the most likely result of higher U.S. interest rates?