Question 1

The ____ rate is the interest rate charged on Fed district bank loans to depository institutions.
A)federal funds
B)prime
C)primary credit lending
D)real

Accepted Answer

The primary credit lending rate is the interest rate at which depository institutions borrow money overnight from their regional Federal Reserve Bank's lending facility, the discount window. It is set above the federal funds rate and the rate charged on primary credit loans reflect the Federal Reserve's assessment of credit risk to the borrowing institution.

Question 2

With regard to monetary policy, which of the following is under direct control of the Federal Reserve's Board of Governors?
A)revise reserve requirements for depository institutions
B)authorize changes in the amount of borrowing by the Treasury
C)monitor the stock market for insider trading
D)monitor the derivatives market for illegal trading strategies

Accepted Answer

The Board of Governors has the authority to revise reserve requirements for depository institutions, which is a tool used in implementing monetary policy. The other options relate to monitoring and regulating other markets, which are not under the direct control of the Board of Governors for monetary policy purposes.

Question 3

Which of the following is an action that the Fed uses to increase or decrease the money supply?
A)buying or selling Treasury securities in the secondary market
B)adjusting the tax rate imposed on income earned on Treasury securities
C)adjusting the coupon rate on Treasury bonds
D)selling Treasury securities in the primary market

Accepted Answer

The Fed can increase the money supply by buying Treasury securities in the secondary market. This process injects money into the economy as the Fed pays for the securities with newly created reserves. Conversely, the Fed can decrease the money supply by selling Treasury securities in the secondary market, removing reserves from the banking system. Adjusting the tax rate or coupon rate on Treasury securities does not directly affect the money supply, and selling securities in the primary market would only affect the individual who purchased the security and not the overall money supply.

Question 4

When open market operations are used to ____ bank funds, the yield on debt instruments ____.
A)reduce; decreases
B)reduce; increases
C)increase; increases
D)none of the above

Accepted Answer

The answer of When open market operations are used to...

Question 5

The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign currencies.

Accepted Answer

While stabilizing the value of the currency is one aspect of monetary policy, it is not the main goal of most central banks. The primary goal of monetary policy is to promote economic growth, stability, and full employment while keeping inflation under control.

Question 6

Which of the following is not an activity of Fed district banks?
A)clearing checks
B)replacing old currency
C)providing loans to depository institutions
D)acting as an intermediary to match up lenders and borrowers in the stock market

Accepted Answer

The activity of acting as an intermediary to match up lenders and borrowers in the stock market is not an activity of Fed district banks. The other options are activities performed by Fed district banks.

Question 7

The primary credit lending rate changes in accordance with changes in the federal funds rate.

Accepted Answer

The primary credit lending rate is set by the Federal Reserve and is directly influenced by changes in the federal funds rate. When the federal funds rate increases, the primary credit lending rate also tends to increase, and vice versa.

Question 8

The Policy Directive is provided by Board of Governors to the FOMC.

Accepted Answer

The Policy Directive is provided by the FOMC to the Federal Reserve Bank of New York for implementation.

Question 9

As a result of the Financial Reform Act of 2010, the ____ was assigned the role of regulating financial products and services.
A)Federal Advisory Committee
B)Federal Open Market Committee
C)Consumer Financial Protection Bureau
D)Board of Governors

Accepted Answer

The Consumer Financial Protection Bureau was created by the Financial Reform Act of 2010 to regulate financial products and services and protect consumers from unfair practices. The other options listed do not have this specific role assigned to them by the act.

Question 10

Which of the following is not a major component of the Federal Reserve System?
A)member banks
B)Federal Open Market Committee
C)Securities and Exchange Commission
D)Board of Governors

Accepted Answer

The Securities and Exchange Commission (SEC) is not a major component of the Federal Reserve System. The SEC is an independent government agency responsible for regulating the securities industry in the United States. The major components of the Federal Reserve System are member banks, the Federal Open Market Committee (FOMC), and the Board of Governors.

Question 11

All ____ are required to be members of the Federal Reserve System.
A)state banks
B)national banks
C)savings and loan associations
D)finance companies
E)A and B

Accepted Answer

The answer of All ____ are required to be members...

Question 12

Which of the following is currently a main role of the Federal Reserve's Board of Governors?
A)regulating commercial banks
B)regulating foreign trade
C)controlling monetary policy
D)A and C

Accepted Answer

The Federal Reserve's Board of Governors currently has the main role of regulating commercial banks through supervising and regulating the banking industry. Additionally, the Board of Governors is responsible for controlling monetary policy through its authority to set interest rates and manage the money supply.

Question 13

The purchase of government securities by someone other than the Fed results in
A)an overall increase in funds among commercial banks.
B)an overall decrease in funds among commercial banks.
C)offsetting changes in funds at commercial banks.
D)an increase in securities maintained by the Fed.

Accepted Answer

The answer of The purchase of government securities by someone...

Question 14

Total funds of commercial banks will initially ____ by the dollar amount of securities ____ by the Fed.
A)increase; purchased
B)increase; sold
C)decrease; purchased
D)A and B

Accepted Answer

When the Fed purchases securities, it injects money into the economy, which increases the total funds of commercial banks. Therefore, the answer is A. The opposite would occur if the Fed sold securities.

Question 15

The ____ is made up of seven individual members, and each member is appointed by the president of the U.S.
A)Board of Governors
B)Federal Reserve district bank
C)Federal Open Market Committee (FOMC)
D)Securities and Exchange Commission

Accepted Answer

The Board of Governors is made up of seven individual members who are appointed by the President of the United States.

Question 16

Repurchase agreements are purchased by the Fed to
A)temporarily decrease the aggregate level of bank funds.
B)permanently increase the aggregate level of bank funds.
C)permanently decrease the aggregate level of bank funds.
D)temporarily increase the aggregate level of bank funds.

Accepted Answer

Repurchase agreements, also known as "repos," involve the Fed purchasing securities from banks with the agreement that the banks will repurchase them at a later date. This temporary transaction increases the level of bank funds, as the banks receive cash from the Fed in exchange for the securities. Therefore, the correct choice is option D, as repos temporarily increase the aggregate level of bank funds.

Question 17

Members of the Board of Governors serve 14-year nonrenewable terms.

Accepted Answer

According to the Federal Reserve Act, members of the Board of Governors serve 14-year nonrenewable terms.

Question 18

____ open market operations offset the impact of other conditions that affect the level of funds.
A)Active
B)Passive
C)Dynamic
D)Defensive

Accepted Answer

Defensive open market operations are conducted to offset the impact of other conditions that affect the level of funds, aiming to maintain the federal funds rate target.

Question 19

____ credit may be used for any purpose and is available only to depository institutions that meet specific requirements for financial soundness.
A)Primary
B)Secondary
C)Tertiary
D)None of the above

Accepted Answer

Primary credit is available at the Federal Reserve's discount window and is the main tool the Fed uses to provide liquidity to the banking system. Primary credit is available only to depository institutions that are in generally sound financial condition and are able to provide acceptable collateral for the loans.

Question 20

As the supply of funds in the banking system ____, the federal funds rate ____.
A)increases; declines
B)increases; increases
C)declines, declines
D)none of the above

Accepted Answer

The federal funds rate represents the interest rate at which banks lend and borrow funds from each other overnight. When the supply of funds in the banking system increases, it means there is more money available to lend among banks, which puts downward pressure on the federal funds rate, causing it to decline. Conversely, when the supply of funds in the banking system declines, banks have less money available to lend, which puts upward pressure on the federal funds rate, causing it to increase.

Quiz 4: Functions of the Fed

The ____ rate is the interest rate charged on Fed district bank loans to depository institutions.

With regard to monetary policy, which of the following is under direct control of the Federal Reserve's Board of Governors?

Which of the following is an action that the Fed uses to increase or decrease the money supply?

When open market operations are used to bank funds, the yield on debt instruments .

The main monetary policy goal of most central banks is to stabilize the value of the local currency against foreign currencies.

Which of the following is not an activity of Fed district banks?

The primary credit lending rate changes in accordance with changes in the federal funds rate.

The Policy Directive is provided by Board of Governors to the FOMC.

As a result of the Financial Reform Act of 2010, the ____ was assigned the role of regulating financial products and services.

Which of the following is not a major component of the Federal Reserve System?

All ____ are required to be members of the Federal Reserve System.

Which of the following is currently a main role of the Federal Reserve's Board of Governors?

The purchase of government securities by someone other than the Fed results in

Total funds of commercial banks will initially by the dollar amount of securities by the Fed.

The ____ is made up of seven individual members, and each member is appointed by the president of the U.S.

Repurchase agreements are purchased by the Fed to

Members of the Board of Governors serve 14-year nonrenewable terms.

____ open market operations offset the impact of other conditions that affect the level of funds.

____ credit may be used for any purpose and is available only to depository institutions that meet specific requirements for financial soundness.

As the supply of funds in the banking system , the federal funds rate .