<p>BA 4345 Name: Quiz 4</p><p>1. Members of the Board of Governors serve a. 14 year terms c. at the discretion of the Federal Reserve Chairman b. 4-year terms d. at the discretion of the President of the U.S.</p><p>2. The Federal Reserve’s primary monetary policy-making body is the a. Federal Open market Committee c. Federal Advisory Council b. Council of Economic Advisors d. Federal Deposit Insurance Corp.</p><p>3. Which of the following is classified as a liability for a commercial bank? a. Reserves c. Demand Deposits b. Commercial Loans d. Deposits with the Federal Reserve</p><p>4. A bank creates money a. When it prints bank notes c. When it pays out reserves b. When it makes loans d. When it opens time deposits</p><p>5. Vault cash is part of a commercial bank’s a. Demand deposits c. Reserves b. Capital d. Liabilities</p><p>6. The price of reserves that are borrowed from the Federal Reserve is called the a. The discount rate c. The federal funds rate b. LIBOR d. The prime rate</p><p>7. When the Federal Reserve sells $500 worth of government securities, in the long run the money supply should a. Rise by $500 c. Rise by more than $500 b. Fall by $500 d. Fall by more than $500</p><p>8. Open market operations are conducted a. Once every month c. On a daily basis b. Right after each meeting of the FOMC d. Very rarely</p><p>9. Which of the following is an interest rate determined by supply and demand for loans among commercial banks? a. The discount rate c. The federal funds rate b. The prime rate d. LIBOR</p><p>10. A good example of using the discount rate to serve the lender of last resort role for the financial system occurred during the a. S & L crisis of the 1980s b. Sharp rise in government deficits during the 1980s c. Developing-country debt crisis of the 1980s d. Week following September 11 terrorist attacks 11. A depositor of First Foreclosure Bank brings in $100 in currency to add to her checkable deposits. Suppose the only reserve requirement is 12 percent against checkable deposits. How much money can First Foreclosure create? The whole banking system? Draw T-accounts to show this. First Foreclosure Bank Banking System ASSETS LIAB. & NW ASSETS LIAB & NW +$100 reserves +$100 Check. Dep. +$100 +$833 Check. Dep. +$88 loans +$88 Check. Dep. +$733 Loans -$88 reserves -$88 Check. Dep.</p><p>First Foreclosure creates $88. The System creates $833.</p><p>12. Below you are given a simplified balance sheet for a commercial bank. Assume that the reserve requirement for this bank is 20 percent.</p><p>Local National Bank Reserves $600 Demand Deposits $2,295 Gov’t Securities 825 Capital Stock 330 Other Securities 225 Loans 975 $2,295 $2,295</p><p> a. The amount of required reserves is $____459______</p><p> b. The amount of excess reserves is $______141______</p><p> c. Suppose the bank expands its loans by $705. This would increase demand deposits to $3,000, so that its reserves would be just 20 percent of demand deposits - the minimum set by the Fed. This would be a very foolish banking policy. Explain why. When the individual that made the loan took the cash out of LNB, LNB would not have enough reserves to cover the check – the loan is for $705 and they only have reserves of $600.</p><p> d. In the initial situation, as the balance sheet originally appeared above, the maximum amount the bank could safely expand its loans is $___141______.</p>