Question Questions 1 to 40: Do all 40 questions (Two and one-half points each) 1.

Questions 1 to 40: Do all 40 questions (Two and one-half points each)
1.

Which of the following is the basic economic policy function of the Federal Reserve Banks?
A) the supervision of commercial banks
B) holding the deposits or reserves of commercial banks
C) acting as fiscal agents for the Federal government
D) regulating the supply of money

2.

When banks bundled mortgage loans and sold the resulting mortgage -backed securities:
A. they insulated the banking system from any risk associated with mortgage defaults.
B. they greatly reduced the overall risk of mortgage defaults.
C. they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in
mortgage-backed securities.
D. buyers of these securities assumed all of the risk of mortgage defaults.

3.

In the financial industry, “securitization” refers to:
A. increasing insurance protection on bank deposits.
B. requiring greater down payments on home purchases to reduce mortgage default risk.
C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities.
D. increasing collateral requirements on loans.

4.

Collateralized default swaps:
A. helped reduce the losses from the mortgage default crisis.
B. involve exchanging high-risk mortgages for low-risk mortgage-backed securities.
C. are loans to investors in mortgage -backed securities.
D. insured holders of loan-backed securities in case they underlying loans were not repaid.

5.

Banks create money when they:
A) loan money.
B) add to their reserves in the Federal Reserve.

C) accept deposits of cash.
D) sell government bonds.

6.

The amount that a commercial bank can lend at any given time is determined by i ts:
A) outstanding checkable deposits.
C) required reserves.
B) excess reserves.
D) outstanding loans.

7.

The value of the monetary multiplier is:
A) 1/ Excess Reserves.
B) 1/MPS.

C) 1/ Required Reserve Ratio.
D) 1/MPC.

8.

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of
$50,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum
amount of:
A) $50,000.
B) $100,000.
C) $150,000.
D) $300,000.

9.

The ABC Bank of Bermuda has outstanding checkable deposits of $300,000 and a reserve ratio of 10%. If it has
excess reserves of $45,000, what is the size of the bank’s actual reserves?
A) $25,000
B) $55,000
C) $75,000
D) $275,000

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