1. Which of the following is not a basic policy instrument of the Fed? a. Changing reserve requirements b. Changing the discount rate c. Conducting open-market operations d. Implementing monetary easing programs 2. Excess reserves occur in which of the following situations? a. Bank reserves are less than required reserves. b. Bank reserves are greater than required reserves. c. Bank reserves are equal to required reserves. d. Vault cash and deposits held at Reserve Banks are less than required reserves. 3. The Fed discount rate is currently measured by which rate? a. Primary credit rate b. Secondary credit rate c. Seasonal credit rate d. Prime rate 4. During the 2008–2015 period, the Fed engaged in how many rounds of quantitative easing? a. One b. Two c. Three d. Four
> Find the IRR and MIRR of a project if it has estimated cash flows of $5,500 annually for seven years if its year zero investment is $25,000.
> Find the IRR of a project that returns $17,000 three years from now if it costs $12,000.
> The BioTek Corporation has a basic cost of capital of 15 percent and is considering investing in either or both of the following projects. Project HiTek will require an investment of $453,000, while Project LoTek’s investment will be $2
> Find the NPV and PI of an annuity that pays $500 per year for eight years and costs $2,500. Assume a discount rate of 6 percent.
> Assume the financial manager of the Sanders Electric Company in Problem 6 believes that Project M is comparable in risk to the firm’s other assets. In contrast, there is greater uncertainty concerning Project O’s after-tax cash inflows. Sanders Electric
> 1. Which of the following are national policy objectives in the United States? a. Economic growth b. High employment c. Price stability d. All of choices are correct. 2. Which of the following is not considered to be a U.S. policy objective or goal
> Project R requires an investment of $45,000 and is expected to produce after-tax cash inflows of $15,000 per year for five years. The cost of capital is 10 percent. a. Determine the payback period, the net present value, and the profitability index for P
> Sensitivity analysis involves changing one variable at a time in a capital budgeting situation and seeing how NPV changes. Perform sensitivity analysis on the each of the following variables from problem 17 to determine its effect on NPV. a) Sales can be
> The ice cream shop described in the text has been a smash success. Customers from the next college town are pleading with you to open one closer to them. Based on your operating experience and knowledge of local real estate, you believe that opening a ne
> Suppose the Quick Towing Company purchases a new tow truck. The old truck had a book value of $1,000 and was sold for $1,420. If Quick Towing is in the 34 percent marginal tax bracket, what is the tax liability on the sale of the truck? What is the after
> The No-Shoplift Security Company is interested in bidding on a contract to provide a new security system for a large department store chain. The new security system would be phased into 10 stores per year for five years. No-Shoplift can purchase the hard
> Casey's Baseball Bats is planning to begin exporting their product to the Asian market. They estimate up-front expenses of $1 million this year (year 0) and $3 million next year (year 1). Operating cash flows in years 2, 3, and 4 will be (in dollars) $10
> Bart and Morticia, owners of the prestigious Gomez-Addams Office Towers, are concerned about high heating and cooling costs and client complaints of temperature variation within the building. They commissioned an engineering study by Frasco-Prew Associat
> Preston Industries' current sales volume is $100 million a year. Preston is examining the advantages of EDI (electronic data interchange). The technology will allow Preston to electronically communicate with suppliers and customers, send and receive purc
> Lisowski Laptops is examining the possibility of manufacturing and selling a notebook computer that is compatible with both PCs and MacIntosh systems and that can receive television signals. Its estimated selling price is $2,500. Variable costs (supplies
> Hammond's Fish Market just purchased a $30,000 fork lift truck. It has a five-year useful life. The firm’s tax rate is 25 percent. a. If the fork lift is straight-line depreciated, what is the firm’s tax savings from depreciation? b. What will be its boo
> 1. Which is generally true in countries where central banks are relatively independent from their governments? a. Higher inflation rates and lower economic growth rates b. Higher inflation rates and higher economic growth rates c. Lower inflation rate
> Given the information below, compute annualized returns Asset Purchase Price Current Price Income Received Time Period $ 20 S 26 $ 2 75 weeks 3 тonths A B 15 18 0.40 150 3.50 130 2 years 8 months D 3.00 0.20
> Given the information in the text, compute annualized returns. Asset Income Price Change Initial Price Time Period $29 15 months B 10 40 11 months C 50 70 30 7 years D 3 -8 20 24 months
> Rework Problem 2 assuming Bank A has reserve requirements that are 15 percent of deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount th
> Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A
> Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.
> ABBIX has a complex financial system with the following relationships. The ratio of required reserves to total deposits is 15 percent, and the ratio of non checkable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank
> The COMPLEX financial system has these relationships: the ratio of reserves to total deposits is 12 percent and the ratio of non checkable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 15 percen
> Rework Problem 8, assuming that the cash held by the public drops to $500,000 with an equal amount becoming excess reserves and the required reserves ratio drops to 12 percent. Data from Problem 8: The BASIC financial system has a required reserves rat
> The BASIC financial system has a required reserves ratio of 15 percent, initial excess reserves are $5 million, cash held by the public is $1 million and is expected to stay at that level, and there are no other leakages or adjustments in the system. a.
> Rework Problem 6 assuming the reserve ratio is 14 percent. Data from Problem 6: Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system. a. What is the size of the
> 1. Which of the following is considered to be the most important services function provided by the Reserve Banks? a. Payments mechanism for transferring money b. Net settlement facilities c. Safekeeping and transfer of securities d. Fiscal agent for
> Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system. a. What is the size of the money multiplier? b. What will be the system’s money supply?
> The SIMPLEX financial system is characterized by a required reserves ratio of 11 percent; initial excess reserves are $1 million; and there are no currency or other leakages. a. What would be the maximum amount of checkable deposits after deposit expans
> Assume that there are two banks, A and Z, in the banking system. Bank A receives a primary deposit of $600,000 and it must keep reserves of 12 percent against deposits. Bank A makes a loan in the amount that can be safely lent. a. Show what Bank A’s bala
> Financial markets may be categorized as: (1) debt securities markets, (2) equity securities markets, (3) derivative securities markets, and (4) foreign exchange markets. Indicate in which of these markets the following securities trade:
> The U.S. financial system is comprised of: (1) policy makers, (2) a monetary system, (3) financial institutions, and (4) financial markets. Indicate which of these components is associated with each of the following “roles”:
> Match the following dates with the associated events: 2000 2008-09 2001 2007-08 2006
> Assume that your partner and you are in the consumer lending business. A customer, talking with your partner, is discussing the possibility of obtaining a $10,000 loan for three months. The potential borrower seems distressed and says he needs the loan b
> Go to the Federal Reserve Web site, http://www.federalreserve.gov. Go to “Economic Research and Data,” and access “Recent Statistical Releases” and then “Consumer Credit.” Determine current interest rates charged by auto finance companies on new automobi
> Go to the Federal Reserve Web site, http://www.federalreserve.gov. Click on the Consumer Information tab, and research consumer credit in the various hyperlinks. Find average interest rates charged by commercial banks on new automobile loans, personal lo
> Assume you are employed as an investment advisor. You are working with a retired individual who depends on her income from her investments to meet her day-to-day expenditures. She would like to find a way of increasing the current income from her investm
> 1. On-site examination of commercial banks is shared by the Fed and which of the following? a. Office of the Comptroller of the Currency b. Federal Deposit Insurance Corporation c. State regulatory agencies d. All of the choices are correct. 2. Alt
> Assume a condition in which the economy is strong, with relatively high employment. For one reason or another, the money supply is increasing at a high rate, with little evidence of money creation slowing down. Assuming the money supply continues to incr
> As one of several advisors to the secretary of the U.S. Treasury, you have been asked to submit a memo in connection with the average maturity of the securities of the federal government. The basic premise is that the average maturity is far too short. A
> As an advisor to the United States Treasury you have been asked to comment on a proposal for easing the burden of interest on the national debt. This proposal calls for the elimination of federal taxes on interest received from Treasury debt obligations.
> As an economist for a major bank you are asked to explain the present substantial increase in the price level, notwithstanding the fact that neither the money supply nor the velocity of money has increased. How can this occur?
> Go to the Federal Reserve Web site at http://www.federalreserve.gov, and find interest rates on U.S. Treasury securities and on corporate bonds with different bond ratings. a. Prepare a yield curve or term structure of interest rates. b. Identify existin
> Assume you are an elected member of Congress. A lobbying group has agreed to provide financial support for your reelection campaign next year. In return for the group’s support, you have been asked to champion their self-interests in the form of a spendi
> Go to the U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.bea.gov, click on the National table, and determine the following: a. The current personal savings rate in the United States. b. The amount of current corporate savi
> Assume you are the international vice president of a small U.S.-based manufacturing corporation. You are trying to expand your business in several developing countries. You are also aware that some business practices are considered to be “acceptable” in
> For the entire year, the nation’s balance of trade with other nations has been in a substantial deficit position, yet, as always, the overall balance of payments will be in “balance.” Describe the various factors that accomplish this overall balance, in
> Assume, as the loan officer of a commercial bank, one of your customers has asked for a “commercial letter of credit” to enable his firm to import a supply of well-known French wines. This customer has a long record of commercial success yet has large ou
> You manage the cash for a large multinational industrial enterprise. As a result of credit sales on 90-day payment terms you have a large claim against a customer in Madrid. You have heard rumors of the possible devaluation of the Spanish peseta. What ac
> As a speculator in the financial markets, you notice that for the last few minutes Swiss Francs are being quoted in New York at a price of $0.5849 and in Frankfurt at $0.5851. a. Assuming that you have access to international trading facilities, what act
> As an importer of merchandise, you depend upon the sale of the merchandise for funds to make payment. Although customary terms of sale are 90 days for this type of merchandise, you are not well known to foreign suppliers because of your recent entry into
> As an exporter of relatively expensive electronic equipment, you have a substantial investment in the merchandise that you ship. Your foreign importers are typically small- or medium-size firms without a long history of operations. Although your terms of
> Explain the concept of “balance” as it relates to a nation’s balance of payments.
> You are the owner of a business that has offices and production facilities in several foreign countries. Your product is sold in all of these countries, and you maintain bank accounts in the cities in which you have offices. At present you have short-ter
> The prime rate, and other interest rates, offered by banks often change in the same direction as a change in the Fed’s target for the federal funds rate. As an employee of a Federal Reserve District Bank you have been told that your District Bank will be
> You have recently retired and are intent on extensive travel to many of the exotic lands you have only read about. You will not only be receiving a pension check and Social Security check but also dividends and interest from several corporations. You are
> An economic contraction (recession) is now well under way and the Fed plans to use all facilities at its command to halt the decline. Describe the measures that it may take.
> The Fed Board of Governors has decided to ease monetary conditions to counter early signs of an economic downturn. Because price inflation had been a burden in recent years, the Board is anxious to avoid any action that the public might interpret as a re
> 1. Approximately what percentage of commercial banks in the United States are members of the Fed? a. 10 percent b. 33 percent c. 67 percent d. 90 percent 2. What is the number of Federal Reserve Banks in the U.S. Federal Reserve System is? a. One
> 1. Which was a major development that closely preceded the 2007-08 “financial crisis”? a. The bursting of a housing bubble b. A credit or liquidity crunch c. The Great Recession d. A peak in the unemployment rate 2. When did the “Great Recession” o
> As the executive of a bank or thrift institution you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem?
> You are a resident of Seattle, Washington, and maintain a checking account with a bank in that city. You have just written a check on that bank to pay your tuition. Describe the process by which the banking system enables your college to collect the fund
> We are faced with ethics decisions involving money almost every day. For example, we all probably have seen money in the form of coin or currency lying on the ground or floor somewhere. We also may have at some time discovered a lost wallet. Should it ma
> Find several recent issues of Bloomberg Business week. Identify articles relating to developments in the U.S. monetary system. Search for possible developments occurring in foreign monetary systems.
> Go to the Website of the Federal Reserve Bank of St. Louis at http://www.stlouisfed.org. Go to “Research and Data” and click on “FRED Economic Data” to access the Federal Reserve Economic Database (FRED). Compare the present size of M1 and M2 money stock
> Match the following money market securities with the level of secondary market activity.
> Match the following money market securities with their issuers.
> Go to the Small Business Administration (SBA) Web site, www.sba.gov , and search for information on starting a new business. Identify and prepare a written summary of the startup basics described on the SBA site.
> Obtain several recent issues of the Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating specifically to recent changes in the financial environment.
> Obtain several recent issues of The Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating to one of the four types of financial markets identified in this chapter.
> 1. What is an essential requirement of a well-operating financial system? a. An efficient national payments system. b. An elastic or flexible money supply that can respond to changes in the demand for money. c. A lending/borrowing mechanism to help al
> Obtain several recent issues of The Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating to one of the six principles of finance.
> In business, ethical dilemmas or situations occur frequently. Laws and regulations exist to define unethical behavior. However, the practicing of high quality ethical behavior often goes beyond just meeting laws and regulations. Indicate how you would re
> You are the treasurer of a mid-size industrial manufacturer, your firm’s cash balances vary between $300,000 and $1,000,000. During the last three board meetings a board member has asked how you protect this cash while it is being lodged in banks or othe
> Go to http://www.stlouisfed.org and identify sources and uses of funds for commercial banks. (Try typing “commercial banks” in the Search box.)
> The president and members of Congress are elected by the people and are expected to behave ethically. Let’s assume that you are a recently elected member of Congress. A special-interest lobbying group is offering to contribute funds to your next election
> An economic recession has developed and the Federal Reserve Board has taken several actions to retard further declines in economic activity. The U.S. Treasury now wishes to take steps to assist the Fed in this effort. Describe the actions the Treasury mi
> Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and
> Go to the St. Louis Federal Reserve Bank’s website at http://www.stlouisfed.org, and access current economic data via the Research & Data tab. a. Find M1 and the monetary base, and then estimate the money multiplier. b. Determine the nominal gross domest
> Banks provide checking account services, accept savings deposits, and lend to borrowers. In other words, they are in the money business. We all have heard stories of banks or their partner firms “misplacing” or “losing” bags of money. Lending rates are a
> You are the mayor of a community of 12,000 people. You are active in virtually all of the civic activities of the town and as such your opinion is solicited on political, economic, sociological, and other factors. You have been asked by one of the civic
> 1. Which of the following is true of the Federal Reserve System? a. It is the central bank of the United States. b. It is responsible for setting monetary policy. c. It is responsible for regulating the banking system. d. All of the choices are corre
> You and three other staff members of the U.S. Offices of Comptroller of the Currency have been assigned identical projects. You are to review the various articles that have been written, the various speeches made, and in general the various suggestions t
> What actions did the Fed take to help avoid a financial system collapse in 2008-09?
> Identify some of the institutional participants in the mortgage markets.
> Indicate the difference between a call option and a put option.
> What is an option contract?
> What is a futures contract?
> Briefly describe what is meant by a derivative security.
> Briefly describe and compare the central banks in the United Kingdom, Japan, and European Monetary Union.
> In what way do the Reserve Banks serve as fiscal agents for the U.S. government?
> What is the special role of the Federal Reserve Interdistrict Settlement Fund in the check- clearance process?
> 1. When banks operate in more than one country, this is called a. branch banking. b. universal banking. c. international banking. d. dual banking. 2. The International Banking Act of 1978 was intended to provide a level playing field for United Sta
> Describe how a check drawn on a commercial bank but deposited for collection in another bank in a distant city might be cleared through the facilities of the Federal Reserve System.
> Explain the process by which the Federal Reserve Banks provide the economy with currency and coin.
> Describe the objectives of the Consumer Credit Protection Act of 1968. What is the Truth in Lending Section of the Act? What is Regulation Z?
> What federal agencies are responsible for supervising and regulating depository institutions that are not commercial banks?
> Explain the usual procedures for examining national banks. How does this process differ from the examination of member banks of the Federal Reserve System holding state charters?
> Describe the two “targets” that the Fed can use when establishing monetary policy. Which target has the Fed focused on in recent years?
