18 Questions
What is the primary function of a Primary Dealer in relation to the Federal Reserve?
Buying and selling government securities with the Federal Reserve.
How does the Federal Reserve increase the money supply by buying securities?
By making payments to Primary Dealers.
What is one way the Federal Reserve can decrease the money supply?
By conducting open market sales with Primary Dealers.
What happens when a Primary Dealer delivers securities to a bank or dealer as part of monetary policy?
Bank reserves increase.
Which action would likely lead to an expansion of the nation's money supply?
Primary Dealers buying government securities from the Federal Reserve.
What role do Primary Dealers play in open market operations conducted by the Federal Reserve?
Buying and selling Treasury securities with the Federal Reserve.
What are excess reserves at a bank?
Reserves that exceed the required amount
How is the maximum change in the money supply calculated?
By dividing excess reserves by the reserve requirement
What does intrastate branching refer to in the U.S. banking system?
Creating branch banks within the same state
Which system allows establishing branch banks across state lines?
Interstate branching
How do excess reserves impact the money supply?
Increase the money supply
What happens to reserves when they are used for lending?
They decrease
What is a primary dealer?
A financial institution that trades in government securities with the Fed
What is the reserve requirement?
The amount of cash a bank must hold as a percentage of its deposits
How does the Federal Reserve increase the money supply?
By purchasing government securities in open market operations
What are open market operations?
The buying and selling of government securities by the Federal Reserve
How can the Federal Reserve decrease the money supply?
By selling government securities in open market operations
What is the main tool used by the Federal Reserve to control the money supply?
Open market operations
Test your knowledge on financial intermediaries and monetary policy concepts such as open market operations and primary dealers based on the Principles of Finance 6th edition, Chapter 4. Subjects covered include the role of financial intermediaries in the economy and how open market operations affect the nation's money supply.
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