Principles of Finance 6e: Chapter 4 Quiz
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Questions and Answers

What is the primary function of a Primary Dealer in relation to the Federal Reserve?

  • Approving loans for individual customers.
  • Regulating the nation's money supply.
  • Issuing currency and coins to the public.
  • Buying and selling government securities with the Federal Reserve. (correct)

    • How does the Federal Reserve increase the money supply by buying securities?

  • By selling securities directly to the public.
  • By issuing Treasury bills.
  • By making payments to Primary Dealers. (correct)
  • By decreasing bank reserves.

    • What is one way the Federal Reserve can decrease the money supply?

  • By buying government securities from the public.
  • By conducting open market sales with Primary Dealers. (correct)
  • By receiving payments from Primary Dealers for securities sold.
  • By increasing bank reserves.

    • What happens when a Primary Dealer delivers securities to a bank or dealer as part of monetary policy?

    <p>Bank reserves increase.</p> Signup and view all the answers

    Which action would likely lead to an expansion of the nation's money supply?

    <p>Primary Dealers buying government securities from the Federal Reserve.</p> Signup and view all the answers

    What role do Primary Dealers play in open market operations conducted by the Federal Reserve?

    <p>Buying and selling Treasury securities with the Federal Reserve.</p> Signup and view all the answers

    What are excess reserves at a bank?

    <p>Reserves that exceed the required amount</p> Signup and view all the answers

    How is the maximum change in the money supply calculated?

    <p>By dividing excess reserves by the reserve requirement</p> Signup and view all the answers

    What does intrastate branching refer to in the U.S. banking system?

    <p>Creating branch banks within the same state</p> Signup and view all the answers

    Which system allows establishing branch banks across state lines?

    <p>Interstate branching</p> Signup and view all the answers

    How do excess reserves impact the money supply?

    <p>Increase the money supply</p> Signup and view all the answers

    What happens to reserves when they are used for lending?

    <p>They decrease</p> Signup and view all the answers

    What is a primary dealer?

    <p>A financial institution that trades in government securities with the Fed</p> Signup and view all the answers

    What is the reserve requirement?

    <p>The amount of cash a bank must hold as a percentage of its deposits</p> Signup and view all the answers

    How does the Federal Reserve increase the money supply?

    <p>By purchasing government securities in open market operations</p> Signup and view all the answers

    What are open market operations?

    <p>The buying and selling of government securities by the Federal Reserve</p> Signup and view all the answers

    How can the Federal Reserve decrease the money supply?

    <p>By selling government securities in open market operations</p> Signup and view all the answers

    What is the main tool used by the Federal Reserve to control the money supply?

    <p>Open market operations</p> Signup and view all the answers

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