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- Apart from risk component, several marcoeconomics factors such as federal reserve (the fed ) policy, federal budget deficit or surplus, international factors and level of business activity- influence interest rate. A. the changes in value of foreign currency affect business operation and the value of investment asset in that currency. if the value of the foreign currency increases relative to the home currency, invest asset will lose value. TRUE OR FALSE? B. if the Feds inject a huge amount of money into the market, inflation is expected to decline and longterm interest rate are expected to rise. TRUE OR FALSE? C. When the Feds increases the money supply, short term interest rates tend to decline. TRUE OR FALSE? D. When the economy is weakening, the feds is likely to decrease in short term interest rate. TRUE OR FALSE?7. The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. Ifa bank had capital of 10 percent when the Fed began raising rates and has no loans at risk ofdefault, under what circumstances will its capital position be compromised? Please be specific.8. How do rising interest rates affect the size of real estate loans that lenders will advance?Again, be specific.9. Mortgage rates have risen by about 4 percent over the past year. Does that mean that theacceptable minimum appreciation rate for looking at owner housing relative to renting hasrisen by 4 percent? Why or why not? (Hint: think about our analysis of the buy-rent decision).10. You are evaluating a CMBS. Beyond the standard metrics (i.e., LTV, DCI, etc.), name twothings to consider in evaluating the security.35. Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates? A. An increase in government spending and an open-market sale of securities by the central bank. B. A decrease in taxes and an open-market purchase of securities by the central bank. C. An increase in taxes and an increase in the discount rate. D. An open-market purchase of securities by the central bank and a decrease in the reserve requirement.
- 1. Suppose that the Fed makes an open market purchase of $200,000 in bonds from QRS Bank. a. Show how this affects the Fed balance sheet. b. Show how this affects the balance sheet of QRS Bank. c. Assume that QRS Bank lends out as much as it can, based on this changed situation. What does its balance sheet look like after it makes the loans? d. Assume that all the proceeds from those loans are deposited in TUV Bank. What is the effect on TUV Bank's balance sheet? e. Assume that the required reserve ratio is 10 percent. What new opportunity does TUV Bank now face? What is it likely to do?Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the amount of cash in Bank A, carefully following all numeric instructions.12. what factors motivate the central bank to require tge two selected Dls to hold minimum amounys of liquid assets?
- Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate this economy's monetary base, carefully following all numeric instructions.Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the (economy-wide) currency ratio, carefully following all numeric instructions. Do not convert the ratio into percent. In other words, if you get k of 0.99, enter only 0.99 in the blank.Bank A:Reserves on hand $38,000Deposit in the Fed $30,000US government bonds $12,000Checking account balances $120,000Savings account balances $25,000Bank B:Reserves on hand $50,000US government bonds $7500Savings account balances $20,000Checking account balances $100,000 In addition, people in this economy hold $8800 in cash, and all banks have the same reserve requirements we've used all semester. Calculate the "real-world multiplier," carefully following all numeric instructions.
- Explain how the following events will affect the demandfor money according to the portfolio theories of moneydemand:a. The economy experiences a business cycle contraction.b. Brokerage fees decline, making bond transactionscheaper.c. The stock market crashes. (Hint: Consider both theincrease in stock price volatility following a marketcrash and the decrease in wealth of stockholders.)1. Labor market rigidities and explain how they might cause the relatively high unemployment inEurope.2. There are two channels through which the US crisis became a world crisis. The trade channel and the financial channel.3. The multiplier illustrates the extent to which equilibrium output will change as a result of agiven change in autonomous demand. 4. Bonds are considered as assets for a central bank but for a bank as well. Explain the statements whether T/F elaborately...Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019.Classic BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 1,000 Deposits 3,000Securities 2,000 Equity 7,000Loans & Advances 1,000Property, Plant and Equipment 6,000 .10,000 10,000 Prudent BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 600 Deposits 2,500Securities 1,500 Equity 4,400Loans & Advances 800Property, Plant and Equipment 4,000 .6,900 6,900Assume a required reserve ratio of 10%.(a) What is the amount of excess reserves in this commercial banking system? (b)What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded? (c) Determine the stock of broad money supply assuming the non-bank public holds…