Exam 11: Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Only vault cash and reserve balances kept with the Federal Reserve banks count in meeting legal reserve requirements.

The American commercial bank that developed rollover (or roly-poly) CDs was:

CDs, when introduced, were considered a wonderful financial innovation that allowed banks to smooth their in-flow and out-flow of funds.

Using the the description or the definition below, identify the key terms or concepts discussed in this chapter. a. Acceptances issued by banks in one nation that finance the transport or storage of goods traded between two other nations. b. An international money market where deposits are traded. c. Deposits of U.S. dollars in foreign banks or branches. d. The short-term interest rate attached to Eurocurrency deposits.

Bank CDs that may carry fixed or floating interest yields based on the prevailing level of SIBOR are known as:

Under lagged reserve accounting the reserve computation period lasts two weeks.

Which of the following best describes a major concern with the government's bailout of failing industries?

Immediately after the terrorist attacks of September 2001, there was a serious shortage of Treasury notes because:

The ratio of the total amount of bids received by the Treasury over the actual amount of securities to be sold is known as the:

Most buyers of negotiable CDs hold them until they mature.

Yankee CDs are issued by U.S. banks in other countries.

Correspondent deposits at large banks are part of the federal funds market.

Term agreements are used by the U.S. Treasury and the Federal Reserve to auction off longer-term U.S. government notes and bonds.

Most money market CDs have maturities of six months of less.

Bankers acceptances are considered prime quality instruments and have maturities of:

The largest banks rely heavily on the ____ for daily reserve management.

The time period over which a depository institution must hold average legal reserves at the required level is known as the:

Unlike government bonds Treasury bills normally do not carry term premiums.

According to your text, the principal buyers of money market CDs include:

Instel Corporation has been offered a $100 million, 3-month loan at a fixed rate of 90-day LIBOR plus 3/8 % margin or at the prevailing federal funds rate plus 1/2 % margin with the loan rate adjusted every 24 hours to the federal funds rate prevailing at the close of business each day. These rates, along with prevailing yields on U.S. Treasury bills, are posted by London and New York as follows: 90-day LIBOR rate on Eurodollar deposits 4.275% 3-month U.S. Treasury bill rate 4.12% Federal funds rate 4.08 6-month U.S. Treasury bill rate 4.20 One-month (30 day) U.S. Treasury bills 4.05 1-year U.S. Treasury bill rate 4.30 Which set of loan terms would you recommend to Instel's treasurer? Why?