Define terms

Federal Funds Rate
Gramm Leach Bliley Act
Pension Benefit Guaranty Corporation
interest rate risk

Question 12

12) Evaluate the following statement:
The political independence of the Fed is unique to the central bank of the United States.

Question 11

11) Evaluate the following statement:
Financial markets were pleased with the appointment of Ben Bernanke by President Bush to be Chair of the Board of Governors because he is seen as likely to keep the Fed politically independent.

Question 10

10) Evaluate the following statement:

Differences in financial systems between the United States and Japan helps explain differences in executive salaries between the two countries.

Question 9

9) Evaluate the following statement:
Limited liability reduces stockholder lender conflict.

Question 8

8) Evaluate the following statement.
There is no morale hazard problem associated with deposit insurance.

Question 7

7) Evaluate the following statement.
Collateral is a way for borrowers to overcome problems of asymmetric information.

Question 6

6) Compare and contrast the impact of sweep accounts and the federal funds market on the amount of excess reserves banks hold.

Question 5

5a) Could the Federal Reserve dramatically reduce the use of sweep accounts by requiring reserves to be held on Money Market Deposit Accounts? Explain.
b) If they could do this why don't they?

Question 4

4) Evaluate the following statement.
Sarbanes Oxley is consistent with a fundamental change in the approach to the regulation of financial markets in the United States.

Question 3

3) Evaluate the following statement.
The cost to the NYSE to merge with Archipelago Holdings was reduced by increased regulation of the NYSE by outsiders.

Question 2

2) Explain how the proposed regulation is designed to keep the dual banking system from fading into history.

Question 1

1) Explain how the proposed regulation reflects tension arising from the dual banking system in the era of interstate banking.

Information for questions 1 and 2 from exam 2.

The FDIC has recently proposed the following change in regulation:

Regarding the applicability of the law of a host state (i.e., a state other than the bank's home state), generally, the proposed rules would clarify that a host state law does not apply to an activity that involves a branch in the host state of an out of state, state chartered bank to the same extent that a federal court or the OCC has determined in writing that the particular host state law does not apply to an activity involving a branch in the host state of an out of state national bank. When host state law does not apply, then the proposed rules would provide that the bank's home state law applies.

Question 11

Define
Eurodollars
federal funds rate
underwriting spread
real rate of interest
general obligation bond

Question 10

10) Evaluate the following statement.
The greater the difference in real interest rates between the United States and the United Kingdom the larger the difference between the spot and futures prices of a dollar in pounds.

Question 9

9) Explain how the actions of arbitrageurs will make the exchange rates among three currencies consistent.

Question 8

8) Explain how the supply and demand for securities is the mirror image of the supply and demand for loanable funds as a framework for determining equilibrium interest rates.

Question 7

7) Evaluate the following statement:
"Interest rates are determined by the supply and demand for securities and not the supply and demand for loanable funds."

Question 6

6) Explain the process which forces the price of the futures contract into equality with the price of the underlying asset during the delivery period.

Question 5

5) Why might a general belief that aviation fuel prices would rise make it more difficult for US AIRWAYS to hedge against rising fuel costs using option contracts? Explain.

Question 4

4) Why might investors be willing to fund a group of individually risky projects (none of which they would fund by itself)? Explain.

Question 3

3) How is it possible that if you combine two risky securities (each with a high standard deviation of returns) into a portfolio, the risk of the portfolio can be zero (the standard deviation of returns on the portfolio is zero)?

Question 2

2) How does William Poole explain what he call the "term structure puzzle"?

Question 1

1) Evaluate the following statement:
"The stronger the preferred habitats of participants in financial markets the stronger the explanatory power of the pure expectations approach to explaining the shape of the yield curve."