Question :
11) Firms that participate in regular open market transactions with : 1244859
11) Firms that participate in regular open market transactions with the Federal Reserve are called
A) secondary market banks.
B) Treasury banks.
C) primary dealers.
D) Federal Reserve partners.
12) In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing. Which of the following is one reason why these measures were taken?
A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed.
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail.
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt.
D) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession.
13) While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to fail
A) smaller firms will resent not receiving similar assistance.
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy.
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail.
D) there will be less competition in the U.S. economy, which could led to higher prices for consumers.
14) In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock.
A) Bank Rescue Alliance Treaty (BRAT)
B) Mortgage Transfer Agency (MTA)
C) Troubled Asset Relief Program (TARP)
D) Financial Assurance Association (FAA)
15) If the amount you owe on your house is greater than the price of the house, you have
A) no value to your house.
B) a mortgage rate that is too high.
C) negative equity in your house.
D) a reverse mortgage on your house.
16) The larger the fraction of an investment financed by borrowing
A) the greater the potential return and potential loss on that investment.
B) the smaller the potential return and potential loss on that investment.
C) the greater the potential return and the smaller the potential loss on that investment.
D) the smaller the potential return and the greater the potential loss on that investment.
17) Between September 2007 and March 2008 there was a substantial reduction in the demand for housing. What action did the Fed take in response to the reduction in the demand for housing?
A) The Federal Reserve decreased the required reserve rate.
B) The Fed conducted open market sales of Treasury securities.
C) The Federal Reserve cut the federal funds rate seven times.
D) The Federal Reserve raised the discount rate by 3 percentage points.
18) When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements declined as many households found it ________ to borrow against the value of their homes.
A) rise; easier
B) rise; harder
C) fall; easier
D) fall; harder
19) When housing prices ________ as they did beginning in 2006 following the housing market bubble, most banks and other lenders tightened the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.
A) fell; easier
B) fell; harder
C) rose; easier
D) rose; harder
20) A financial asset is considered ________ if it can be sold in a secondary market.
A) a commodity
B) a security
C) a liability
D) durable
