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Question 1

Which of the following is NOT an advantage of the clearinghouse system relative to a bilateral system of bank payments?

Clearinghouses do not permit negative balances intraday

Banks net payments across their various correspondents

During financial crises, clearinghouses are able to create additional reserves

Payments are guaranteed by all clearinghouse members

Question 2

All of the following are accurate descriptions of dealers in the Fed Funds market, EXCEPT...?

Dealers expand and contract their balance sheets during dealing operations

Dealers profit from the spread between bid and ask price

Dealers make markets by bridging across time, intra-day and cross-day

Dealers match buyers and sellers without taking positions on their own balance sheets

Question 3

Which of the following is a property of Fed Funds?

Intra-day credit

Asset of the Federal Reserve

Liability of the Federal Reserve

Interbank credit

Question 4

All of the following statements about bank payment systems are true, EXCEPT....?

In an ideal credit payments system, banks with positive settlement balances lend to banks with negative settlement balances

The use of correspondent balances allowed banks to economize on reserve holdings

The Federal Reserve System operates closer to the ideal credit payment system than the ideal money payment system

When a bank borrows in the Fed Funds markets, the balance sheet of the Fed expands

Question 5

A customer of Bank A orders payment to a customer of Bank B, but Bank A does not have sufficient reserves on hand to make the payment. Which of the following methods would NOT be used to make the payment?

Issuing bank notes

Bank A draws down its correspondent balances at Bank B

Bank A borrows from Bank B by issuing a correspondent balance to the credit of B

Clearinghouse credits B and debits A, for settlement at the end of the day

Question 6

All of the following statements about the operation of the bank clearinghouse association under the national banking system (before the Fed) are true, EXCEPT...?

The clearinghouse allowed banks to economize on their holding of reserves

The clearinghouse served as lender of last resort during times of crisis

The creation of clearinghouse loan certificates during times of crisis had the effect of increasing bank reserves

The clearinghouse was unable to provide elasticity for its members during a crisis

In accordance with the Coursera Honor Code, I (KK Fong) certify that the answers here are my own work.

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Economics of Money and Banking, Part One

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Economics of Money and Banking, Part One
by Perry G Mehrling

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Economics of Money and Banking, Part One

Economics of Money and Banking, Part Oneby Perry G Mehrling

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Economics of Money and Banking, Part One
by Perry G Mehrling