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

Question 1

Which of the following items best captures the concept of liquidity reserves for the Fed (the central bank of the United States)?

Gold

Gold + SDRs + foreign currency

Dollars

Federal Reserve Notes

Question 2

Which of the following IS a property of Fed Funds?

Asset of the Fed

Interbank credit

Liability of the Fed

Intraday credit

Question 3

Which of the following statements about the payment system is FALSE?

When a bank borrows in the Fed Funds market, the balance sheet of the Fed neither expands nor contracts

When a bank runs a daylight overdraft, the balance sheet of the Fed contracts

In an ideal credit system, surplus banks lend to deficit banks

Elasticity in the wholesale money market is the source of elasticity in the retail payments system

Question 4

Which of the following statements about the term structure of interest rates is TRUE?

Arbitrage ensures that the expectations hypothesis holds at all times

The expectations hypothesis explains the persistent liquidity premium in long term interest rates

Empirically, the forward rate seems to be an upwardly biased estimate of the future spot rate

According to the expectations hypothesis, long rates should be higher than short rates to compensate for risk

Question 5

Which statement is TRUE regarding uncovered interest parity (UIP)?

UIP is a generalization of covered interest parity

Arbitrage ensures that UIP holds, except in crisis

Forward exchange rates tend to be biased estimates of future spot exchange rates

Empirical studies find that low interest rate currencies tend to appreciate relative to high interest rate currencies

Question 6

Each of the following is a property of an illiquid markets, EXCEPT...?

Attempts to buy or sell tend to move prices a lot

Agents cannot buy or sell quickly

It is difficult to buy or sell large quantities

Dealers in illiquid markets are well-capitalized

Question 7

Which of the following BEST characterizes the economics of a security dealer who funds his long and short security positions in the repo and reverse markets?

The dealer is a price taker

The dealer is able to control exposure to price and liquidity risk independently

The dealer changes price quotes to control exposure to price risk

Such a dealer is limited to matched book

Question 8

Which of the following BEST describes the Bagehot Principle?

In times of crisis, lend freely at a low rate to help banks rebuild profitability

Safeguard liquidity by carefully scrutinizing potential borrowers

In times of crisis, lend freely at a high interest rate

Intervene to stabilize the economy by raising rates in good times and lowering them in bad times

Question 9

Each of the following is true about the economics of the dealer function, EXCEPT...?

Dealers seek profit by supplying market liquidity

A tight bid-ask spread attracts dealers to make markets

Value based traders establish the outside spread within which price fluctuates

Dealers absorb fluctuations in net demand and supply by taking the imbalance onto their own balance sheet

Question 10

What is the MOST salient difference between traditional banking and so-called shadow banking?

In shadow banking, key prices are determined in competitive dealer markets

Traditional banking involves creation of money substitutes

Shadow banking involves liquidity risk, whereas traditional banking involves solvency risk

Shadow banking involves solvency risk, whereas traditional banking involves liquidity risk

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

You cannot submit your work until you agree to the Honor Code. Thanks!

Economics of Money and Banking, Part One

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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