Management Integration Reports
Suggestions for Improvement
Prepared November 4, 2013
In general students are doing an excellent job with the MIRs. However, there are
a number of common errors. In an effort to addr
Price-Level Effect and Expected-Inflation Effect
A one time increase in the money supply will cause prices to rise to a
permanently higher level by the end of the year. The interest rate will rise via the
Management Integration Reports
Students are required to complete three management integration reports (MIRs). An MIR must
be turned in prior to each of the first three quizzes. Only one MIR will be accepted per quiz. For
Quiz Chapter 6
A nominal anchor promotes price stability by
keeping inflation expectations low.
keeping economic growth low.
stabilizing interest rates.
All else the same, when the Fed calls in a $100 disc
Quiz Chapter 1
Of the following assets, the least liquid is
Pieces of property that serve as a store of value are called
units of account.
Quiz Chapter 5
Which of the following bonds are considered to be default-risk free?
U.S. Treasury bonds
Which of the following can be described as involving indirect finance?
Quiz Chapter 4
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$900 next year?
When I purchase _, I own a portion of a firm and have the r
Quiz Chapter 2
The interest rate that equates the present value of payments received from a debt
instrument with its value today is the
simple interest rate.
real interest rate.
yield to maturity.
Quiz Chapter 7
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
raises the federal funds rate.
has no effect on
Quiz Chapter 12
When a bank sells a government bond to the Federal Reserve, reserves in the banking
system _ and the monetary base _, everything else held constant.
Quiz Chapter 9
Individuals that lend funds to a bank by opening a checking account are called
Lower tariffs and quotas cause a country's currency to _ in the _ run,
Quiz Chapter 8
If the desired intermediate target is an interest rate, the preferred policy instrument
the federal funds rate.
the monetary base.
the discount rate.
If the requ
Quiz Chapter 10
The interest rate charged on overnight loans of reserves between banks is the
federal funds rate.
Treasury bill rate.
The monetary base consists of
reserves and Federal Reserve Notes.
Quiz Chapter 11
The strongest argument for an independent Federal Reserve rests on the view that
subjecting the Fed to more political pressures would impart
a countercyclical bias to monetary policy.
an inflationary bias to mo
Quiz Chapter 3
The risk structure of interest rates is
the relationship among interest rates of different bonds with the same maturity.
the structure of how interest rates move over time.
the relationship among interest rates
Open Market Purchase: Summary
The effect of an open market purchase on reserves depends on whether the
seller of the bonds keeps the proceeds from the sale in currency or in deposits
The effect of an open market purchase o
Growth in international trade and multinational corporations
Global investment banking is very profitable
Ability to tap into the Eurodollar market
Goals of Monetary Policy
Stability of financial markets
Foreign exchange market stability
Should Price Stability be the Primary Goal?
In the long run there is no conf
Expand into new and riskier areas of lending
Commercial real estate loans
Corporate takeovers and leveraged buyouts
Pursue off-balance-sheet activities
Bank Consolidation and Nationwide
The Money Supply Process
Players in the Money Supply Process
Central bank (Federal Reserve System)
Banks (depository institutions; financial intermediaries)
Depositors (individuals and institutions)
Feds Balance Sheet
The Foreign Exchange Market
Foreign Exchange I
Exchange rate: price of one currency in terms of another
Foreign exchange market: the financial market where exchange rates are
Foreign Exchange II
Deposit Creation: The Banking System
Creation of Deposits (assuming 10% reserve requirement and a $100 increase in
The Formula for Multiple Deposit Creation
Critique of the Simple Model
Holding cash stops the pro
Financial Innovation and the Growth of the Shadow Banking System
Financial innovation is driven by the desire
to earn profits
A change in the financial environment will stimulate a search by financial
Federal Reserve System
Functions of the Federal Reserve Banks
Issue new currency
Withdraw damaged currency from circulation
Administer and make discount loans to banks in their districts
Evaluate proposed merg
Equilibrium in the Market for Reserves
Affecting the Federal Funds Rate
Open market purchase causes NBR to shift to the right.
Effects of open an market operation depends on whether the supply curve initially
Reserve Requirements & Monetary Policy
Depository Institutions Deregulation and Monetary Control Act of 1980 sets the
reserve requirement the same for all depository institutions
3% of the first $48.3
Flexible, transparent, accountable
Almost immediate signals help fix inflation expectations and produce less
Almost immediate accountability
Must be a strong and reliab
Tools of Monetary Policy
Tools of Monetary Policy
Open market operations
Federal funds rate: the interest rate on overnight loans of reserves from one bank
Demand in the Market
Board of Governors of the Federal Reserve System
Seven members headquartered in Washington, D.C.
Appointed by the president and confirmed by the Senate
Required to come from different districts
Chairman is chosen from the
Screening and Monitoring
Specialization in lending
Monitoring and enforcement of
Overcoming Adverse Selection and Moral Hazard
Long-term customer relationships