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Quiz - Worksheets - Money markets - Markets - Economics bank - Virtual US Bank of Biz/ed

Markets - Money markets

Quiz - Interest rates - keeping them interesting?

1. From the diagram below, select the area where you would expect the following to be true:
Changes in the Interest Rate
  • You would expect an excess supply of money.
    (Select one answer)

(a) * Top area
(b) * Middle area
(c) * Bottom area

       
  • People would be selling securities because they were short of liquidity.
    (Select one answer)

(a) * Top area
(b) * Middle area
(c) * Bottom area

       
  • The price of securities would be expected to fall.
    (Select one answer)

(a) * Top area
(b) * Middle area
(c) * Bottom area

       
  • You would expect interest rates to be stable.
    (Select one answer)

(a) * Top area
(b) * Middle area
(c) * Bottom area

       
2. What is meant by a 'repo'?
(Select one answer)

(a) * Repossession of a house by a bank or building society
(b) * Banks buying back treasury bills from the US Federal Reserve Bank
(c) * Banks exchanging treasury bills for liquidity on a temporary basis
(d) * The return of assets held by the US Federal Reserve Bank

       
3. In each of the cases below, has there been an increase or decrease in the amount of liquidity available in the markets?

  • Large tax payments are made by individuals as the quarterly tax payment deadline approaches.
    (Select one answer)

(a) * Increase
(b) * Decrease

   
  • A bank agrees to temporarily exchange treasury bills for 'repos' of $700 million.
    (Select one answer)

(a) * Increase
(b) * Decrease

   
  • The US Federal Reserve has a large issue of treasury bills.
    (Select one answer)

(a) * Increase
(b) * Decrease

   
  • $250 million worth of Treasury Bills mature and the holders are repaid.
    (Select one answer)

(a) * Increase
(b) * Decrease

   
4. What is the purpose of the US Federal Reserve Bank creating a daily shortage of liquidity?
(Select one answer)

(a) * To keep the banks on their toes
(b) * To ensure that the banks have to borrow each day at the interest rate set by the FOMC
(c) * To help them judge how much money to issue each day
(d) * To help control the demand for money

       
5. Say a $10,000 US Treasury note is issued with a maturity of five years and a fixed annual return of $1,000, in other words a market rate of interest of 10%. Calculate the value of the note if the interest rate changes to the values given in the table below. Fill your results in the second column.
(Type your answer)


6. If the following changes occur, what is the value of the 'daily shortage'?

  • There is a rise in currency circulation of $100 million.
  • Quarterly tax payments of $200 million are made to the US Treasury
  • $400 million of 'repos' mature
  • There are US Government payments of benefits to individuals of $150 million

(Type the number of millions without a dollar sign)

 *