Question

QUESTION 46 Banks tend not to hold a lot of excess reserves because: o Regulators penalize banks that have too much in excess reserves e Reserves present a large opportunity cost in the form of foregone interest. O Holding excess reserves will increase a banks leverage O aand c QUESTION 47 Government sponsored agencies like Fannie Mae and Freddie Mac usually borrow at interest rates: @ Below what private lenders pay e Exceeding what private lenders pay D. That are the same as private lenders since they are really a private lender. O That are slightly below the federal funds rate. QUESTION 48 The United States would be characterized as having: O A controlled domestic interest rate, a closed capital market and a flexible exchange rate. 0 A controlled domestic interest rate, an open capital market and a flexible exchange rate No control over the domestic interest rate, an open capital market and a flexible exchange rat A controlled domestic interest rate, an open capital market and a fixed exchange rate.

Answer 1

Answer (46) : Reserves of a Bank are critical to its market sustainability. However, if a bank has too much stored reserve money, there are many negative consequences to the market and the economy. As per the question here, let us focus on only of such consequences. If Banks have too much reserve of money at their disposal and they do no / are not able to circulate it in the market, then they are missing on the opportunity to earn interest out of those large amounts of money, which are stored In the banks. His leads to their cost of maintaining or the maintenance of their banks to rise exponentially. Therefore, the correct answer would be: Reserve present a large opportunity cost in the form of foregone interest.

Answer (47): Government sponsored agencies are usually controlled and run by the Government. These agencies are primarily set up for the public interest or for the fulfillment of certain Government ambition or perspective. Therefore, when these agencies want to borrow money, they are allowed to borrow the money at a price which is slightly lesser then the interest rate prevailing in the market. Therefore, the correct answer is : That are slightly below the federal funds rate.

Answer 48: The US economy is flexible in the true sense, because the interest rates in the domestic market are too some extent dependent on the internal and external forces too. The interest rate in the international market, the balance of payment and the state of economy defines the interest rate of the domestic market. The economy is an open capital market, where the capital flow is not restricted by the Government in any way, however there are certain regulations which control the way of flow of capital. The exchange rate is flexible as it depends on the International trade situations, the global economic conditions, the price of the goods and services being exchanged. Global economic forces to some extent control the exchange rate being increased or decreased. Therefore the correct answer is: No Control over the domestic interest rate, an open capital market and a flexible exchange rate