Terms and Definitions #1
This is the major monetary policy-making body of the Federal Reserve System.
What is the Federal Open Market Committee (FOMC)?
This is the forgone interest cost from the holding of cash balances when they are received.
What is opportunity cost?
This is the term used to describe purchases and sales of securities to influence the money supply.
What is open market operations?
This describes the change in bank deposits.
What is (1/New Reserve Requirement) x Increase (Decrease) in reserves created by reserve requirement change?
This is the safest (and largest market) of all money market securities.
What are treasury bills?
This is the interest rate on loans made by Federal Reserve Banks to depository institutions.
What is the discount rate?
This is the risk of late or nonpayment of principal or interest.
What is default risk?
This is the major asset on the Fed's balance sheet.
What are treasury securities?
This is the equation to calculate the bond equivalent yield on a security.
((Face value - Purchase Price)/Purchase Price) x (365/n)
This is the money market security that is essentially a collateralized federal funds loan.
What is a repurchase agreement?
This is the percentage of deposits banks are required to keep on hand.
What is the required reserve percentage?
This is the term used to describe banks with reciprocal accounts and agreements (usually in relation to federal funds).
What are correspondent banks?
This is the major liabilities on the Fed's balance sheet.
What are depository institution reserves?
This is the equation to calculate the effective annual return on an investment over a one year period.
What is (1+(bond equivalent yield/(365/n)))^(365/n) - 1?
This is the money market security that took a significant drop during the recession, in part due to the Lehman Brothers filing bankruptcy.
What is commercial paper?
This is the interest rate on short-term funds transferred between financial institutions.
What is the federal funds rate?
This is the term used to describe an instrument in which the holder at maturity receives principal and interest.
What is a bearer instrument?
This is the number of Federal Reserve Districts and number of main Federal Reserve Banks.
What is 12?
This is the equation to calculate a discount yield.
What is ((Face Value - Purchase Price) / Face Value) x (360/n)?
This is the money market security that has been declining in use since the 1990s.
What is a banker's acceptance?
This is the name of the service used to complete federal funds transfers.
What is the FedWire?
This is the rate paid on Eurodollars.
What is the London Interbank Offered Rate (LIBOR)?
These are the three monetary policy tools available to the Fed.
What are open market operations, the discount rate, and the reserve ratio?
This is the equation to calculate the bond equivalent yield of a single payment yield.
What is single payment yield x (365/360)?
This is the type of money market security that is an interest-bearing time deposit and is considered a bearer instrument.
What is a negotiable Certificate of Deposit (CD)?