Assume There Is No Leakage from the Banking System and That

question 345

Multiple Choice

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 25%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be

• A) $100 million.
• B) $25 million.
• C) -$5 million.
• D) -$20 million.

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Definitions:

Indirect Quote

A foreign exchange rate quoted as the domestic currency per unit of the foreign currency.

Journal Entry

A record in the accounting ledger that represents a single financial transaction, showing debit and credit accounts affected.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase an asset at a specified price within a certain time period.

Spot Exchange Rates

The current exchange rate at which a currency can be bought or sold for immediate delivery.