Reserves Currently Are So Abundant That: 

question 83

Multiple Choice

 Reserves currently are so abundant that: ?

• A) the federal funds rate is not easily manipulated with open market operations.?
• B) the Fed cannot affect the federal funds rate.?
• C) the Fed prefers to target the discount rate.?
• D) the IOER rate is ineffective.

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Definitions:

M&M Proposition I

A theorem stating that in a perfect market, the market value of a company is unaffected by how that company is financed, regardless of whether through debt or equity.

Debt

An amount of money borrowed by one party from another, to be repaid with interest.

M&M Proposition II

A theory in corporate finance that asserts the cost of equity is a linear function of the company's debt/equity ratio, under the assumption of no taxes and financial distress costs.