Acc/ManEc 453 Midterm Review III
Key Concepts Since Last Midterm
Bank Regulation: Mishkin, Ch 10 & 11
Adverse Selection
Moral Hazard
National Bank Act of 1863
Dual banking system
Federal Reserve Act of 1913
McFadden Act 1927
Glass-Steagall Act of 1933
Gramm-Leach Bliley Act of 1999
Riegle-Neal Act of 1994
Decline of Traditional Banking
FDIC Insurance
S&L Crisis
Aggregate Demand and Supply: Mishkin Ch 25 (posted on web site)
Why inflation is bad
Why volatile output is bad
Aggregate demand Curve
Velocity
Keynsian view of the components of aggregate demand
Crowding out
Long Run Aggregate Supply
Short-Run Aggregate Supply
Short-Run Supply Curve
Economic Spectrum (Keynsians vs. Monetariasts)
Deflation and impact on economy
Gold Standard
Passive Monetariast Policy
Active Monetariast Policy
Elements of Effective Central Banks
Evaluating impact of policy in demand-supply frame work (Keynsian vs. Monetariast)
Central Banks: Cecchetti Ch 16
Central bank responsibilities as “the government’s bank”
Central bank responsibilities as “the banker’s bank”
Open Market Operations
Central bank Objectives
Central bank independence and inflation
Central bank independence and unemployment
Banking act of 1935
Eccles and Fed Independence
Federal Reserve System
Board of Governors
Board of Governors duties
Regional banks
Regional bank duties
FRB New York
Federal Open market Committee: voting members
Federal Funds Rate
Discount Rate
Beige Book
Green Book
Blue Book
Power within FOMC
How well the Fed meets elements for an effective central bank
Money Supply Process: (Cecchetti, Ch 16)
Commercial Bank balance Sheet
Central bank Balance Sheet
Effect on balance sheet of central bank and commercial banks:
Float
Open market operations
Purchase of Foreign Bonds by Fed
Discount Loans
Simple Deposit Multiplier
Money Multiplier
As ratios change, how does multiplier change?
What does this mean about relation between M and MB?
Central Bank Policy: (Cecchetti, Ch 18 and 19)
Policy tools of the Fed
Link between Fed Funds rate and inflation
Discount Lending
Primary, Secondary Credit
Reserve Requirements
Inflation targeting
Targeting money supply
Purchasing Power parity
Fixed exchange rates in the long Run
Fixed exchange rates in the short run
Benefits and Costs of a fixed-exchange rate regime
Currency Boards
Dollarization
Monetary Policy Evidence: (Bernanke Speech, Eccles Article)
Great Depression: output, unemployment, prices
Early views on what caused the Great Depression
Eccles Views of the Great Depression
Friedman and Schwartz “A Monetary History of the United States”
Main findings
Four policy decisions of Fed which led to tighter money supply during Great Depression
Evidence that tight monetary policy caused the great depression
Key Concepts from Prior Midterms
Midterm I
 Primary markets
 Secondary markets
 Direct/Indirect Finance
 Net return/ gross return
 Growth rates and future value
 Present Value
 Growth rates and compounding
 APR/EAR
 Bond pricing – zero coupon, annual coupon, semi-annual coupon
 Yield-to-maturity - zero coupon, annual coupon, semi-annual coupon
 Interpretation of YTM
 Inflation and CPI
 Calculating bond returns
 Banks and their influence on the money supply
 Bank balance sheets in equilibrium
 Bond Supply and Demand: Factors that shift the demand curve, factors that shift the supply curve
 Yield Curve
 Expectations theory
 Forward rates
 Locking in loans at the forward rate
 Geometric mean
 Arithmetic mean
 Liquidity Preference Theory
 Yield Curve and Recessions
 Converting from one exchange rate to another
 Purchasing power parity
 Inflation and Exchange Rates
 Dollar Supply and Demand: Factors that shift the demand curve, factors that shift the supply curve
Midterm II
Interest Rate Risk
 Parallel shift in the yield curve
 Modified Duration
 Macaulay’s Duration
 Five duration rules
 Modified duration of a portfolio
 Tailoring the balance sheet to achieve a desired level of interest rate risk
Futures Contracts
 Spot price
 Futures price vs. future spot price
 long and short positions
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Payoff at maturity
Hedging interest rate risk using futures
Short selling
No arbitrage futures price
Options
 Long and short positions
 Premium, payoff and profit
 Hedging interest rate risk using options
 Factors that effect option prices
 Binomial option pricing
Swaps
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Interest-rate swaps
Managing interest rate risk using interest rate swaps
Swaps and comparative advantage
Credit default swaps
Vocabulary Terms
Mishkin Chapter 10 (From "Key Terms", page 275)
Bank Holding Companies
Deposit Rate Ceilings
disintermediation
securitization
Mishkin Chapter 11 (From "Key Terms", page 306)
Basel Accord
off-balance sheet activities
regulatory arbitrage
regulatory forbearance
Mishkin Chapter 25 (From "Key Terms", page 601)
(version posted under "Additional Materials
activists
aggregate demand curve
aggregate supply curve
animal spirits
complete crowding out
Keynsians
long-run aggregate supply curve
monetariasts
natural rate of output
natural rate of unemployment
nonactivists
partial crowding out
velocity of money
Cecchetti Chapter 16 (From "terms", page 423)
Board of Governors of the Federal Reserve System
discount rate
federal funds rate
FOMC
Federal Reserve Banks
Federal Reserve System
FOMC Statement
Cecchetti Chapter 17 (From "terms", page 457)
central bank's balance sheet
currency-to-deposit ratio
deposit expansion multiplier
discount loans
excess reserves
excess reserve-to-deposit ratio
float
monetary base
multiple deposit creation
open market operations
open market purchase
open market sale
required reserve ratio
required reserves
reserves
vault cash
Cecchetti Chapter 18 (From "terms", page 486)
discount lending
discount rate
federal funds target rate
inflation targeting
lender of last resert
market federal funds rate
matched-sale purchase (reverse repo)
open market trading desk
primary credit
repurchase agreement (repo)
reserve requirement
secondary credit
secondary discount rate
Cecchetti Chapter 19 (From "terms", page 512)
Bretton Woods System
capital controls
currency board
dollarization