Reference no: EM133392551
Questions
1. What are "mortgage-backed securities?" They are also known as MBS?
A. These are simply 30-year mortgage loans made by banks. The banks then wait patiently for the next 30-years as the homeowners make their monthly payments.
B. This means that after home mortgages are funded, then they are packaged and bundled as bond investments that are sold to long-term investors like life insurance companies.
C. Mortgage-backed securities are now illegal and were eliminated after the 2008 Financial Crisis. These investments had mortgage loans, speculative stocks, foreign currencies, and gold all packaged together.
D. All of the statements listed above are false.
Tips For Questions 2 Through 6:
The U.S. bond market is similar to a small child's teddy bear. When little children are afraid of the dark when they go to bed, they will probably hold on tight to their toy teddy bear to feel better and safer. Believe it or not, adult investors do the same thing with U.S. government bonds.
When there is trouble in the U.S. economy, or terrible news abroad, or if an unexpected calamity happens, the professional investors usually rush to buy U.S. government bonds to get safety and a steady rate of return. At this point they will avoid the risker markets like stocks, real estate, commodities, or foreign currency investments. In times of trouble, U.S. government bonds are looked upon as a "safe haven" investment by U.S. and global investors and the price of U.S. government bonds tend to go up. Everything said up to this point is true. When the economy is prospering and there is plenty of good news, then investors tend to sell off their bonds because they are no longer frightened by bad news and they probably want to try to make money in other profitable markets like stocks and real estate. In this scenario, the price of U.S. government bonds tend to go down.
2. According to the PowerPoint and the audio-visual lecture on the Bond Market, Economic Indicators, and Interest Rates, what happens to bond prices when investors rush in to aggressively bid for the limited supply of U.S. government bonds after some terrible news becomes known (i.e., war in the Middle East or a new deadly COVID strain)?
A. The price of U.S. government bonds will go down as investors buy the limited supply.
B. The price of U.S. government bonds will go up as investors buy the limited supply.
C. The price of U.S. government bonds never increases or decreases, they are always fixed.
D. None of the above options are true.
3. Let's continue to assume there is some national or international disaster that will create widespread economic instability, war, famine, or disease. At this point in time, what happens to mortgage interest rates when investors are pushing up the prices of U.S. government bonds.
A. The mortgage interest rates will fall as bond prices go up.
B. The mortgage interest rates will rise as bond prices go up.
C. The mortgage interest rates never change just because of changing bond market prices.
D. None of the above options are true.
4. What are some of the reasons that would make bond market prices would rally (go up)?
A. If there was lots of bad economic news and if worried investors sold all of their stocks.
B. This would happen if Iran detonated a nuclear bomb and if both Saudi Arabia and Egypt quickly bought nuclear weapons from Pakistan to counter the threat from Iran.
C. If the COVID-19 virus pandemic got worse and caused the death of 200 million globally.
D. All statements made above are true.
5. What are some of the reasons that would make bond market prices go down?
A. If the U.S. stock market entered into a strong rally and if most stocks went up 50 percent.
B. If the U.S. residential and commercial real estate markets had great deals for buyers as well as real estate investors and if many of them earned 15 percent or more in profits.
C. If the Federal Reserve sold off large blocks of bonds they owned into the marketplace.
D. All of the statements above are true.
6. When the Federal Reserve reaches into their vault and sells U.S. government bonds that they bought in the past into the marketplace, then the U.S. money supply will go down and interest rates will go up as the money supply curve shifts left.
A. This statement is false.
B. This statement is true.
C. This statement can't be verified as either true or false.
D. This statement is false because the Federal Reserve Bank doesn't have the authority to buy or sell U.S. government bonds.
8. If there was a severe recession, then proper response from the Federal Reserve Bank would be to buy bonds from the U.S. government so that the federal government would have the money it needs to try to stimulate the economy.
A. This statement is false.
B. This statement is true.
C. The U.S. Supreme Court ruled many decades ago that this activity was unconstitutional.
D. Why can't the Federal Reserve just give me a personal check for $1 million, I promise that I will do my part and stimulate the economy.
9. According the PowerPoint on the Federal Reserve Bank and Monetary Policy, when banks borrow from each other, what is that marketplace called?
A) The ZIRP marketplace.
B) The Fed Funds marketplace.
C) The Excess Reserves marketplace.
D) The TALF marketplace.
10. The Fed's Discount Window is open to all privately-owned U.S. businesses or corporations that have sales and assets over $10 million dollars. They can all borrow directly from the Fed and get very low interest rates on business loans.
A) This statement is false.
B) This statement is true.
C) This statement is true and the Fed only started doing this during December 2008.
D) The private firms must have in excess of $15 million in assets and sales to qualify