Reference no: EM131093040
Between February 2008 and Summer 2009 the Fed supplemented its open market operations with a greatly expanded program of direct lending (both overnight and short term 28 and 84 day loans) to commercial banks, investment banks, brokerage and primary dealer units of bank holding companies. It also agreed to accept a wider range of short term securities (instead of accepting only T-Bills) as collateral on these loans and even initiated a program to buy commercial paper from money market funds.
a) Explain why the Fed created all these extraordinary direct lending facilities, instead of simply relying on traditional open market purchases of Treasury securities. (hint: You may wish to look at Bernanke’s recent lecture series at GW university (on the Federal Reserve Website)---particularly the 3rd in the 4 lecture series. A link to it is on the main Federal Reserve site page)
b) As conditions in short term financial markets improved by summer of 2009 the Fed closed down its lending under almost all these programs. However, since then the Fed has engaged in 3 campaigns in which for a period of months it has increased substantially its purchases of longer term mortgage backed securities and treasury notes from banks. These programs were called “Quantitative Easing 1, 2 and 3. At the time, the Fed indicated that this will be maintained until real economic growth strengthens and the unemployment rate declines.
What is the effect of these QE programs on banks’ balance sheets? Explain briefly
c) What would believers in the quantity theory of money (monetarists) expect to result from these large scale purchases of securities by the Fed? Explain your answer in a few sentences and discuss the concept of the velocity of circulation in your answer.
d) Assume that at some point in the next year or two both lender & borrower confidence levels start to return to normal and financial and physical investment levels start to rise much more strongly than in the last 2 years. What potential problem will the balance sheet effects of Quantitative Easing described in your answer to part B create then for the Fed?
How does the Fed’s authorization to pay interest to banks on their reserve accounts at the Fed help the Fed deal with this problem? Explain.
Create inadvertent control mechanisms
: Strong cultures can have powerful effects on employee behavior. How does this create inadvertent control mechanisms? That is, are strong cultures an ethical way to control behavior? In what ways do rules and regulations help reduce unethical behav..
|
Is there a significant effect of irrigation
: Is there a significant effect of irrigation?
|
Key functions of a business operations
: Research, identify, and discuss the six key functions of a business's operations. The requirements below must be met for your paper to be accepted and graded:
|
Provide a summary of what you learned from the investigation
: Describe some of the challenges Human Services Professionals may face when working on child abuse cases. What are your suggestions for dealing with those challenges?
|
What would believers in the quantity theory of money
: Between February 2008 and Summer 2009 the Fed supplemented its open market operations with a greatly expanded program of direct lending (both overnight and short term 28 and 84 day loans) to commercial banks, investment banks, brokerage and primary d..
|
Circumstances where mechanical ventilation is required
: There are many reasons that can lead to a welding site being ventilated. Ventilation serves a lot of purpose in safeguarding the workers by regulating air flow in the workingareas. It is a necessity requirement for every welding site.
|
Explain the three stages in the formation of alliance
: List two examples of contractual alliances and two examples of equity-based alliances. Are mergers or are acquisitions more common? Why? In what two primary areas do formal institutions affect alliances? Using the VRIO framework, describe the differe..
|
State the null and alternate hypotheses
: You want to see if there is a difference among juniors and seniors at your university in ownership of the latest version of the iPad. You conduct a study of 300 juniors and 300 seniors, and you discover the following: 45 of the juniors have the l..
|
At the same meeting of the open market committee
: At the same meeting of the open market committee where it announced Quantitative Easing 3, the Fed chose to also announce that its currently low Fed funds rate of 0 to .25% would be maintained until at least the middle of 2015. Why would changing inv..
|