1. During normal economic times, the Federal Reserve has primarily influenced ov

Question

1.    During normal economic times, the Federal Reserve has primarily influenced overall financial conditions by adjusting the federal funds rate. The Fed Funds rate is the rate the U.S. Government charges banks for short term credit.

True

False

1.    The Federal Reserve purchases new Treasury securities directly from the U.S. Treasury. This assures the government that they can always finance deficits at reasonable interest rates.

True

False

1.    The overall effect of the Fed's large-scale asset purchases between 2008-2014 was to put downward pressure on yields of a wide range of longer-term securities, support mortgage markets, and promote a stronger economic recovery.

True

False

1.    Dime Community Bancshares has a single source of funds to support its lending and investment activities. This source is deposits of households.

True

False

1.    Since the financial crisis of 2008-2009 management of Dime Community Bancshares has refused to invest in mortgage-backed securities. The argument is that MBS are illiquid and too risky.

True

False

Explanation / Answer

Ans.

1) false

Fed Funds Rate is the interest rate banks charge each other to lend Federal Reserve Funds overnight.These funds maintain federal reserve requirement.

2) false

Federal Reserve does not purchases new treasury securities directly from U.S treasury.As according to Federal Reserve act, the Federal Reserve may buy and sell Treasury securities only in open market. .It buys and sells securities by transaction with major financial firms.These transactions are called open market operations.The prices of new securities is set by demand and supply conditions.

3) true

The overall effect of large scale asset purchase in 2008 - 2014 was to put downward pressure on yields of wide range of long term securities , support mortgage markets and promote stronger economic growth.In 2008 during recession Federal reserve reduced federal funds rate near to zero.To support economic recovery Federal Reserve made purchasing of large scale assets.These purchases reduced available supply of securities in market and prices of these securities increased which lowered there yields.So lower yields on mortgage backed securities reduced mortgage rates also.

4) false

Dime Community bancshares operates through Community banking segment.The main purpose of this bank is to gather retail deosits and lend them in multifamilty resdential,commercial real estate and mixed use loans.It also invests in mortgage-backed securtites,government sponsored entities and corporate debt and equity securities.The main sources of funds are deposits,loans and mortgage backed securities payments,investment security principal and interest payments and advances from Fedreal Home Loan Bank of New York.

5) false

Dime Community Bancshares invests in mortgage backed securities as paymnets from them are its sources of funds.It facilitates greater specialization among financial institutions.

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