Question

1. The federal funds market is the market in which

A. banks borrow from the Federal Reserve Banks. B. US securities are bought and sold. C. Federal Reserve Banks borrow from one another. D. banks borrow reserves from one another on an overnight basis

2. If a corporation goes bankrupt,

A. stockholders must honor the debts to bondholders out of personal assets if necessary. B. neither stockholders nor bondholders receive any money. C. bondholders get paid from the sale of company assets before stockholders do. D. stockholders get paid from the sale of company assets before bondholders do

3. In prosperous times, banks are likely to hold very small amounts of excess reserves because

A. it's very costly to transfer funds between commercial banks and the central banks. B. the Federal Reserve Banks want to minimize their interest payments on such deposits. C. the Fed wants commercial banks to increase the money supply during economic expansions. D. the Federal Reserve Banks don't pay interest on bank reserves.

Answer 1

Answer:

1]

Correct option: D] banks borrow reserves from one another on an overnight basis

Explanation:

The federal funds market is the market in which banks borrow reserves from one another on an overnight basis. The federal funds market is the market in which banks indulge in lending excess funds to other banks in needs of funds or borrow funds from other banks having excess funds on a temporary basis.

2]

Correct option: C] bondholders get paid from the sale of company assets before stockholders

Explanation:

If a corporation goes bankrupt, bondholders get paid from the sale of company assets before stockholders.

3]

Correct option: D] the Federal Reserve Banks don't pay interest on bank reserves.

Explanation:

In prosperous times, banks are likely to hold very small amounts of excess reserves because the Federal Reserve Banks don't pay interest on bank reserves. Federal Reserve Banks don’t want to interest on bank reserves than could be earned by the commercial banks loaning out the reserves.