Financial Management: Questions and Answers Homework Solution

This document provides a comprehensive solution to a Financial Management assignment, addressing key concepts such as inflation, monetary policy, and the role of the Federal Reserve. The assignment includes answers to fifteen multiple-choice questions, each followed by a brief explanation. The questions cover topics like the impact of inflation on savings, the relationship between unemployment and inflation, wage/price controls, aggregate demand, the Federal Reserve's influence on inflation, budget deficits, the money supply, bond purchases, and the role of the Federal Reserve System. The answers demonstrate understanding of economic principles and their practical application in financial management. The document also includes a list of relevant references, including books and journal articles, supporting the answers provided.

FINANCIAL
MANAGEMENT

Table of Contents
Questions.....................................................................................................................................3
REFERENCES................................................................................................................................5

Questions
A1.) c) Inflation
Inflation all over the world has been rising and has affected people's savings and country's
revenue investments in projects and schemes for the country (Bonfatti and et.al., 2020). Inflation
causes the value of money diminish and as a result,value of money diminishes with time.
A2.) d) Lowers the natural rate of unemployment and raise inflation.
As unemployment decreases the natural rate of unemployment will decrease too although as
people get wages there will be more money in circulation causing the price of products and
services go high.
A3.) b) stops inflation and without decreasing the rate at which money is growing
Wage/price control allows to stop inflation because a proportion of wages and price going hand
in hand will make the inflation under control and not affect the economy.
A4.) c) Regardless of worker's inflation estimates
If aggregate demand increases there will be requirement to produce more goods raising
requirement of workers at firms leading firms to perform recruitment measures and thus
unemployment will decrease (Hiroki, 2018).
A5.) b) Inflation is the goal where Fed has greater influence as Fed possesses the money
management tools to control liquidity in the market which will take care of the demand of goods
and thus will be related to employment as well.
A6.)c) deficit and reduction in central bank annual bond purchases

The budget will be facing deficit in order to make money supply less and reduction in purchase
of annual bond will help money being less in the economy and thus less inflation.
A7.) a) an increase in the supply of money
The sale of government bonds by central bank will increase the supply of money in the market as
people in large numbers would like to purchase those bonds as they carry less risk and have fixed
returns. These instruments have been used in the past also to infuse liquidity in the market.
A8.) a)The money supply increases.
The public purchasing bonds will thus use their savings to purchase bonds and thus money will
flow in market with sale of bonds denoting purchase of securities (Bonfatti and et.al., 2020).
A9.) d) The money supply increases.
The central bank purchases the bonds from individual banks to increase the money supply in
circulation by doing purchase of these securities on a large number and later on these bonds are
sold to the public.
A10.) d) It is not subject to appropriations from congress.
The federal reserve system has own free will to make its monetary policies without influence of
external bodies (Macchiarelli and Monti, 2018). It does not receive appropriations in funding
from the congress and the board of governors span the term of the presidential and the congress
terms.
A11.) d) directly with both prices and output
Quantity of money demanded increases with increase in price as there will be inflation and more
money will be required to buy products. Also, if output increases, money demanded will be more
as more of the products will have to be sold.
A12.) c) More loans can be made

The banks by lending more will be getting more business done than usual and this is usually
done by decrease in interest rates, where people would be taking more loans and business will
increase for the bank with income earned as interest on the lending.
A13.)b.) All national chartered banks are members of the Federal Reserve System although
national banks are members of the federal reserve system, they are regulated by Office of the
Comptroller of currency (Mishchenko and et.al., 2019).
A14.)a) money fails to serve as good store of value.
The period of rapidly rising prices will see the money value diminish. Thus, the general
perception that money will be of value later goes for a toss when the inflation rises causing the
value to decrease than earlier.
A15.) a) the success of contemporary banking arrangements in avoiding panics.
The obstacle which was not present in creation of the Federal Reserve System is banks being
able to manage the funds to avoid panics. Before federal system was there, there used to be panic
in the system to manage finances.
A16.) b) to avoid paying taxes.
The corporations want to achieve zero balances in their checking accounts as it can help them
paying more taxes.
Zero balance accounts are suitable for companies which keep an operating account and separate
account for payroll where companies can concentrate all funds in operating accounts and do the
disbursements from the zero balance accounts (Nicolau, Mellinas and Martín-Fuentes, 2020).
This stops the need for initiating manual transfers. This prevents overdrafts and other related
costs.

REFERENCES
Books and Journals
Bonfatti, R. and et.al., 2020. Monetary capacity.
Hiroki, M. U. R. A. K. A. M. I., 2018. Monetary policy in the unique growth cycle of post
Keynesian systems. 経経経経経 Discussion Paper= IERCU Discussion Paper, (303).
Macchiarelli, C. and Monti, M., 2018. The euro-area denominated payment systems and the
conduct of monetary policy: Some considerations ahead of Brexit.
Mishchenko, S. and et.al., 2019. Growing discoordination between monetary and fiscal policies
in Ukraine. Banks and Bank Systems. 14(2). p.40.
Nicolau, J. L., Mellinas, J. P. and Martín-Fuentes, E., 2020. Satisfaction measures with monetary
and non-monetary components: hotel’s overall scores. International Journal of
Hospitality Management. 87. p.102497.