Hello,
Can you please help with the homework question below? I've been stuck on it all day. Thank...

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Hello,
 Can you please help with the homework question below? I've been stuck on it all day. Thank you, in advance, for your help!!
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.					
B) As conditions in short term financial markets improved by summer of 2009 the Fed closed down its lending under these programs. However, throughout 2009 and in the first quarter of 2010 the Fed increased substantially its purchases of longer term mortgage backed securities and treasury notes from banks as it wound down its unusual lending loan facilities. Moreover, the Fed embarked on a renewed program of large scale purchases ($600 Billion total) of Treasury notes in the Fall of 2010, which is still continuing until June 30 of this year. 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 paragraph and discuss the concept of the velocity of circulation in your answer.	
C) Assume that the current program of large scale purchases of Treasury securities (Quantitative Easing) mentioned in part B above is a success in the sense that 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 extraordinary growth in banks’ reserve deposits that has resulted from Quantitative Easing create then for the Fed? What new policy tool will help the Fed deal with this problem? Explain.

David · Accepted Answer

FINANCE

2012 
 
 
NAME: 
 
[FINANCE] 
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1 
Answers 
Answer to Question No. A 
The Federal Reserve took up several extraordinary lending facilities between February 2008 
and Summer 2009 such as Fed started its open market operations with a huge  program 
depending on the  direct lending by them on not only the short term 84 day loans but the 
overnight 28 day loans to the various  commercial banks, various financial institutions such 
as the investment banks, the  brokerage houses as well as the various  primary dealer units of 
the holding companies of the banks . At the same time the Fed  also agreed to accept various 
types of  short term securities from its range instead of just accepting the T-Bills as the 
collaterals on the above loans .the Fed even took initiatives to buy the commercial papers 
from the market  and even initiated a program to buy commercial paper from money market 
funds  .

Hello, Can you please help with the homework question below? I've been stuck on it all day. Thank you, in advance, for your help!! Between February 2008 and Summer 2009 the Fed supplemented its open...

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