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Banking Chapter 1 1 When an individual obtains a car loan and makes all of the regular monthly payments, the sum of the payments made will exceed the purchase price of the car
Chapter 01 – An Introduction to Money and the Financial System 1. Identify which item is not one of the six parts of the financial system. A. Financial markets B. Central banks C. Credit cards D. Financial institutions AACSB: Analytic […]
Banking Chapter 10 1 If we ignore transportation costs and the price of a pair of Nike shoes in Detroit is $100 U.S. what should be the price of the Nike shoes in Windsor
Chapter 10 – Foreign Exchange Multiple Choice Questions 1. From October 1997 to January 1998, the economy of South Korea was in turmoil. One of the problems was: A. The currency of South Korea appreciated considerably making it very difficult […]
Banking Chapter 10 2 If Americans develop a greater appreciation for Mexican-made goods, we should observe the following change in the dollar-peso market
Chapter 10 – Foreign Exchange 60. A country that has a capital account deficit: A. Is a net seller of assets B. Imports more than it exports C. Has a current account surplus D. Has a current account deficit AACSB: […]
Banking Chapter 10 3 Please state whether you agree or disagree with the following statement, and why: “An increase in the price level of a country, relative to another country’s price level
Chapter 10 – Foreign Exchange 94. Please state whether you agree or disagree with the following statement, and why: “An increase in the price level of a country, relative to another country’s price level, will cause its currency to appreciate.” […]
Banking Chapter 11 1 The fact that financial intermediaries employ experts to carry out particular activities and so lower transactions costs is usually associated with the following economic concept so lower transactions costs is usually associated with the following economic concept
Chapter 11 – The Economics of Financial Intermediation Multiple Choice Questions 1. Financial intermediation is: A. Far less important than direct finance through stock and bond markets B. Only a little more important than direct finance in the United States […]
Banking Chapter 11 2 The First Bank of Podunk has recently suffered some extraordinary losses on its loan portfolio due to the closing of the largest employer in town
Chapter 11 – The Economics of Financial Intermediation 58. One reason the government requires public corporations to disclose so much information is to: A. Minimize the monopoly profits some corporations earn B. Give small corporations a better chance of competing […]
Banking Chapter 11 3 What is the difference between economies of scale and economies of scope? Provide an example of each that pertains to financial institutions
Chapter 11 – The Economics of Financial Intermediation 95. What is the difference between economies of scale and economies of scope? Provide an example of each that pertains to financial institutions. Economies of scale are the lowering of average cost […]
Banking Chapter 12 1 Suppose a particular bank is very large in terms of assets, and makes consumer and residential loans as well as commercial and industrial loan
Chapter 12 – Depository Institutions: Banks and Bank Management Multiple Choice Questions 1. Which of the following correctly portrays a bank’s balance sheet? A. Total Bank Liabilities = Total Bank Capital + Total Bank Assets B. Total Bank Assets = […]
Banking Chapter 12 2 A late-night news report says the president of a local bank is about to be arrested for embezzling money from the bank at which he works
Chapter 12 – Depository Institutions: Banks and Bank Management 61. The weighted average difference between the interest received on assets and the interest rate paid for liabilities for a bank is the banks: A. Interest rate spread B. Net interest […]
Banking Chapter 12 3 A bank has a need for cash for a short period of time to meet its liquidity needs. The bank has significant holding of U.S. treasury securities
Chapter 12 – Depository Institutions: Banks and Bank Management 99. A bank has a need for cash for a short period of time to meet its liquidity needs. The bank has significant holding of U.S. treasury securities. The bank really […]
Banking Chapter 13 1 Reinforced the Glass-Steagall Act’s limitation on commercial banks’ availability to merge with insurance or securities firms by increasing the penalties for doing so
Chapter 13 – Financial Industry Structure Multiple Choice Questions 1. When compared to Canada or Japan, the U.S. is unusual in that it has: A. Far fewer banks than either of those countries B. Fewer banks than Japan but more […]
Banking Chapter 13 2 A homeowner discovers that a large tree in his yard is diseased and may fall in a bad windstorm and if it falls, it will likely destroy the garage
Chapter 13 – Financial Industry Structure 60. A person who discovers that he/she has advanced stages of cancer and calls his/her life insurance agent to double his/her insurance policy is an example of: A. A moral hazard risk B. The […]
Banking Chapter 13 3 It has been argued that the laws that prohibited branch banking were needed to protect consumers from large monopoly banks. Does that argument hold up to close scrutiny
Chapter 13 – Financial Industry Structure 101. It has been argued that the laws that prohibited branch banking were needed to protect consumers from large monopoly banks. Does that argument hold up to close scrutiny? Explain. Actually, the laws may […]
Banking Chapter 14 1 The federal government is concerned about the health of the banking system for many reasons, the most important of which may be
Chapter 14 – Regulating the Financial System Multiple Choice Questions 1. Empirical evidence points to the fact that financial crises: A. Are newsworthy but have no impact on economic growth B. Have a negative impact on economic growth only for […]
Banking Chapter 14 2 You hold an FDIC insured savings account at your neighborhood bank jointly with your father. Each of you has contributed equally into the account
Chapter 14 – Regulating the Financial System 60. Which of the following regulates commercial banks as well as savings banks and savings and loans? A. The Federal Reserve System B. The Federal Deposit Insurance Corporation C. The Office of the […]
Banking Chapter 14 3 Imagine a situation where the deposits at state chartered banks would be insured by a state insurance fund and deposits at nationally chartered banks would be insured by FDIC
Chapter 14 – Regulating the Financial System 100. In 1873, British economist Walter Bagehot proposed the central bank function as the lender of last resort. Specifically, he suggested the central bank lend freely to banks which have good collateral at […]
Banking Chapter 15 1 The 1990s saw inflation fall and real growth increase in the U.S. and in many other countries. This is partially attributed to all of the following except
Chapter 15 – Central Banks in the World Today Multiple Choice Questions 1. The central bank in the United States is: A. The Bank of America B. The Federal Reserve C. The U.S. Treasury D. The Bank of the United […]
Banking Chapter 15 2 Central bank statements in developed countries are similar both in length and in the speed with which policy changes are announced
Chapter 15 – Central Banks in the World Today 61. In the United States, one problem with central bank independence is: A. It is almost impossible to obtain because Congress controls the budget of the Federal Reserve B. The United […]
Banking Chapter 15 3 What may be the reasons that explain the observation that during periods of hyperinflation economic growth actually slows or even contracts
Chapter 15 – Central Banks in the World Today 99. What may be the reasons that explain the observation that during periods of hyperinflation economic growth actually slows or even contracts? Periods of hyperinflation or highly unstable prices almost always […]
Banking Chapter 16 1 The attendees at the FOMC meetings receive information prior to the meetings that is contained in books with colorful names. The information that is released to the public prior
Chapter 16 – The Structure of Central Banks: The Federal Reserve and the European Central Bank 1. The Federal Reserve was created in: A. 1929 B. 1913 C. 1909 D. 1945 AACSB: Analytic AACSB: Reflective Thinking BLOOM’S: Remember Difficulty: Easy […]
Banking Chapter 16 2 Comparing the European and the U.S. central bank systems, the National Central Banks that make up part of the European System of Central Banks resembles
Chapter 16 – The Structure of Central Banks: The Federal Reserve and the European Central Bank 60. The information contained in the Fed’s blue and green books is released to the public: A. Immediately after the FOMC meeting in which […]
Banking Chapter 16 3 Why is it technically incorrect to say that the board of directors of the regional Fed banks set the discount rate that each bank charges
Chapter 16 – The Structure of Central Banks: The Federal Reserve and the European Central Bank 102. The Federal Reserve is the U.S. government’s bank. Identify the functions the Fed performs in this role. As the bank for the U.S. […]
Banking Chapter 17 1 When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed’s balance sheet will show
Chapter 17 – The Central Bank Balance Sheet and the Money Supply Process Multiple Choice Questions 1. The collapse of the Thai currency, the baht, was partially due to: A. Inaction by the Federal Reserve B. The European Central Bank […]
Banking Chapter 17 2 Over the two-year period during which the financial crisis occurred, the amount of assets in the Federal Reserve balance sheet increased by
Chapter 17 – The Central Bank Balance Sheet and the Money Supply Process 59. Over the two-year period during which the financial crisis occurred, the amount of assets in the Federal Reserve balance sheet increased by: A. 2.5 times B. […]
Banking Chapter 17 3 One of the changes to the Fed’s balance sheet that has occurred in recent years is the virtual elimination of a category of loans called float
Chapter 17 – The Central Bank Balance Sheet and the Money Supply Process 99. One of the changes to the Fed’s balance sheet that has occurred in recent years is the virtual elimination of a category of loans called float. […]
Banking Chapter 18 1 If the Fed entered the federal funds market as a borrower or a lender to make sure the market rate always equals the target rate, they would be doing all of the following except
Chapter 18 – Monetary Policy: Stabilizing the Domestic Economy 1. The focus for most central banks today is: A. The quantity of M1 B. Interest rates C. The quantity of M2 D. Controlling the size of the money multiplier AACSB: […]
Banking Chapter 18 2 The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through
Chapter 18 – Monetary Policy: Stabilizing the Domestic Economy 61. The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a “channel” or “corridor” system that involves setting a: A. Target interest […]
Banking Chapter 18 3 Discuss the differences between permanent and temporary open market operations and the instruments the FOMC uses for each
Chapter 18 – Monetary Policy: Stabilizing the Domestic Economy 103. Discuss why the discount rate may be considered a penalty rate of interest charged to banks. The discount rate could be considered a penalty rate because it is set 100 […]
Banking Chapter 19 1 If inflation in country A exceeds inflation in country B, we can express the percentage change in the units of currency of country A per unit of currency of country B
Chapter 19 – Exchange-Rate Policy and the Central Bank 1. Within the United States, every city has: A. A fixed exchange rate with every other city B. A floating exchange rate with every other city C. An independent monetary policy […]
Banking Chapter 19 2 A country that suffers from bouts of high inflation and wants to fix its exchange rate should tie its currency to the currency of a
Chapter 19 – Exchange-Rate Policy and the Central Bank 60. All of the following are costs of a fixed exchange rate policy except: A. Sacrificing control of the domestic inflation rate B. Higher import prices C. The cost of maintaining […]
Banking Chapter 19 3 Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the money supply in the U.S. if the euro started to decline
Chapter 19 – Exchange-Rate Policy and the Central Bank 101. Could a country be open to international capital flows, control its domestic interest rate and fix its exchange rate? Explain. No, if a country is open to international capital flows […]
Banking Chapter 2 1 Suppose that in a barter economy Tom bakes bread and Hans produces chocolates. Tom wants chocolates but Hans doesn’t like bread
Chapter 02 – Money and the Payments System Multiple Choice Questions 1. Which of the following would not be considered a characteristic of money? A. It is a store of value B. It is a means of payment C. It […]
Banking Chapter 2 2 Consider an island where people use sand dollars (shells) as currency. For simplicity, assume that people consume only one good: fish
Chapter 02 – Money and the Payments System 61. Between 1960 and 1980: A. The growth rates of the money aggregates behaved differently B. The growth rate of M1 was negative, but M2 grew rapidly C. M1 had the most […]
Banking Chapter 2 3 During the U.S. Civil War the Confederate government had to resort to printing currency to obtain the goods they needed. Comment on what you think happened
Chapter 02 – Money and the Payments System 90. During the U.S. Civil War the Confederate government had to resort to printing currency to obtain the goods they needed. Comment on what you think happened to both prices and the […]
Banking Chapter 20 1 Consider the following ratio: the average annual inflation rate/the average annual money growth rate. A country with a ratio less than one would have
Chapter 20 – Money Growth, Money Demand, and Modern Monetary Policy 1. History proves that: A. Countries with low rates of money growth have high rates of inflation B. Money growth and inflation are not related C. Countries with high […]
Banking Chapter 20 2 You graduate from law school and can now begin charging clients very high fees for your time. What impact will this have on your demand for money
Chapter 20 – Money Growth, Money Demand, and Modern Monetary Policy 60. If your bank offers you free checking if your average balance is at least $1000 and you would normally carry an average balance of $500, what is the […]
Banking Chapter 20 3 Irving Fisher derived the quantity theory of money from the equation of exchange. What two assumptions did he make to derive the theory and what is the basic assertion of
Chapter 20 – Money Growth, Money Demand, and Modern Monetary Policy 95. If the price of money is determined by supply and demand, what impact should a decrease in the supply of money (given steady money demand) have on the […]
Banking Chapter 21 1 If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to
Chapter 21 – Output, Inflation, and Monetary Policy Multiple Choice Questions 1. Short-run movements in inflation and output are ultimately attributed to changes in: A. Aggregate demand B. Aggregate supply C. Changes in foreign policy D. Aggregate demand and aggregate […]
Banking Chapter 21 2 Rising domestic inflation rates can be contributing to the downward sloping dynamic aggregate demand curve through net exports because
Chapter 21 – Output, Inflation, and Monetary Policy 60. Inflation reduces aggregate demand mainly by: A. Increasing nominal GDP B. Increasing velocity C. Reducing real balances D. Increasing wealth AACSB: Analytic BLOOM’S: Remember Difficulty: Medium Topic: Output and Inflation in […]
Banking Chapter 21 3 Rank the components of aggregate demand by their sensitivity to changes in the real interest rate. Start with the most sensitive to the least sensitive.
Chapter 21 – Output, Inflation, and Monetary Policy 100. Rank the components of aggregate demand by their sensitivity to changes in the real interest rate. Start with the most sensitive to the least sensitive. The most sensitive is investment demand, […]
Banking Chapter 22 1 If an economy is initially at a state of long-run equilibrium, the short-run effect(s) from a decrease in aggregate demand will include
Chapter 22 – Understanding Business Cycle Fluctuations Multiple Choice Questions 1. The period 1974-1975 is somewhat unique in U.S. economic history due to the fact that: A. The output was growing rapidly and the inflation rate was falling B. Both […]
Banking Chapter 22 2 If the economy’s output response to changes in current inflation is small, the slope of the dynamic aggregate demand curve will be
Chapter 22 – Understanding Business Cycle Fluctuations 60. Consider the period from 1995 to 1999. The U.S. economy: A. Experienced the great productivity slowdown B. Experienced increases in productivity that allowed the Fed the opportunity to raise the inflation rate […]
Banking Chapter 22 3 Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential
Chapter 22 – Understanding Business Cycle Fluctuations 95. Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant. […]
Banking Chapter 23 1 The Federal Reserve’s surveys of bank loan officers contain questions about both the demand for and the supply of loans. On the supply side
Chapter 23 – Modern Monetary Policy and the Challenges Facing Central Bankers 23-1 Multiple Choice Questions 1. The Japanese experience of the 1990s shows: A. Monetary policy is always more effective than fiscal policy AACSB: Analytic BLOOM’S: Remember Difficulty: Easy […]
Banking Chapter 23 2 A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to
Chapter 23 – Modern Monetary Policy and the Challenges Facing Central Bankers 60. If an economy is experiencing deflation and the nominal interest rate is zero: A. Monetary policy is likely effective B. Fiscal policy would likely be the tool […]
Banking Chapter 23 3 The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm’s balance sheet. Explain how the balance sheet of a firm
Chapter 23 – Modern Monetary Policy and the Challenges Facing Central Bankers 90. The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm’s balance sheet. Explain how the balance sheet of a […]
Banking Chapter 3 1 Agencies exist which rate bonds based on characteristics of the borrower. Such bond rating agencies are an example of a financial market response designed to
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions Multiple Choice Questions 1. A financial intermediary: A. Is an agency that guarantees a loan B. Is involved in indirect finance C. Would be used in direct finance D. Must […]
Banking Chapter 3 2 Small savers would rather use financial institutions than lend directly to borrowers because Financial intermediaries pool funds of
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions 60. Roles served by financial markets include the following, except: A. Eliminating risk B. Providing liquidity C. Pooling and communicating information D. Sharing of risk AACSB: Reflective Thinking BLOOM’S: Understand […]
Banking Chapter 3 3 Credit cards usually charge higher rates of interest than most other forms of lending. In terms of information, collateral and monitoring, how might these higher rates be explained
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions 99. Provide examples of direct and indirect finance and a brief explanation of the difference between the two. An individual going to a bank to obtain an automobile loan is […]
Banking Chapter 4 1 Which of the following best expresses the proceeds a lender receives from a one-year simple loan when the annual interest rate equals
Chapter 04 – Future Value, Present Value, and Interest Rates Multiple Choice Questions 1. A promise of a $100 payment to be received one year from today is: A. More valuable than receiving the payment today B. Less valuable than […]
Banking Chapter 4 2 A borrower who makes a $1000 loan for one year and earns interest in the amount of $75, earns what nominal interest rate and what real interest rate if inflation is two percent
Chapter 04 – Future Value, Present Value, and Interest Rates 59. A mortgage, where the monthly payments are the same for the duration of the loan, is an example of: A. A variable payment loan B. An installment loan C. […]
Banking Chapter 4 3 Suppose a two-year coupon bond has payments of $40 and a face value of $800. The interest rate is 8%. Compute the present value of the coupon payments and the principal
Chapter 04 – Future Value, Present Value, and Interest Rates 4-35 97. Suppose that you have a winning lottery ticket for $100,000. The State of California doesn’t pay this amount up front – this is the amount you will receive […]
Banking Chapter 5 1 We observe an increase in the price for Apple stock, while other Nasdaq-listed companies experience no change in their share prices
Chapter 05 – Understanding Risk Multiple Choice Questions 1. Which of the following would not be included in a definition of risk? A. Risk is a measure of uncertainty B. Risk can always be avoided at no cost C. Risk […]
Banking Chapter 5 2 An investor who diversifies by purchasing a 50-50 mix of two stocks that are not perfectly positively correlated will find that the standard deviation of the portfolio positively correlated will find that the standard deviation of the portfolio
Chapter 05 – Understanding Risk 61. A risk-neutral investor: A. Highly values diversification B. Is the only type of investor who benefits from diversification C. Gains nothing from diversification D. Does not believe that diversification can reduce risk AACSB: Reflective […]
Banking Chapter 5 3 You do some research and find for a driver of your age and gender the probability of having an accident that results in damage to your automobile exceeding
Chapter 05 – Understanding Risk 95. Identify at least three possible sources for a risk an individual may face in planning for retirement. In planning for retirement an individual faces at least the following uncertainties: Life span, there is uncertainty […]
Banking Chapter 6 1 Which of the following best expresses the formula for determining the price of a U.S. Treasury bill that matures n periods from now per $100 of face value when the interest rate
Chapter 06 – Bonds, Bond Prices, and the Determination of Interest Rates 6-1 Multiple Choice Questions 1. A zero-coupon bond refers to a bond which: D. Pays coupons only if the bond price is above face value AACSB: Analytic BLOOM’S: […]
Banking Chapter 6 2 Suppose that general business conditions improve, and at the same time, wealth increases. Based on this information, we know that
Chapter 06 – Bonds, Bond Prices, and the Determination of Interest Rates 61. If the U.S. government’s borrowing needs increase, in the bond market this would be seen as: A. The bond demand curve shifting right B. The bond supply […]
Banking Chapter 6 3 Notice the following model of a bond market. In each situation given, explain what happens to the bond price and yield and why.
Chapter 06 – Bonds, Bond Prices, and the Determination of Interest Rates 107. Notice the following model of a bond market. In each situation given, explain what happens to the bond price and yield and why. a) Expected inflation increases […]
Banking Chapter 7 1 In 2003, ratings agencies downgraded bonds issued by the State of California several times. How will this affect the market for these bonds
Chapter 07 – The Risk and Term Structure of Interest Rates Multiple Choice Questions 1. The bond rating of a security reflects: A. The size of the coupon payment relative to the face value B. The likelihood the lender/borrower will […]
Banking Chapter 7 2 Assume the Expectations Hypothesis regarding the term structure of interest rates is correct. Then, if the current two-year interest rate is 5% and the current one-year rate is 6%
Chapter 07 – The Risk and Term Structure of Interest Rates 60. Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is […]
Banking Chapter 7 3 Assume the Expectations Hypothesis regarding the term structure of interest rates is correct. Then, if the current two-year interest rate is 5% and the current one-year rate is 6%
Chapter 07 – The Risk and Term Structure of Interest Rates 108. Why do economists pay particular attention to inverted yield curves? Inverted yield curves can be highly useful for forecasting economic slowdowns. Usually the yield curve turning inverted predicts […]
Banking Chapter 8 1 If the Dow Jones Industrial Average is currently at 10,000 and the price of one stock included in the index increases by $10, the Dow Jones Industrial Average will
Chapter 08 – Stocks, Stock Markets, and Market Efficiency Multiple Choice Questions 1. A share of common stock represents: A. A claim from a lender against a borrower B. A share in the company’s debts C. A share of ownership […]
Banking Chapter 8 2 Consider a game that involves the tossing of a fair coin. The winner is the individual who calls the outcome correctly, the loser obviously called the wrong outcome
Chapter 08 – Stocks, Stock Markets, and Market Efficiency 61. The theory of efficient markets implies: A. Stock prices should be highly unpredictable. B. The price at which stocks currently trade only reflect past information. C. Expectations do not play […]
Banking Chapter 8 3 Identify the ways in which a bondholder’s rights differ from those of a stockholder. In what ways do they differ when a firm is bankrupt
Chapter 08 – Stocks, Stock Markets, and Market Efficiency 101. What price would an individual be willing to pay today for a stock that is expected to sell for $100 two years from now and which pays an annual dividend […]
Banking Chapter 9 1 A baker of bread has a long-term fixed-price contract to supply bread. Which of the following would NOT reduce her risk
Chapter 09 – Derivatives: Futures, Options, and Swaps Multiple Choice Questions 1. Derivatives are financial instruments that: A. Present high levels of risk and should only be used by the wealthy. B. When used correctly can actually lower risk. C. […]
Banking Chapter 9 2 As the strike price approaches the price of the underlying asset, the intrinsic value of the option increases and the time value of the option decreases.
Chapter 09 – Derivatives: Futures, Options, and Swaps 61. The two parts that make up an option’s price are: A. Extrinsic value and the time value of the option. B. The commission and the time value of the option. C. […]
Banking Chapter 9 3 Explain how the clearing corporation reduces the risk it faces in the futures market through the use of margin accounts and marking-to-market
Chapter 09 – Derivatives: Futures, Options, and Swaps 96. Explain how the clearing corporation reduces the risk it faces in the futures market through the use of margin accounts and marking-to–market. The clearing corporation requires each party to a futures […]