Which of the following statements is most correct?
A. When a risk is difficult to predict, financial instruments are created to transfer these
risks.
B. Financial instruments are created to transfer risks that are relatively easy to predict.
C. Financial instruments require certainty of an event to be able to transfer risk.
D. Financial instruments eliminate the risk from uncertainty, they do not transfer it.
Answer:
When the growth rate of the economy slows we would expect:
A. the risk to increase for U.S. Treasury securities.
B. the risk spread to increase more between U.S. Treasury Securities and Aaa securities
than between Aaa and Baa securities.
C. the risk spread to increase more between Aaa and Baa securities than U.S.
Treasuries and Aaa securities.
D. investors to purchase more junk bonds in search of a higher yield.
Answer:
Bank A has checkable deposits of $100 million, vault cash equaling $1 million and
deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what
is the maximum amount Bank A could lend?
A. $85 million
B. $15 million
C. $14 million
D. $5 million
Answer:
The monetary base is the sum of:
A. reserves and currency in the hands of the public.
B. reserves and M2.
C. currency in the hands of the public and M2.
D. currency in the hands of the public M1.
Answer:
Stock prices may rise from a reduction in interest rates because:
A. the present value of future earnings will increase.
B. stockholders will expect lower future earnings.
C. financial market participants are less optimistic about future earnings.
D. the present value of future earnings will decrease.
Answer:
In investment matters, generally young workers compared to older workers will:
A. minimize expected return and focus more on variability.
B. be less risk-averse.
C. have equal concern for expected return and variability.
D. be more risk-averse.
Answer:
If the Federal Reserve is to be independent, then the quantity of securities it purchases
is determined by:
A. the Federal Reserve itself.
B. Congress.
C. the amount the public does not want to purchase at the going price.
D. the Treasury.
Answer:
If most people expect the inflation rate will increase, the:
A. long-run aggregate supply curve would shift right.
B. aggregate demand curve would shift right.
C. short-run aggregate supply curve would shift to the right.
D. short-run aggregate supply curve would shift to the left.
Answer:
Financial instruments are used to channel funds from:
A. savers to borrowers in financial markets and via financial institutions.
B. savers to borrowers in financial markets but not through financial institutions.
C. borrowers to savers in financial markets but not through financial institutions.
D. borrowers to savers through financial institutions, but not in financial markets.
Answer:
Regulators and supervisors of banks are challenged by all of the following, except:
A. globalization of financial services.
B. the use of new financial instruments that shift risk without shifting ownership.
C. technological innovation.
D. reinforcement by Congress of functional and geographic barriers in banking.
Answer:
You have a portfolio valued at $1000. Over the next twelve months it loses 75% of its
value. What return does the portfolio need to earn over the following twelve months to
restore the portfolio to its original value?
A. 75%
B. 200%
C. 300%
D. 25%
Answer:
The future value of $200 that is left in account earning 6.5% interest for three years is
best expressed by which of the following?
A. $200(1.065) × 3
B. $200(1.065)/3
C. $200(1.065)n
D. $200(1.065)3
Answer:
Criteria used to judge a central bank’s independence include each of the following,
except:
A. budgetary independence.
B. long terms for members.
C. cabinet or ministry level of authority.
D. irreversible decisions.
Answer:
The make-up of the Governing Council of the European Central Bank and the methods
used to calculate price stability for the monetary system can potentially result in:
A. small countries having undue influence on the decisions of the Council.
B. monetary policy that is well suited for some countries but ill-suited for others.
C. a policy for the median country rather than a policy well suited for any country.
D. all of the results listed are possible.
Answer:
Consider a zero-coupon bond with a $1,100 payment in one year. Suppose the interest
rate decreases from 10% to 8%. The price of this bond:
A. increases from $1,000 to $1,018.
B. increases from $1,000 to $1,375.
C. decreases from $110 to $88.
D. decreases from $1,210 to $1,188.
Answer:
Short-run movements in nominal exchange rates are primarily due to:
A. changing prices of goods and services in the countries involved.
B. changing expected rates of return on domestic and foreign assets.
C. inflation differentials.
D. changes in exports.
Answer:
The U.S. Treasury estimates that the fraction of U.S. currency held outside the United
States is:
A. about one-fourth.
B. about half.
C. between two-thirds and three-quarters.
D. less than 10%.
Answer:
Professor Jeremy Siegel, of the University of Pennsylvania, conducted research that
showed that:
A. over the long run, stocks have been less risky than bonds.
B. over the long run, bonds have been less risky than stocks.
C. over the long run, bonds frequently outperform stocks.
D. investors should only own stocks for short periods of time to maximize returns.
Answer:
Ava buys a $2,000 computer using a paper check. At which step does $2,000 get
recorded in M1?
A. When Ava hands the $2,000 check to the computer merchant.
B. Once the $2000 is credited to the merchant bank’s reserve account and is debited
from Ava’s bank account.
C. Once the Federal Reserve sends the paper check (or an electronic image) to Ava’s
bank.
D. The check is never M1. The $2000 is M1 both in Ava’s bank account and, later, in
the merchant’s account. It is the deposit balance that is counted.
Answer:
The addition of the Liquidity Premium Theory to the Expectations Hypothesis allows us
to explain why:
A. yield curves usually slope upward.
B. interest rates on bonds of different maturities move together.
C. long-term interest rates are less volatile than short term interest rates.
D. yield curves are flat.
Answer:
Banks do not hold a lot of their assets in the form of cash mainly because of:
A. regulation.
B. the fear of being robbed.
C. the opportunity cost of holding cash; cash does not earn interest.
D. it can encourage employee theft.
Answer:
The stock market bubble of the late 1990s and early 2000s:
A. saw internet and computer technology companies over-invest.
B. saw an efficient allocation of resources toward the high-growth computer/internet
sector.
C. was a good example of the theory of efficient markets.
D. was an example that not all bubbles burst.
Answer:
In 1997, there was a speculative attack on the Thai baht. This resulted from the:
A. belief by speculators that the Thai central bank had an oversupply of U.S. dollar
reserves.
B. belief by speculators that the Thai central bank didn’t have sufficient U.S. dollar
reserves to maintain the current fixed rate.
C. revelation that the Thai central bank had converted its gold reserves into foreign
exchange.
D. overthrow of the Thai president and the central bank.
Answer:
The ways the Fed can inject reserves into the banking system include:
A. an increase in the size of the Fed’s balance sheet through purchasing securities.
B. increasing the discount rate.
C. making loans to non-bank corporations.
D. an increase in the size of the Fed’s balance sheet through selling securities.
Answer:
Suppose a particular depository institution that specializes in residential mortgages is
owned by its depositors. The institution is probably a:
A. regional or super-regional bank.
B. money center bank.
C. community bank.
D. savings bank.
Answer:
One way that a bank could offer non-bank services across more than one state was to:
A. file for a foreign bank charter.
B. be a federally chartered bank rather than a state chartered bank.
C. create a bank holding company.
D. become a central bank.
Answer:
Default risk is the risk associated with:
A. the bond issuer not being able to make the promised payments.
B. the illiquidity associated with small issues.
C. the effect on bond prices caused by changes in market rates of interest.
D. changes in the expected inflation rate.
Answer:
How many prices would a trader of a particular good need to know in a barter economy
with 20 goods?
A. 190
B. 100
C. 20
D. 40
Answer:
In the meetings of the Governing Council of the European Central Bank, formal votes
are:
A. taken and published immediately.
B. not taken, since formal voting could get in the way of good policy.
C. taken but not published for five years.
D. taken and released two years after the meetings.
Answer:
A call option is:
A. any option written more than sixty days into the future.
B. an option giving the holder the right to buy a given quantity of an asset at a specific
price on or before a specified date.
C. an option giving the seller the right to sell a given quantity of an asset at a specific
price on or before a specified date.
D. an option where all rights are granted to the seller of the option.
Answer:
Unemployment insurance and the proportional nature of the tax system are examples
of:
A. discretionary fiscal policy.
B. automatic fiscal policy.
C. both discretionary and automatic fiscal policy.
D. expansionary fiscal policy.
Answer:
If money growth and real output growth are both zero, the change in the price level
will:
A. also be zero.
B. equal the percentage change in velocity.
C. be indeterminate.
D. be the inverse of the percentage change in velocity.
Answer: