Let if be the interest rate being paid on a foreign bond, and let i be the interest rate being
paid for a domestic bond; let P be the price of the domestic bond and let Pf be the price
of the foreign bond. If exchanges rates are fixed and the bonds are equal in terms of
risk:
A. if = i.
B. P = Pf times units of domestic currency/unit of foreign currency.
C. the expected return from the foreign bond = the expected return from the domestic
bond.
D. all of the answers given are correct.
Answer:
The short position in a futures contract is the party that will:
A. deliver a commodity or financial instrument to the buyer at a future date.
B. suffer the loss.
C. accept the risk.
D. benefit from increases in price of the underlying asset.
Answer:
Monetary policymakers could keep equity and property price bubbles from developing
by:
A. raising their interest rate target when they suspect a bubble.
B. lowering their interest rate target when they suspect a bubble.
C. expanding the money supply in the economy.
D. purchasing U.S. treasury securities to drive up their prices.
Answer:
The dividends that stockholders receive are:
A. fixed by contract and paid annually.
B. distributions from profits.
C. paid before all other obligations of the company are met.
D. always equal to the average amount of interest paid to a bond holder, adjusting for
the value of the holdings.
Answer:
If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C =
Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess
reserves, then C + R would equal:
A. M.
B. R.
C. MB.
D. ER.
Answer:
A foreign exchange intervention by a central bank affects the value of a country’s
currency if it:
A. alters banking system reserves.
B. leaves domestic interest rates unchanged.
C. results in a fixed exchange rate.
D. alters banking system reserves and it changes domestic interest rates.
Answer:
Credit:
A. probably came into being at the same time as coinage.
B. predates coinage by 2,000 years.
C. did not exist until the middle ages.
D. first became popular due to the writings of Aristotle.
Answer:
If monetary policymakers are more concerned about output fluctuations than inflation
fluctuations:
A. they will choose a relatively steep monetary policy reaction curve in which
movements in the real interest rates are small.
B. they will choose a relatively flat monetary policy reaction curve in which
movements in the real interest rates are small.
C. they will choose a relatively steep monetary policy reaction curve in which
movements in the real interest rates are large.
D. they will choose a relatively flat monetary policy reaction curve in which
movements in the real interest rates are large.
Answer:
In the foreign exchange market, the demand for U.S. dollars is made up from:
A. foreigners desiring to purchase U.S. goods, services, and assets.
B. Americans who want to hold more currency.
C. Americans wishing to purchase foreign goods, services, and assets.
D. Americans who want to invest in foreign assets.
Answer:
The International Monetary Fund was created as a part of:
A. the United Nations.
B. the Bretton Woods System.
C. the European Monetary Union.
D. the Federal Reserve System.
Answer:
If the Federal Reserve surprises investors by announcing an easing of monetary policy:
A. it should have no impact on the slope of the yield curve.
B. we should expect the yield curve to possibly become inverted.
C. the yield curve would flatten.
D. we should expect the yield curve to steepen.
Answer:
Member countries of the Eurosystem agree to:
A. pursue independent domestic monetary policies based on what is best for their own
country, but not all member countries have adopted the euro as their currency.
B. share a common monetary policy and fiscal policy.
C. use the euro as their currency, but each country still pursues an independent
monetary policy.
D. share a common monetary policy and use the euro as their currency.
Answer:
As of 2014, the euro had become the currency for:
A. 7 countries.
B. 12 countries.
C. 18 countries.
D. 25 countries.
Answer:
Which of the following best completes the statement? If people increase their currency
holdings, all else the same, the monetary base:
A. does not change but the quantity of M2 will decrease.
B. increases as does the quantity of M2.
C. decreases as does the quantity of M2.
D. does not change and neither does M2.
Answer:
Which of the following statements is most correct?
A. Financial intermediaries are banks.
B. A bank is a financial intermediary.
C. Financial intermediaries are insurance companies.
D. Financial intermediaries are essential to direct finance.
Answer:
If Americans develop a greater appreciation for Mexican-made goods, we should
observe the following change in the dollar-peso market:
A. the supply curve of dollars shifts right.
B. the demand curve for pesos shifts left.
C. the supply curve of dollars shifts left.
D. the demand curve for dollars shifts right.
Answer:
Today, reserve requirements are:
A. set in a way that makes reserve demand highly unpredictable.
B. changed whenever the target federal funds rate is changed.
C. changed instead of making changes in the discount rate.
D. really not a direct tool of monetary policy.
Answer:
Which of the following statements is most correct?
A. The FOMC is more successful at keeping the market rate closer to the target rate
than the ECB.
B. The FOMC is more successful than the ECB at keeping the market rate within a 100
basis point band of the target rate.
C. The ECB has kept the market rate within a 100 basis point band of the target rate;
the FOMC cannot make this claim.
D. The ECB seldom has the market rate within 100 basis points of the target rate.
Answer:
Between 1970 and 2000, if the Fed had tried to hit the money growth targets:
A. the economy would have likely experienced very high inflation.
B. the federal funds rate would have changed often and by large amounts.
C. the interest rates would have likely been more stable.
D. the economy would have likely experienced very high inflation but the interest rates
would have likely been more stable.
Answer:
Inflation can be thought of as:
A. an increase in the price of money.
B. a decrease in the price of money.
C. no change in the price of money, just in the supply of money.
D. no change in the price of money, just in the demand for money.
Answer:
To use money growth as a short-term monetary policy instrument, a central bank must:
A. believe there is a stable link between the monetary base and the rate of inflation.
B. believe that only money matters.
C. believe that there is an unpredictable relationship between money aggregates and
inflation.
D. believe the deposit expansion multiplier is volatile and unpredictable.
Answer:
A proposed increase in the federal income tax rates may actually be viewed favorably
by many mayors of cities because:
A. it will allow them to also raise their tax rates.
B. it will cause the demand for municipal bonds to increase and their yields to increase.
C. people will pay less attention to local taxes.
D. it will cause the price of municipal bonds to increase and their yields to decrease.
Answer:
The process of financial intermediation:
A. creates a net cost to an economy.
B. increases the economy’s ability to produce.
C. is always used when a borrower needs to obtain funds.
D. is used primarily in underdeveloped countries.
Answer:
Tom decides to withdraw $300 out of his checking account. The impact of this
transaction on the Fed’s balance sheet will be:
A. no change in total assets or total liabilities, but an increase in the liability of
currency and a decrease in the liability of reserves by $300 respectively.
B. no change in total assets but the liability of currency increases by $300.
C. total assets decrease by $300 and the liability of currency increases by $300.
D. no change in either total assets or total liabilities.
Answer:
The Expectations Hypothesis assumes:
A. a high level of uncertainty regarding the future of long-term yields.
B. investors know the yields on bonds today and form expectations of the yields on
short-term bonds in future time periods.
C. securities of different maturities are not perfect substitutes for each other.
D. the risk premium increases with longer maturities.
Answer:
Which of the following best defines dollarization?
A. A country uses the U.S. dollar as well as its currency for all transactions.
B. A country adopts a foreign currency for all transactions basically eliminating its own
monetary policy.
C. A country eliminates its own currency for international transactions and requires that
all international transactions be conducted in U.S. dollars.
D. The central bank of a country agrees to exchange its own currency for U.S. dollars
at a fixed exchange rate.
Answer:
When central bankers are acting preemptively they are:
A. letting markets work and taking a wait and see approach.
B. aggressively trying to hit a zero inflation target.
C. usually focused on reducing expansionary gaps.
D. taking bold steps to stabilize the economy.
Answer:
A country that frequently uses capital controls:
A. increases the risk for foreign investors.
B. decreases the risk for foreign investors.
C. should see lower interest rates on its domestic bonds and lower prices.
D. will attract more investment.
Answer:
You start with a $1000 portfolio; it loses 50% over the next year, the following year it
gains 50% in value. At the end of two years your portfolio is worth:
A. $1,000.
B. $500.
C. $750.
D. $950.
Answer:
The Standard & Poor’s 500 Index differs from the Dow Jones Industrial Index because:
A. it takes into account the stock prices of 500 of the largest firms, which is less than
the DJIA.
B. it is a price-weighted index, where the DJIA is a value-weighted index.
C. larger firms are less important in the S&P 500 than in the DJIA.
D. it takes into account the prices of more stocks and it uses a different weighting
scheme.
Answer:
The main difference between sales finance and consumer finance is:
A. the type of borrower.
B. the size of the purchase involved.
C. the length of time until the loan has to be repaid.
D. one deals with equipment leasing and the other does not.
Answer:
All other factors equal, if the costs of converting bonds and other financial securities to
a means of payment increase:
A. the transactions demand for money should increase.
B. the transactions demand for money should decrease.
C. it shouldn’t impact the transactions demand for money.
D. nominal interest rates should decrease.
Answer: