The fact that many corporations use debt financing as well as equity financing creates
all of the following except:
A. the opportunity for a greater expected return for the stockholders.
B. greater risk for the stockholders.
C. leverage for the stockholders.
D. consistently lower debt-to-equity ratios.
Answer:
Which of the following would cause an increase in the potential output of a country?
A. An increase in the capital stock
B. A temporary decrease in exports
C. An increase in the money supply
D. A decrease in the labor force
Answer:
The fact that common stockholders are residual claimants means the stockholders:
A. have a claim against the revenue that remains after everyone else is paid.
B. receive their dividends before any other residuals are paid.
C. are paid any past due dividends before other claims are paid.
D. are paid before the bondholders but after any taxes are paid.
Answer:
In a defined-contribution plan:
A. only the employee makes contributions into the fund.
B. the retirement benefits will vary with both the amount contributed and the
performance of the fund.
C. the benefits are determined mainly by years of service.
D. no vesting is required; employees are eligible for benefits from the time they make
their first contribution.
Answer:
Members of the Board of Governors of the Fed:
A. can be reappointed after their term expires.
B. must leave office when there is a new administration elected.
C. serve one non-renewable fourteen-year term.
D. are appointed for life, though they can resign at any time.
Answer:
The federal funds rate is the interest rate:
A. the Fed charges banks who borrow from it.
B. banks charge each other for overnight loans on excess reserves held at the Fed.
C. the U.S. Treasury charges banks that need emergency funds.
D. the FDIC charges banks that need to borrow from it to meet depositor demands.
Answer:
The practice of “placing the issue” is conducted by:
A. the underwriting services of investment banks.
B. mutual fund companies.
C. brokerage firms.
D. commercial banks.
Answer:
The government’s too-big-to-fail policy applies to:
A. certain highly populated states where a bank run impacts a large percent of the total
population.
B. large banks whose failure would start a widespread panic in the financial system.
C. large corporate payroll accounts held by some banks where many people would lose
their income.
D. banks that have branches in more than two states.
Answer:
When a business purchases a $50,000 computer system by writing a check, the
business’s balance sheet will:
A. only show an increase in liabilities of $50,000.
B. show an increase in assets and liabilities for $50,000.
C. not reflect any increase in assets or liabilities, only a change in the composition of
assets.
D. only show an increase in assets of $50,000.
Answer:
Considering the value of a financial instrument, the sooner the promised payment is
made:
A. the less valuable is the promise to make it since time is valuable.
B. the greater the risk, therefore the promise has greater value.
C. the more valuable is the promise to make it.
D. the less relevant is the likelihood that the payment will be made.
Answer:
Tax cuts would have the same directional effect on the dynamic aggregate demand
curve as:
A. decreases in government purchases.
B. the Federal Reserve selling U.S. treasury securities.
C. the Federal Reserve buying U.S. treasury securities.
D. temporary tax increases.
Answer:
A country with a current account surplus:
A. has imported more than it has exported.
B. as borrowed heavily from the rest of the world.
C. has exported more than it has imported.
D. also has a capital account surplus.
Answer:
All of the following could represent the transmission of monetary policy, except:
A. households altering their spending on durable goods.
B. income tax rates changing.
C. firms altering their growth plans.
D. net exports changing.
Answer:
One advantage of using checks over a debit card is:
A. checks can be replaced if lost or stolen, a debit card cannot.
B. the bank is responsible if someone steals your checks and uses them; this isn’t the
case with debit cards.
C. a cancelled paper check is the only generally accepted proof of payment.
D. the person has “float,” meaning time between writing the check and depositing
funds to cover it.
Answer:
A country running a current account surplus over many years is likely to see its
exchange rate:
A. appreciate.
B. depreciate.
C. hold steady.
D. the rate can rise, fall, or hold steady; the current account and the exchange rate are
not linked.
Answer:
In which situation would policymakers be unable to neutralize the effect on the
economy?
A. The federal government runs a deficit
B. An increase in the price of oil
C. Imports exceed exports
D. Consumer confidence declines
Answer:
Sophia receives a $400 gift card for her campus bookstore from her parents. Which of
the following is true regarding the $400 gift card?
A. It is counted only in M1.
B. It is included in both M1 and M2.
C. It is counted in only M2.
D. Stored-value cards are not counted in either M1 or M2.
Answer:
What is the present value of $100 promised one year from now at 10% annual interest?
A. $89.50
B. $90.00
C. $90.91
D. $91.25
Answer:
Savings and loans primarily provide:
A. large commercial loans.
B. unsecured credit card loans.
C. student loans.
D. home mortgages.
Answer:
The growth of international banking has:
A. decreased the competition that domestic banks face.
B. decreased the efficiency of most banks.
C. enhanced economic growth in many countries.
D. increased the monopoly power of most banks.
Answer:
At expiration, the value of an option:
A. is greater than the intrinsic value.
B. is less than the intrinsic value.
C. is equal to the time value of the option.
D. is equal to the intrinsic value.
Answer:
The European Central Bank’s Marginal Lending Facility is used to provide:
A. short-term loans to banks at rates below the target refinancing rate.
B. long-term loans to banks at rates above the target refinancing rate.
C. short-term loans at rates above the target refinancing rate.
D. long-term loans to banks at rates below the target refinancing rate.
Answer:
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. the intrinsic value and the time value of the option.
D. the price of the underlying asset and the time value of the option.
Answer:
Using the equation of exchange, if inflation is 1%, the velocity of money grows by
1.0% and the growth rate of money is 3.0%; what is real growth?
A. +3.0%
B. 1%
C. 4.0%
D. -1.0%
Answer:
Gross Domestic Product in the U.S. is roughly:
A. equal to M1.
B. twice as large as M2.
C. equal to M2.
D. more than five times M1.
Answer:
Insurance companies can predict fairly accurately:
A. the percentage of policyholders who will have a claim and which policyholders will
have a claim.
B. which policyholders will suffer a loss but not the percentage of policyholders that
will do so.
C. the type of losses policyholders will incur but not the percentage of policyholders
that will file claims.
D. the percentage of policyholders that will file claims but not the policyholders that
will file them.
Answer:
As a result of government provided deposit insurance, the ratio of assets to capital for
commercial banks since the 1920s has:
A. just about doubled.
B. almost tripled.
C. not changed.
D. decreased.
Answer:
When considering different investments, a risk-averse investor is most likely to focus
on purchasing:
A. investments with the greatest spread in the expected rate of return.
B. investments that offer the lowest standard deviation in the investments’ expected
rates of return for any given expected rate of return.
C. only risk-free investments.
D. investments with the lowest risk premium, regardless of the expected rate of return.
Answer:
Automated teller machines provided by financial intermediaries are an example of:
A. high transactions costs associated with financial intermediaries.
B. diseconomies of scale.
C. the ability of financial intermediaries to provide liquidity.
D. the ability of financial intermediaries to earn profits by raising transaction costs
above the norm.
Answer:
The Chairman of the FOMC is:
A. the Secretary of the Treasury.
B. the Vice-Chairman of the Board of Governors.
C. the Chairman of the Board of Governors.
D. the President of the New York Fed.
Answer:
The Consumer Price Index (CPI):
A. is calculated using a basket of goods and services adjusted annually by government
statisticians.
B. answers the question, “How much more does it cost today to buy the same basket of
goods and services that were purchased at some fixed time in the past?”
C. does not suffer from substitution bias because the basket used to measure prices
changes every year.
D. understates the impact of price changes.
Answer:
If bank with $100 million in assets and $10 million in equity increases its assets by
adding $1 to capital for every $1 added to assets:
A. the debt-to-equity ratio will increase.
B. the debt-to-equity ratio will remain constant.
C. the debt-to-equity ratio will decrease.
D. the answer cannot be determined from the information in the question.
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