Marking to market involves
A) changing the futures price to the spot price each day.
B) engaging in arbitrage so as to reduce the risk involved with futures contracts.
C) crediting or debiting the margin account based on the net change in the value of the
futures contract.
D) updating the futures price after the market closes each day.
Answer:
Which country experiencing hyperinflation in excess of 15 billion percent in 2008?
A) Argentina
B) Canada
C) Iceland
D) Zimbabwe
Answer:
Which of the following is NOT a discount bond?
A) a U.S. savings bond
B) a U.S. Treasury bill
C) a U.S. Treasury note
D) a zero-coupon bond
Answer:
The rate of return is equal to
A) the coupon rate plus the rate of capital gains.
B) the coupon rate plus the current yield.
C) the current yield plus the rate of capital gains.
D) the coupon rate multiplied by the rate of capital gains.
Answer:
Default risk arises from the fact that
A) borrowers differ in their ability to repay in full the principal and interest required by
a loan agreement.
B) the bond price drops when interest rates rise.
C) it is inherently riskier to wait for a capital gain than to receive an immediate interest
payment.
D) interest rates are far more likely to go up than to go down.
Answer:
The financial system performs the role of communicating information by
A) constantly increasing the liquidity of most assets.
B) constantly reducing the riskiness of most assets.
C) incorporating all available information into the prices of financial assets.
D) providing to investors for a nominal charge all government reports available about a
particular company.
Answer:
What is the name of the entity, composed of Federal Reserve district bankers, that
consults on monetary policy?
A) The Federal Open Market Committee
B) The Federal Advisory Council
C) The Monetary Policy Council
D) The District Bank Committee
Answer:
Which of the following is NOT considered a cash item by banks?
A) U.S. Treasury bills
B) deposits at other banks
C) deposits at the Federal Reserve
D) vault cash
Answer:
Which of the following statements is NOT true of consumer finance companies?
A) Their borrowers have higher default risk than bank customers.
B) They charge higher interest rates than banks do on similar loans.
C) They lend primarily to consumers.
D) They are strictly regulated by state governments.
Answer:
When a company whose ability to repay its obligations in full is uncertain,
A) it will have to issue debt with longer maturities than would a company with a lower
probability of default.
B) its bonds will sell for higher prices than would the bonds of a company with a lower
probability of default.
C) it must offer investors higher yields to compensate them for the risk they take in
buying their bonds or making loans.
D) it must do so through financial markets rather than through financial intermediaries.
Answer:
The Fed does not have to go through the normal congressional appropriations process
because
A) its expenses are very small.
B) it was given enough funds at the time of its founding to provide for its expenses
indefinitely.
C) it is self financing.
D) it is not part of the legislative branch of the federal government.
Answer:
All of the following are examples of borrowings by a bank EXCEPT
A) federal funds.
B) repurchase agreements.
C) discount loans.
D) commercial loans.
Answer:
Which of the following statements is correct?
A) New classicals believe that the aggregate supply curve is vertical in the short run.
B) New Keynesians believe that the aggregate supply curve is vertical in the short run.
C) New Keynesians believe that the aggregate supply curve slopes upward in the long
run.
D) New classicals believe that the aggregate supply curve slopes upward in the short
run.
Answer:
The size of the money multiplier depends upon all of the following EXCEPT
A) the required reserve ratio.
B) the currency-deposit ratio.
C) excess reserves relative to deposits.
D) the discount rate.
Answer:
The members of Federal Reserve district bank boards of directors who represent the
public interest are known as
A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.
Answer:
The average investor must weigh the benefits of liquidity against
A) the high taxes generally levied on liquid assets.
B) the lower returns on liquid assets.
C) the high transactions costs involved in disposing of liquid assets.
D) the greater variability in the nominal returns on liquid assets.
Answer:
Which of the following is the most likely explanation of Japan’s very low market
interest rates in the early 2000s?
A) expected deflation
B) an increasing budget deficit
C) an increasing trade surplus
D) an increase in corporate profits
Answer:
The original intention of the Fed’s role as lender of last resort was to make loans to
banks that were
A) not illiquid nor insolvent.
B) illiquid, but not insolvent.
C) insolvent, but not illiquid.
D) both illiquid and insolvent.
Answer:
When the Fed lends to depository institutions, the loans are called
A) federal funds.
B) discount loans.
C) repurchase agreements.
D) reverse repurchase agreements.
Answer:
An increase in the money supply will cause
A) the IS curve to shift down and to the right.
B) the IS curve to shift up and to the left.
C) the LM curve to shift down and to the right.
D) the LM curve to shift up and to the left.
Answer:
A swap is
A) another name for a put option.
B) another name for a call option.
C) an agreement between two or more persons to exchange sets of cash flows over
some future period.
D) the name for the replacement of a futures contract by an options contract.
Answer:
Under the theory of purchasing power parity, an increase in the U.S. price level of 10%
relative to the Japanese price level will result in
A) a 10% appreciation of the yen.
B) a 10% appreciation of the dollar.
C) an appreciation of the yen by an amount that depends upon what happens to the real
exchange rate.
D) an appreciation of the dollar by an amount that depends upon what happens to the
real exchange rate.
Answer:
According to the liquidity premium theory, the yield curve normally has a positive
slope because
A) short-term interest rates are expected to rise.
B) term premiums rise as the time to maturity increases.
C) risk premiums rise over time.
D) long-term bonds are more liquid than short-term bonds.
Answer:
Suppose that you expect during the next year the dollar will appreciate against the
pound from 0.5 pound to the dollar to 0.75 pound to the dollar. How much will you
expect to make on an investment of $10,000 in British government securities that will
mature in one year and pay interest of 8%?
A) -59.5%
B) -28%
C) 8%
D) 28%
Answer:
Which of the following is NOT an example of off-balance-sheet lending?
A) a swap
B) a standby letter of credit
C) a loan commitment
D) a loan sale
Answer:
Customers who have long-term relationships with banks
A) pose particular problems with respect to adverse selection.
B) pose particular problems with respect to moral hazard.
C) often obtain credit at a lower rate or with fewer restrictions.
D) are more likely to default or violate restrictive covenants.
Answer:
An increase in the output gap causes the demand for real balances
A) to rise and the interest rate to fall.
B) to fall and the interest rate to rise.
C) and the interest rate to fall.
D) and the interest rate to rise.
Answer:
The supply curve for bonds would be shifted to the left by
A) a decrease in government borrowing.
B) a decrease in the corporate tax on profits.
C) an increase in tax subsidies for investment.
D) an increase in expected inflation.
Answer:
The members of Federal Reserve district bank boards of directors appointed by the
Board of Governors are known as
A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.
Answer:
Wealth is
A) the sum of the value of assets.
B) equal to income.
C) a flow variable.
D) the sum of the value of assets minus value of liabilities.
Answer:
If currency outstanding equals $500 million, checkable deposits equal $2 billion,
reserves equal $200 million, and the required reserve ratio is 0.10, the money multiplier
equals
A) 1.14.
B) 3.57.
C) 4.35.
D) 5
Answer:
How many prices would there be in a barter economy with 100 goods?
A) 100
B) 1,000
C) 4,950
D) 10,000
Answer:
Restrictive covenants
A) generally require that firms use debt finance rather than equity finance.
B) generally require that firms use equity finance rather than debt finance.
C) put restrictions on the use of borrowed funds.
D) were outlawed under the Civil Rights Act of 1964.
Answer:
Federal Reserve districts
A) conform to state boundaries.
B) group together economically similar states.
C) have equal populations.
D) cut across state and economic boundaries.
Answer:
What is the most important factor for Federal Reserve currency to be accepted as
money?
A) its acceptance by businesses and households in the United States in exchange for
goods and services
B) its designation as legal tender by the federal government
C) the willingness of the federal government to accept it in exchange for an equivalent
amount of gold or silver coins
D) the willingness of foreign businesses and banks to accept it in exchange for goods
and services
Answer: