If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its
yield to maturity is
A) 0 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.
Answer:
The risk that interest payments will not be made, or that the face value of a bond is not
repaid when a bond matures is
A) interest rate risk.
B) inflation risk.
C) moral hazard.
D) default risk.
Answer:
A ________ pays the owner a fixed coupon payment every year until the maturity date,
when the ________ value is repaid.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
Answer:
The efficient markets hypothesis suggests that investors
A) should purchase no-load mutual funds which have low management fees.
B) can use the advice of technical analysts to outperform the market.
C) let too many unexploited profit opportunities go by if they adopt a “buy and hold”
strategy.
D) act on all “hot tips” they hear.
Answer:
The purpose of the disclosure requirements of the Securities and Exchange Commission
is to
A) increase the information available to investors.
B) prevent bank panics.
C) improve monetary control.
D) protect investors against financial losses.
Answer:
If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
A) 2.54
B) 2.67
C) 2.35
D) 0.551
Answer:
If the deficit is financed by selling bonds to the ________, the money supply will
________, increasing aggregate demand, and leading to a rise in the price level.
A) public; rise
B) public; fall
C) central bank; rise
D) central bank; fall
Answer:
The Fed prefers that so that
A) banks borrow reserves from each other ; banks can monitor each other for credit
risk.
B) banks borrow reserves from each other; the Fed can monitor banks for credit risk.
C) banks borrow reserves from the Fed; banks can monitor each other for credit risk.
D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk.
Answer:
All else equal, when interest rates ________, the duration of a coupon bond ________.
A) rise; falls
B) rise; increases
C) falls; falls
D) falls; does not change
Answer:
A well-capitalized financial institution has ________ to lose if it fails and thus is
________ likely to pursue risky activities.
A) more; more
B) more; less
C) less; more
D) less; less
Answer:
The segmented markets theory can explain
A) why yield curves usually tend to slope upward.
B) why interest rates on bonds of different maturities tend to move together.
C) why yield curves tend to slope upward when short-term interest rates are low and to
be inverted when short-term interest rates are high.
D) why yield curves have been used to forecast business cycles.
Answer:
Under the European System of Central Banks, the Executive Board is similar in
structure to the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
Answer:
If additional information is not used when forming an optimal forecast because it is not
available at that time, then expectations are
A) obviously formed irrationally.
B) still considered to be formed rationally.
C) formed adaptively.
D) formed equivalently.
Answer:
If an individual moves money from a savings deposit account to a money market
deposit account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer:
A financial panic was averted in October 1987 following “Black Monday” when the
Fed announced that
A) it was lowering the discount rate.
B) it would provide discount loans to any bank that would make loans to the security
industry.
C) it stood ready to purchase common stocks to prevent a further slide in stock prices.
D) it was raising the discount rate.
Answer:
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess supply of money which will cause the interest rate to ________.
A) right; fall
B) right; rise
C) left; fall
D) left; rise
Answer:
Which of the following $5,000 face-value securities has the highest yield to maturity?
A) A 6 percent coupon bond selling for $5,000
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500
Answer:
The legislation overturning the Glass-Steagall Act is
A) the McFadden Act.
B) the Gramm-Leach-Bliley Act.
C) the Garn-St. Germain Act
D) the Riegle-Neal Act.
Answer:
Under the European System of Central Banks, the Governing Council is similar in
structure to the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
Answer:
As the relative expected return on dollar assets increases, foreigners will want to hold
more ________ assets and less ________ assets, everything else held constant.
A) foreign; foreign
B) foreign; dollar
C) dollar; foreign
D) dollar; dollar
Answer:
In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money
supply analysis predicts that, everything else held constant, the money supply should
have
A) risen.
B) fallen.
C) remain unchanged.
D) either risen, fallen, or remain unchanged.
Answer:
When you deposit $50 in currency at Old National Bank,
A) its assets increase by less than $50 because of reserve requirements.
B) its reserves increase by less than $50 because of reserve requirements.
C) its liabilities increase by $50.
D) its liabilities decrease by $50.
Answer:
Although the Fed professed employment of ________ targeting during the 1970s, its
behavior suggests that it emphasized ________ targeting.
A) free-reserve; interest-rate
B) interest-rate; monetary aggregate
C) monetary aggregate; interest-rate
D) free reserve; monetary aggregate
Answer:
________ within the U.S. can make loans to foreigners but cannot make loans to
domestic residents.
A) Edge Act corporations
B) International Banking Facilities
C) Universal banks
D) Euro banks
Answer:
An increase in the time to the promised future payment ________ the present value of
the payment.
A) decreases
B) increases
C) has no effect on
D) is irrelevant to
Answer:
The guiding principle for the conduct of monetary policy that held that as long as loans
were being made for “productive” purposes, then providing reserves to the banking
system to make these loans would not be inflationary became known as the
A) free reserves doctrine.
B) Benjamin Strong doctrine.
C) efficient liquidity doctrine.
D) real bills doctrine.
Answer:
In the bond market, the bond demanders are the ________ and the bond suppliers are
the ________.
A) lenders; borrowers
B) lenders; advancers
C) borrowers; lenders
D) borrowers; advancers
Answer:
According to the liquidity premium theory of the term structure, a downward sloping
yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
Answer:
An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets.
B) providing depositors with a variety of savings certificates.
C) spreading the cost of borrowed funds over many customers.
D) spreading the cost of writing a standardized contract over many borrowers.
Answer:
The Federal Reserve Act of 1913 required that
A) state banks be subject to the same regulations as national banks.
B) national banks establish branches in the cities containing Federal Reserve banks.
C) national banks join the Federal Reserve System.
D) state banks could not join the Federal Reserve System.
Answer:
To an economist, ________ is anything that is generally accepted in payment for goods
and services or in the repayment of debt.
A) wealth
B) income
C) money
D) credit
Answer:
The nominal interest rate minus the expected rate of inflation
A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow and lend than is the nominal
interest rate.
C) is a less accurate indicator of the tightness of credit market conditions than is the
nominal interest rate.
D) defines the discount rate.
Answer:
Under a fixed exchange rate regime, a central bank that does not want to acquire
international reserves to keep its currency from ________ will decide to ________ its
currency.
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue
Answer:
The aggregate supply curve shows the relationship between
A) the level of inputs and aggregate output.
B) the inflation rate and the level of inputs.
C) the wage rate and the level of employment.
D) the inflation rate and the level of aggregate output supplied.
Answer: