Losses in which holding resulted in BNP Paribas not allowing investors to redeem
shares from three of its investment funds?
A) mortgage-backed securities
B) Lehman Brothers
C) Bear Stearns
D) Real Estate Investment Trusts
Answer:
Suppose First National Bank has $200 million of assets and $20 million of equity
capital. If First National has a 2% return on assets (ROA), what is its return on equity
(ROE)? Suppose First National’s equity capital declines to $10 million, while its assets
and ROA are unchanged. What is First National’s ROE now?
Answer:
Which of the following is NOT an example of transactions costs?
A) high interest rates
B) lawyers’ fees
C) brokerage commissions
D) minimum investment requirements
Answer:
For a specific change in the yield to maturity
A) the shorter the time until a bond matures, the greater will be the change in its price.
B) the longer the time until a bond matures, the greater will be the change in its price.
C) the longer the time until a bond matures, the greater will be the change in its par
value.
D) the shorter the time until a bond matures, the greater will be the change in its coupon
rate.
Answer:
If the current price of a bond is equal to its face value,
A) there is no capital gain or loss from holding the bond until maturity.
B) the yield to maturity must be greater than the current yield.
C) the current yield must be greater than the coupon rate.
D) the coupon rate must be greater than the yield to maturity.
Answer:
Noise traders
A) pursue trading strategies based on inflated view of their ability to understand the
significance of a piece of news.
B) make use of inside information.
C) reduce the amount of risk in the market.
D) help to ensure that asset prices reflect the fundamental values of the securities being
traded.
Answer:
Financial securities are exchanged by dealers linked by computers in a
A) stock exchange.
B) public exchange.
C) financial exchange.
D) over the counter market.
Answer:
All of the following are new rules affecting the shadow banking system as a result of
the Dodd-Frank Act EXCEPT:
A) some trading of derivatives are required to take place on exchanges
B) large hedge funds are required to register with the SEC
C) firms selling mortgage-backed securities and similar assets are required to hold 5%
of the credit risk
D) securitized loans must now be insured
Answer:
Which type of stock should result in the best return according to the Efficient Markets
Hypothesis?
A) a firm that is expected to be highly profitable in the future
B) a firm that is considered to be undervalued
C) a firm expected to earn little profit in the future
D) none of the above
Answer:
The existence of counterparty risk
A) has no effect on the contracting parties.
B) is disallowed under current government regulations.
C) results in information costs for buyers and sellers when analyzing the potential
creditworthiness of potential trading partners.
D) reduces the risk introduced by forward contracts.
Answer:
Suppose some members of Enron’s board of directors are aware of the company’s true
financial condition, information that is not available to most investors. This is an
example of
A) lemon problem.
B) moral hazard.
C) adverse selection.
D) asymmetric information.
Answer:
$1 received n years from now has a value today of
A) ($1 + i)/i.
B) $1/(1 + i).
C) ($1 + i/i.
D) $1/(1 + i.
Answer:
The buyer of a futures contract
A) assumes the short position.
B) assumes the long position.
C) may not sell the contract without the permission of the original seller.
D) has the obligation to deliver the underlying financial instrument at the specified
future date.
Answer:
Which of the following is a checkable deposit?
A) a NOW account
B) a money market deposit account
C) a certificate of deposit
D) a savings account
Answer:
If an investor is certain that market interest rates will decline in the future, which of the
following will she be most likely to purchase?
A) a six-month government bill
B) a two-year government note
C) a ten-year government bond
D) a fifty-year government bond
Answer:
At an interest rate of 3%, what is the present value of $1000 to be received five years
from now?
A) $863
B) $1,667
C) $1,159
D) $850
Answer:
What are federally chartered banks called?
A) federal banks
B) Federal Reserve banks
C) national banks
D) central banks
Answer:
A borrower and a lender agree on a mortgage interest rate. If inflation turns out to be
less than expected
A) the actual real interest rate will exceed the expected real interest rate.
B) the actual real interest rate will be less than the expected real interest rate.
C) the actual nominal interest rate will be higher than expected.
D) the actual nominal interest rate will be less than expected.
Answer:
Why may investors buy a Treasury bill with a negative real interest rate?
A) fear of rising inflation
B) concern about high yields on other bonds
C) fear of default by the U.S. government
D) concern about the high default risk of alternative investments
Answer:
According to the theory of purchasing power parity, whenever a country’s price level is
expected to fall relative to another country’s price level,
A) its currency’s real exchange rate relative to the other country’s currency should rise.
B) its currency should depreciate relative to the other country’s currency.
C) its currency should appreciate relative to the other country’s currency.
D) its nominal interest rate should rise relative to the other country’s nominal interest
rate.
Answer:
The Fed pledged to continue QE3 until:
A) inflation got out of control
B) real GDP and employment returned to more normal levels
C) the financial crisis was over
D) it was time to begin QE4
Answer:
Which of the following are statisticians who compile statistics to predict the risk of an
event occurring in the population?
A) rocket scientists
B) quants
C) actuaries
D) risk analysts
Answer:
In the new Keynesian view, the larger the proportion of firms in the economy with
sticky prices,
A) the steeper the SRAS curve will be.
B) the flatter the SRAS curve will be.
C) the greater the increase in the price level for a given shift in the AD curve.
D) the less effective is fiscal policy in increasing output.
Answer:
The third stage in the regulatory process is
A) a crisis.
B) response by the financial system.
C) regulation.
D) regulatory response.
Answer:
Which of the following statements about the rate of return is NOT correct?
A) The total rate of return may be greater or less than the current yield.
B) The total rate of return may be greater or less than the rate of capital gain.
C) The total rate of return may never be negative.
D) The total rate of return is greater than the coupon, holding everything else constant.
Answer:
Information costs
A) are the costs of buying and selling financial claims.
B) include the costs that savers incur to determine the credit worthiness of borrowers.
C) include the costs borrowers incur to discover the best investments to make with the
money they have borrowed.
D) are zero in financial markets, but high for transactions carried out through financial
intermediaries.
Answer:
A “primary market” is a market
A) for government securities.
B) in which newly issued claims are sold to buyers by borrowers.
C) in which newly issued claims are sold by savers to borrowers.
D) for debt by large or “primary” corporations.
Answer:
Which of the following is the lowest rating given to an investment-grade bond by
Moody’s?
A) Aa
B) A
C) Baa
D) B
Answer:
A Japanese television sells for ¥100,000 and a dollar is equal to ¥100. What is the dollar
price of the television?
A) $1000
B) $99,900
C) $10,000,000
D) $100,100
Answer:
Lower interest rates which reduce the debt-servicing burden of households, thus
increasing their net worth, is best described by the
A) bank lending channel.
B) money channel.
C) financial market channel.
D) balance sheet channel.
Answer: