For simple loans, the yield to maturity
A) is always less than the specified simple interest rate.
B) is always greater than the specified simple interest rate.
C) is always equal to the specified simple interest rate.
D) may be less than, greater than, or equal to the specified simple interest rate,
depending on the maturity of the loan.
Answer:
The bond demand curve slopes down because
A) interest rates decline as bond prices decline.
B) when bond prices are low, inflation is low.
C) the lender is willing and able to purchase more bonds when the price of the bond is
low.
D) the borrower is willing and able to purchase more bonds when the price of the bond
is low.
Answer:
The additional interest that investors require to buy a long-term bond instead of a
sequence of short-term bonds is known as the:
A) risk premium
B) default premium
C) term premium
D) segmented premium
Answer:
Sovereign debt refers to
A) debt owned by the government.
B) bonds issued by the government.
C) debt owed to the government.
D) debt only issued by nations with kings or queens.
Answer:
Which of the following is NOT a result of the double taxation of dividends?
A) Because profits that firms distribute to stockholders are taxed a second time, firms
have an incentive
to retain profits rather than to distribute them to stockholders.
B) The return investors receive from buying stocks is reduced, which reduces the
incentive people have to save in the form of stock investments and increases the costs to
firms of raising funds.
C) It gives firms an incentive to take on what may be an excessive level of debt rather
than issue stock.
D) The decline in retained profits results in increased inefficiency.
Answer:
The Depository Institutions Deregulation and Monetary Control Act of 1980
A) eliminated the requirement that banks hold reserve deposits with the Fed.
B) required all state banks to join the Federal Reserve System.
C) required all banks to maintain reserve deposits with the Fed.
D) prohibited nonmember banks from receiving discount loans.
Answer:
In which of the following periods was the yield curve inverted?
A) February 2004
B) February 2007
C) February 2010
D) The yield curve was not inverted during any of these periods.
Answer:
Economists define liquidity as
A) the difference between the return on the asset and the return on a long-term U.S.
Treasury bond.
B) the fraction the asset makes up of an investor’s portfolio.
C) the ease with which an asset can be exchanged for money.
D) the difference between the total demand for an asset and the total supply of the asset.
Answer:
Which of the following would cause the nominal exchange rate to appreciate?
A) The real exchange rate depreciates.
B) The domestic inflation rate decreases.
C) The domestic inflation rate increases.
D) The government budget deficit decreases.
Answer:
The choice between futures and options
A) depends on whether the underlying instrument is a debt instrument or an equity.
B) reflects a trade-off between the higher cost of using options and the extra insurance
benefits that options provide.
C) reflects a trade-off between the higher cost of using futures and the extra insurance
benefits that futures provide.
D) reflects a trade-off between the greater risk from using options and the extra
insurance benefits that options provide.
Answer:
The most important derivative instruments are
A) futures, options, and swaps.
B) common and preferred stocks.
C) corporate bonds.
D) government bonds.
Answer:
Suppose that a new bond rating service is established that specializes in rating
municipal bonds that had not previously been rated. The likely result would be
A) a shift to the left in the demand curve for municipal bonds.
B) a shift to the left in the supply curve for municipal bonds.
C) an increase in the equilibrium interest rate.
D) a decrease in the equilibrium interest rate.
Answer:
If the account manager does NOT use a Federal Reserve reverse repurchase agreement
or a matched sale-purchase transaction in carrying out open market operations, he will
use
A) an outright purchase or sale.
B) a limited-duration purchase or sale.
C) an indirect purchase or sale.
D) a reverse duration purchase or sale.
Answer:
Most economists believe that a zero rate of unemployment
A) is obtainable with the correct monetary policy.
B) would result in a better functioning economy.
C) is inconsistent with a well-functioning economy.
D) is obtainable only if the inflation rate is also zero.
Answer:
Government regulations requiring firms that desire to sell securities in financial markets
to disclose all available information
A) eliminate the adverse selection problem (when rigorously enforced).
B) increase the difficulty that young firms may have in raising funds.
C) eliminate the moral hazard problem in securities markets.
D) fail to eliminate the adverse selection problem, in part because they do not greatly
reduce the difficulty that young firms have in raising funds.
Answer:
Which of the following is most likely to lead to an increase in the value of the dollar?
A) decline in U.S. interest rates
B) increase in imports to the United States
C) decrease in exports from the United States
D) increase in U.S. interest rates compared to foreign interest rates
Answer:
Which of the following statements is NOT true?
A) Each Federal Reserve bank maintains its own discount window.
B) Before 1980, the Fed rarely made loans to banks which were not members of the
Federal Reserve System.
C) Since 1980, all depository institutions have had access to the discount window.
D) Each Federal District Bank can charge a different discount rate.
Answer:
Why do higher interest rates increase adverse selection problems in the loan market?
A) Higher interest rates reduce the gains from economies of scale.
B) As interest rates rise, the creditworthiness of the average loan applicant declines.
C) Higher interest rates reduce information problems in the loan market.
D) At higher interest rates fewer investment projects are profitable.
Answer:
During the financial crisis of 2007-09, the prices of U.S. Treasury securities
A) rose and the price of corporate bonds declined.
B) fell relative to the prices of corporate bonds.
C) remained in the same relative position to the prices of corporate bonds.
D) were frozen by order of the federal government.
Answer:
Given that most banks have positive gap and negative durations, banks prefer
A) lower market interest rates.
B) higher market interest rates.
C) higher market fixed rates but lower market floating rates.
D) either higher or lower market interest rates since interest rates have little effect on
bank profits.
Answer:
What happened to consumer prices as measured by the CPI between 1929 and 1933?
A) rose by more than 20%
B) didn’t change
C) declined by about 25%
D) declined by about 80%
Answer:
Given that most investors tend to be risk averse,
A) no one buys risky assets.
B) there’s a trade-off between risk and return.
C) low risk assets provide the best return.
D) it must be a superior strategy compared to one that is risk loving.
Answer:
What would happen in the foreign exchange market if the European Central Bank raises
European interest rates?
A) There will be a decline in the value of the euro.
B) There will be a decline in the value of the dollar.
C) There will be an increase in the value of the dollar.
D) U.S. interest rates will decline.
Answer:
Which of the following assets is the least liquid?
A) money market mutual fund
B) stock
C) treasury bond
D) house
Answer:
Members of the European Exchange Rate Mechanism (ERM)
A) agreed to buy and sell gold at a fixed rate.
B) promised to maintain the values of their currencies within a fixed range.
C) attempted to maintain a fixed exchange rate against the dollar.
D) all agreed to charge the same interest rate on central bank loans.
Answer:
The expectations theory
A) has difficulty explaining why U.S. Treasury securities have lower yields than
corporate bonds.
B) has difficulty explaining why yields on bonds of different maturities move together.
C) has difficulty explaining why yield curves usually slope upward.
D) accounts well for the fact that yield curves usually slope upward.
Answer:
Suppose that savers become less willing to purchase medium-quality corporate bonds.
The result will be that the prices of medium-quality corporate bonds will
A) fall relative to the price of U.S. Treasury securities, but rise relative to the price of
high-quality corporate bonds.
B) rise relative to the price of U.S. Treasury securities, but fall relative to the price of
high-quality corporate bonds.
C) rise relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
D) fall relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
Answer:
The ways in which monetary policy affect output and prices are known as:
A) channels
B) stations
C) vehicles
D) means
Answer:
The current account balance plus the financial account balance
A) equals the trade balance.
B) equals the net outflow of currency from the domestic economy.
C) will be negative during economic expansions and positive during economic
contractions.
D) equals zero.
Answer:
The payments system is
A) the mechanism for conducting economic transactions.
B) another name for the system of foreign exchange rates.
C) the phrase used to describe how transactions are carried out in an economy that does
not use money.
D) the way in which economic transactions are carried out in a government-controlled
economy, such as the former Soviet Union.
Answer: