1) When the Fed wants to raise interest rates after banks have accumulated large
amounts of excess reserves, it would
A) increase the interest rate paid on excess reserves
B) increase discount rate
C) increase the required reserve ratio
D) conduct massive open market purchase
2) When the interest rate changes,
A) the demand curve for bonds shifts to the right
B) the demand curve for bonds shifts to the left
C) the supply curve for bonds shifts to the right
D) it is because either the demand or the supply curve has shifted
3) According to the efficient markets hypothesis, purchasing the reports of financial
analysts
A) is likely to increase one’s returns by an average of 10%
B) is likely to increase one’s returns by about 3 to 5%
C) is not likely to be an effective strategy for increasing financial returns
D) is likely to increase one’s returns by an average of about 2 to 3%
4) 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
5) Holding all other factors constant, the quantity demanded of an asset is
A) positively related to wealth
B) negatively related to its expected return relative to alternative assets
C) positively related to the risk of its returns relative to alternative assets
D) negatively related to its liquidity relative to alternative assets
6) The countries that have made the least use of securities markets are ________ and
________; in these two countries finance from financial intermediaries has been almost
ten times greater than that from securities markets
A) Germany; Japan
B) Germany; Great Britain
C) Great Britain; Canada
D) Canada; Japan
7) An equal increase in all bond interest rates
A) increases the return to all bond maturities by an equal amount
B) decreases the return to all bond maturities by an equal amount
C) has no effect on the returns to bonds
D) decreases long-term bond returns more than short-term bond returns
8) Assume equilibrium at full employment for an economy characterized by the simple
Keynesian model If the government raises taxes to eliminate a budget deficit, then
A) the rate of unemployment will increase
B) the level of aggregate output will increase
C) the price level will increase
D) the rate of interest will fall
9) Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market mutual fund shares (retail)
10) The current supervisory practice toward risk management
A) focuses on the quality of a bank’s balance sheet
B) determines whether capital requirements have been met
C) evaluates the soundness of a bank’s risk-management process
D) focuses on eliminating all risk
11) In the one-period valuation model, the current stock price increases if
A) the expected sales price increases
B) the expected sales price falls
C) the required return increases
D) dividends are cut
12) Which of the following are not reported as assets on a bank’s balance sheet?
A) Cash items in the process of collection
B) Deposits with other banks
C) US Treasury securities
D) Checkable deposits
13) There is a ________ association between inflation and the growth rate of money
________
A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply
14) Regulators attempt to reduce the riskiness of banks’ asset portfolios by
A) limiting the amount of loans in particular categories or to individual borrowers
B) encouraging banks to hold risky assets such as common stocks
C) establishing a minimum interest rate floor that banks can earn on certain assets
D) requiring collateral for all loans
15) In Keynes’s liquidity preference framework, as the expected return on bonds
increases (holding everything else unchanged), the expected return on money
________, causing the demand for ________ to fall
A) falls; bonds
B) falls; money
C) rises; bonds
D) rises; money
16) Tobin’s model of the speculative demand for money shows that people hold money
as a ________ as a way of reducing ________
A) medium of exchange; transaction costs
B) medium of exchange; risk
C) store of wealth; transaction costs
D) store of wealth; risk
17) Assuming that the average duration of its assets is four years, while the average
duration of its liabilities is three years, then a 5 percentage point increase in interest
rates will cause the net worth of First National to ________ by ________ of the total
original asset value
A) decline; 5 percent
B) decline; 10 percent
C) decline; 15 percent
D) increase; 20 percent
18) Pieces of property that serve as a store of value are called
A) assets
B) units of account
C) liabilities
D) borrowings
19) Another way to state the efficient markets condition is: in an efficient market,
A) unexploited profit opportunities will be quickly eliminated
B) unexploited profit opportunities will never exist
C) arbitragers guarantee that unexploited profit opportunities never exist
D) every financial market participant must be well informed about securities