1) An expansionary monetary policy raises firms’ cash flows by ________ interest rates.
A) lowering real
B) lowering nominal
C) raising real
D) raising nominal
2) Which of the followings is a duty of the Board of Governors of the Federal Reserve
System?
A) Setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B) Setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C) Regulating credit with the approval of the president under the Credit Control Act of
1969
D) All governors advise the president of the United States on economics policy
3) The Fed’s lender-of-last-resort function
A) has proven to be ineffective
B) cannot prevent runs by large depositors
C) is no longer necessary due to FDIC insurance
D) creates a moral hazard problem
4) If stock prices are expected to climb next year, everything else held constant, the
________ curve for bonds shifts ________ and the interest rate ________.
A) demand; left; rises
B) demand; right; rises
C) demand; left; falls
D) supply; left; rises
5) Everything else held constant, an increase in the time deposit ratio will mean
________ in the M2 money multiplier and ________ in the M2 money supply.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
6) The most important developments that have reduced banks income advantages in the
past thirty years include:
A) the increase in off-balance sheet activities
B) the growth of securitization
C) the elimination of Regulation Q ceilings
D) the competition from money market mutual funds
7) Economic theory suggests that ________ interest rates are ________ important than
________ interest rates in explaining investment behavior.
A) nominal; more; real
B) real; less; nominal
C) real; more; nominal
D) market; more; real
8) When the exchange rate for the Mexican peso changes from 10 pesos to the U.S
dollar to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S.
dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
9) Bank capital is equal to ________ minus ________.
A) total assets; total liabilities
B) total liabilities; total assets
C) total assets; total reserves
D) total liabilities; total borrowings
10) A central bank has ________ chance to identify a credit-driven bubble compared to
an irrational exuberance bubble.
A) a greater
B) less of a
C) about the same level of a
D) a greater, less or about the same level of a
11) Exchange rates are determined in
A) the money market
B) the foreign exchange market
C) the stock market
D) the capital market
12) Open market operations intended to offset movements in noncontrollable factors
(such as float) that affect reserves and the monetary base are called
A) defensive open market operations
B) dynamic open market operations
C) offensive open market operations
D) reactionary open market operations
13) American businesses get their external funds primarily from
A) bank loans
B) bonds and commercial paper issues
C) stock issues
D) loans from nonbank financial intermediaries
14) The interest rate charged on overnight loans of reserves between banks is the
A) prime rate
B) discount rate
C) federal funds rate
D) Treasury bill rate
15) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000
when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10
percent, the bank’s excess reserves will be
A) $1,000
B) $8,000
C) $9,000
D) $17,000
16) Keynes’s liquidity preference theory indicates that the demand for money is
A) constant
B) positively related to interest rates
C) negatively related to interest rates
D) negatively related to bond values
17) According to Tobin’s q theory, when equity prices are low the market price of
existing capital is ________ relative to new capital, so expenditure on fixed investment
is ________.
A) cheap; low
B) dear; low
C) cheap; high
D) dear; high
18) In financial markets, when a firm issuing new securities has previously issued
securities, these securities are called
A) seasoned issues
B) an initial public offering
C) secondary issues
D) investment-grade issues
19) If a central bank does not want to see its currency fall in value, it may pursue
________ monetary policy to ________ the domestic interest rate, thereby
strengthening its currency.
A) expansionary; raise
B) contractionary; raise
C) expansionary; lower
D) contractionary; lower
20) The experience of disintermediation in the banking industry illustrates that
A) more regulation of financial markets may avoid such problems in the future
B) banks are unable to remain competitive with other financial intermediaries
C) consumers no longer desire the services that banks provide
D) markets invent alternatives to costly regulations
21) Evidence in support of the efficient markets hypothesis includes
A) the failure of technical analysis to outperform the market
B) the small-firm effect
C) the January effect
D) excessive volatility
22) Equity of U.S. companies can be purchased by
A) U.S. citizens only
B) foreign citizens only
C) U.S. citizens and foreign citizens
D) U.S. mutual funds only
23) The modern commercial banking system began in America when the
A) Bank of United States was chartered in New York in 1801
B) Bank of North America was chartered in Philadelphia in 1782
C) Bank of United States was chartered in Philadelphia in 1801
D) Bank of North America was chartered in New York in 1782
24) In the long run, following a combination of a negative demand shock and a
temporary negative supply shock,
A) both inflation and output return to the original long-run equilibrium values
B) inflation is permanently increased, while output returns to potential output
C) output returns to potential output, while inflation may be higher or lower than its
initial value
D) inflation is permanently reduced, while output returns to potential output
E) None of the above
25) Which of the following types of information most likely allows the exploitation of a
profit opportunity?
A) Financial analysts’ published recommendations
B) Technical analysis
C) Hot tips from a stockbroker
D) Insider information
26) Debt deflation occurs when
A) an economic downturn causes the price level to fall and a deterioration in firms’ net
worth because of the increased burden of indebtedness
B) rising interest rates worsen adverse selection and moral hazard problems
C) lenders reduce their lending due to declining stock prices (equity deflation) that
lowers the value of collateral
D) corporations pay back their loans before the scheduled maturity date
27) Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank
holding companies belongs to
A) the SEC
B) the Comptroller of the Currency
C) the U.S. Treasury
D) the Federal Reserve
28) State banks that are not members of the Federal Reserve System are most likely to
be examined by the
A) Federal Reserve System
B) FDIC
C) FHLBS
D) Comptroller of the Currency
29) ________ is creating a marketable capital market instrument by bundling a
portfolio of mortgage or auto loans.
A) diversification
B) arbitrage
C) computerization
D) securitization
30) Deposit insurance has not worked well in countries with
A) a weak institutional environment
B) strong supervision and regulation
C) a tradition of the rule of law
D) few opportunities for corruption
31) Secondary markets make financial instruments more
A) solid
B) vapid
C) liquid
D) risky
32) The market where one currency is converted into another currency is called the
________ market.
A) stock
B) bond
C) derivatives
D) foreign exchange
33) ________ in the foreign interest rate causes the demand for domestic assets to
increase and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
34) Risk premiums on corporate bonds tend to ________ during business cycle
expansions and ________ during recessions, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
35) Under the Bretton Woods system, if IMF loans were insufficient to prevent
________ of a currency, then the country was allowed to devalue its currency by setting
a new, ________ exchange rate.
A) depreciation; lower
B) depreciation; higher
C) appreciation; lower
D) appreciation; higher
36) The Bretton Woods system was one in which central banks
A) bought and sold their own currencies to keep their exchange rates fixed
B) agreed not to intervene in the foreign exchange market to maintain a fixed exchange
rate regime that had existed prior to World War I
C) agreed to limit domestic money growth to the average of the five largest industrial
nations
D) agreed to limit domestic money growth to the average of the seven largest industrial
nations