Which of the following statements is most correct for U.S. commercial banks?
A. Net interest margin is much larger than return on equity.
B. Net interest margin is about equal to return on equity.
C. Net interest margin averages about two times the return on equity.
D. Net interest margin is closely related to the return on assets.
Answer:
In the event of bankruptcy, stockholders:
A. are paid before bondholders.
B. receive at least their initial investment due to limited liability.
C. could lose more than their initial investment.
D. are the last to be paid and could end up losing what they have invested.
Answer:
Ignoring risk differences, if we observe American investors purchasing foreign bonds
when the U.S. interest rate is above the foreign interest rate, we could assume that:
A. American investors lack good information.
B. these investors expect the dollar to appreciate over the life of their investment.
C. these investors expect the dollar to depreciate over the life of their investment.
D. these investors expect that U.S. inflation will slow.
Answer:
Financial intermediaries, through their ability to lower transaction costs:
A. reduce the opportunity cost of specialization.
B. decrease the efficiency of an economy.
C. allow for people to be more self-sufficient.
D. make collecting and processing information unprofitable.
Answer:
As the corporation uses more debt financing, which of the following holds true for the
stockholders?
A. The expected return to the stockholders decreases and the standard deviation of that
return decreases.
B. The expected return to the stockholders increases and the standard deviation of the
return decreases.
C. The expected return to the stockholders increases and the standard deviation of the
return increases.
D. The expected return to the stockholders decreases and the standard deviation of the
return increases.
Answer:
If a bank sells off all of its assets and pays all of its liabilities, the amount remaining
would be its:
A. net profit.
B. reserves.
C. net worth.
D. excess reserves.
Answer:
Under the Expectations Hypothesis, bonds of different maturities are assumed to be
perfect substitutes because:
A. the risk premium is assumed to be negative.
B. market forces would always have long-term interest rates equal the average of the
current and expected short-term rate.
C. expectations of future interest rates are uncertain and therefore cannot be included in
the analysis.
D. bond markets are very liquid.
Answer:
Which of the following statements seems to be verified by economic data?
A. Inflation tends to rise during recessions.
B. Inflation adjusts within three months to output gaps.
C. Inflation tends to fall during expansions.
D. It can take over a year for inflation to adjust to output gaps.
Answer:
You graduate from law school and can now begin charging clients fees for your time.
What impact will this have on your demand for money?
A. Your increased income will likely cause your demand for money to decrease
B. Your opportunity cost of making trips to the bank will decrease
C. Your increased income will likely cause your demand for money to increase
D. Your demand for money will not be affected
Answer:
If we let P = the domestic price of a basket of goods and Pf the foreign price of the same
basket of goods measured in domestic currency:
A. If > 1 foreign products will seem inexpensive.
B. If > 1 foreign products will seem expensive.
C. If = 1 the nominal exchange rate is also = 1.
D. You cannot determine the relative prices of foreign goods from the equation
.
Answer:
Everything else equal, if the ratio of bank assets to bank capital increases, the bank’s
return on equity should:
A. remain constant.
B. decrease.
C. increase.
D. cannot be determined from the information provided.
Answer:
Suppose that the return on assets other than bonds falls. In the bond market this will
result in a(n):
A. movement down the bond demand curve.
B. shift to the left of the bond demand curve.
C. increase in the price of bonds.
D. shift to the left of the bond supply curve.
Answer:
Answer:
As bond prices increase:
A. the quantity of bonds supplied increases.
B. the quantity of bonds supplied decreases.
C. the quantity of bonds demanded increases.
D. yields increases.
Answer:
A sterilized foreign exchange intervention would:
A. alter the asset side of a central bank’s balance sheet but leave the domestic monetary
base unchanged.
B. alter the liability side of the central bank’s balance sheet but leave the asset side
unchanged.
C. leave the central bank’s balance sheet unchanged.
D. not alter the central bank’s holdings of international reserves.
Answer:
When Argentina fixed the exchange rate of their peso to the U.S. dollar, one outcome
was:
A. Argentinean central bankers regained control of their domestic interest rate.
B. Argentinean central bankers were finally able to focus their attention on domestic
monetary policy.
C. Argentinean central bankers effectively gave control of their domestic interest rate
to the FOMC.
D. Argentineans began using the U.S. dollar for all of their transactions.
Answer:
The government provides deposit insurance; this insurance protects:
A. large corporate deposit accounts, but only the amounts that exceed the $250,000
deductible.
B. depositors for up to $250,000 should a bank fail.
C. the deposits of banks in their Federal Reserve accounts.
D. the deposits that people have, but only for federally chartered banks.
Answer:
Suppose that general business conditions improve, and at the same time, wealth
increases. Based on this information, we know that:
A. bond prices increase.
B. yield to maturity decreases.
C. the real interest rate increases.
D. the quantity of bonds increases.
Answer:
The lowest rating for an investment grade bond assigned by Moody’s is:
A. Baa.
B. A.
C. BBB.
D. Aa.
Answer:
Inflation can be thought of as:
A. an increase in the price of money.
B. a decrease in the price of money.
C. no change in the price of money, just in the supply of money.
D. no change in the price of money, just in the demand for money.
Answer:
The addition of the Liquidity Premium Theory to the Expectations Hypothesis allows us
to explain why:
A. yield curves usually slope upward.
B. interest rates on bonds of different maturities move together.
C. long-term interest rates are less volatile than short term interest rates.
D. yield curves are flat.
Answer:
The present value and the interest rate have:
A. a direct relationship; as i increases, pv increases.
B. an inverse relationship; as i increases, pv decreases.
C. an unclear relationship; whether it is direct or inverse depends on the interest rate.
D. no relationship.
Answer:
The fact that a financial intermediary can hire a lawyer to write one contract that works
for many customers is an example of:
A. economies of scale.
B. the law of diminishing marginal returns.
C. the law of increasing opportunity cost.
D. the law of demand.
Answer:
In the period of 1979 to 1982, if the Fed had set an interest rate target that was equal to
the actual market interest rates that occurred, the:
A. economy would have been better off.
B. target would not have been politically acceptable.
C. target would have been a federal funds rate of zero percent.
D. inflation rate would have risen further.
Answer:
When a currency is described as overvalued, this typically implies:
A. it is overvalued relative to the exchange rate set by the nation’s central bank.
B. it is selling at an exchange rate less than one.
C. the exchange rate is higher than one year previous.
D. its current market value is higher than the value that is thought to be consistent with
purchasing power parity.
Answer:
Which of the following is not a nondepository institution?
A. A savings and loan
B. An insurance company
C. A mutual fund company
D. A pension fund
Answer:
A major contributing factor to the instability of money demand over the past 25 years is
the:
A. introduction of financial instruments that pay higher returns than money but can be
used as a means of payment.
B. Fed has changed the way the money aggregates are defined.
C. failure of many savings and loans.
D. introduction of credit cards.
Answer:
The default-risk premium:
A. is negative for a U.S. Treasury bond.
B. is also known as the risk spread.
C. must always be greater than 0 (zero).
D. is assigned by a bond-rating agency.
Answer:
Most economists attribute the Great Moderation experienced in the United States during
the 1990s mainly to:
A. good fortune.
B. slowing productivity growth.
C. aggressive fiscal policy.
D. better understanding and use of monetary policy.
Answer:
The ECB’s Governing Council has price stability as a primary objective. It has defined
price stability as:
A. a zero rate of inflation.
B. an inflation rate less than 5 percent.
C. an inflation rate below, but close to, 2 percent over the medium term.
D. an inflation rate in the three to five percent range.
Answer:
One reason that financial intermediaries exist is that they:
A. are required by government regulation.
B. have developed low-cost methods to obtain information.
C. are the only way to obtain information.
D. earn high returns from lending their own funds.
Answer:
China has used its current account surplus to:
A. buy stocks on the New York Stock Exchange.
B. buy German government and agency securities.
C. buy U.S. government and agency securities.
D. make loans to foreigners.
Answer: