1) Assume you are holding Treasury securities and have sold futures to hedge against
interest-rate risk. If interest rates rise
A) the increase in the value of the securities equals the decrease in the value of the
futures contracts
B) the decrease in the value of the securities equals the increase in the value of the
futures contracts
C) both the securities and the futures contracts decrease in value
D) both the securities and the futures contracts increase in value
2) Instrument independence is the ability of ________ to set monetary policy
________.
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
3) According to the interest parity condition, if the domestic interest rate is 10 percent
and the foreign interest rate is 12 percent, then the expected ________ of the foreign
currency must be ________ percent.
A) appreciation; 4
B) appreciation; 2
C) depreciation; 2
D) depreciation; 4
4) Under the Global Legal Settlement of 2002, the provision that requires, for a period
of five years, brokerage firms to contract with independent research firms to provide
information to their customers is an example of
A) regulate for transparency
B) supervisory oversight
C) separation of functions
D) socialization of information production
5) The insurance industry’s share of total financial intermediary assets fell because of
A) poor investment returns in the 1960s and 1970s
B) widespread failures of life insurance companies
C) federal regulations limiting the sale of life insurance
D) unpredictability of payouts
6) If the Fed wants to temporarily inject reserves into the banking system, it will engage
in
A) a repurchase agreement
B) a matched sale-purchase transaction
C) a reverse repurchase agreement
D) an open market sale
7) A bank failure occurs whenever
A) a bank cannot satisfy its obligations to pay its depositors and have enough reserves
to meet its reserve requirements
B) a bank suffers a large deposit outflow
C) a bank has to call in a large volume of loans
D) a bank is not allowed to borrow from the Fed
8) Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to
supervise accounting firms is an example of
A) regulate for transparency
B) supervisory oversight
C) separation of functions
D) socialization of information production
9) In the model of the money supply process, the depositor’s role in influencing the
money supply is represented by
A) the currency holdings
B) the currency holdings and excess reserve
C) the currency holdings and borrowed reserve
D) the market interest rate
10) Low stock market prices might ________ consumers willingness to spend and
might ________ businesses willingness to undertake investment projects.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
11) In the 1970s, the Fed selected an interest rate as an operating target rather than a
reserve aggregate primarily because it
A) had no interest in targeting a monetary aggregate, as evidenced by its unwillingness
to target a reserve aggregate
B) was still very concerned with achieving interest rate stability
C) was committed to targeting free reserves
D) was committed to the real bills doctrine
12) U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay
a lower purchase price than the amount you receive at maturity.
A) premium
B) collateral
C) default
D) discount
13) An equal decrease in all bond interest rates
A) increases the price of a five-year bond more than the price of a ten-year bond
B) increases the price of a ten-year bond more than the price of a five-year bond
C) decreases the price of a five-year bond more than the price of a ten-year bond
D) decreases the price of a ten-year bond more than the price of a five-year bond
14) The theory of portfolio choice suggests that the most important factor affecting the
demand for domestic and foreign assets is
A) the level of trade and capital flows
B) the expected return on these assets relative to one another
C) the liquidity of these assets relative to one another
D) the riskiness of these assets relative to one another
15) U.S. government bonds have no default risk because
A) they are backed by the full faith and credit of the federal government
B) the federal government can increase taxes to pay its obligations
C) they are backed with gold reserves
D) they can be exchanged for silver at any time
16) A situation in which the quantity of bonds supplied exceeds the quantity of bonds
demanded is called a condition of excess supply; because people want to sell ________
bonds than others want to buy, the price of bonds will ________.
A) fewer; fall
B) fewer; rise
C) more; fall
D) more; rise
17) Direct finance involves the sale to ________ of marketable securities such as stocks
and bonds.
A) households
B) insurance companies
C) pension funds
D) financial intermediaries
18) Of the following, the one that appears in the current account of the balance of
payments is
A) an Italian investor’s purchase of IBM stock
B) income earned by U.S. subsidiaries of Barclay’s Bank of London
C) a loan by a Swiss bank to an American corporation
D) a purchase of a British Treasury bond by the Fed
19) The monetary policy strategy that results in the loss of an independent monetary
policy is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
20) Everything else held constant, a decrease in net taxes ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
21) 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
22) Under the Sarbanes-Oxley Act of 2002, the clause that makes it unlawful for a
registered public accounting firm to provide any nonaudit service to a client
contemporaneously with an impermissable audit is an example of which remedy of
conflicts of interest?
A) Regulate for transparency
B) Supervisory oversight
C) Separation of functions
D) Socialization of information production
23) The collapse of the Bank of Credit and Commerce International, BCCI, showed the
difficulty of international banking regulation. BCCI operated in more than ________
countries and was supervised by the small country of ________.
A) 70, Luxembourg
B) 100, Monaco
C) 70, Monaco
D) 100, Luxembourg
24) The efficient markets hypothesis implies that prices in the stock market
A) follow a definite pattern
B) are more likely to go up than down
C) always undervalue the true assets of a corporation
D) are unpredictable
25) The free-rider problem occurs because
A) people who pay for information use it freely
B) people who do not pay for information use it
C) information can never be sold at any price
D) it is never profitable to produce information
26) When the Fed decreases the money stock, the money supply curve shifts to the
________ and the interest rate ________, everything else held constant.
A) right; rises
B) right; falls
C) left; falls
D) left; rises