Reserves in the banking system will increase if the Fed:
A. buys euros or sells dollars.
B. sells euros or buys dollars.
C. sells euro-dominated bonds and exchanges the euros for dollars.
D. sells euro-dominated bonds and keeps the euros from the sale.
Answer:
Catastrophe bonds or “cat bonds” were developed:
A. by reinsurance companies to finance their growth.
B. as an alternative to purchasing reinsurance.
C. prior to the creation of reinsurance companies but are being phased out.
D. by the U.S. government to provide insurance against national disasters.
Answer:
The interest rate the Fed charges for secondary credit is:
A. above the primary discount rate.
B. below the market federal funds rate.
C. below the primary discount rate.
D. equal to the primary discount rate.
Answer:
As technology allows information regarding the financial health of corporations to
become easier to obtain, we should expect:
A. the risk spread to decrease.
B. the role of bond rating agencies to become more important.
C. a decrease in the number of participants in the bond market.
D. the risk spread to increase.
Answer:
If a bank has 1,000 depositors, each of whom deposits $1,000 in the bank, and the bank
makes loans of $10,000 each, then each depositor has contributed:
A. $100 to each loan.
B. $1 to each loan.
C. $10 to each loan.
D. $1000 to each loan.
Answer:
A collection of assets is known as a(n):
A. asset-backed security.
B. derivative.
C. futures contract.
D. portfolio.
Answer:
A reduction in the central bank’s inflation target will result in:
A. an increase in potential output.
B. no change in potential output.
C. a decrease in potential output.
D. the long-run aggregate supply curve having an upward slope.
Answer:
If foreigners are restricted in their ability to sell investments in a country then that
government is imposing:
A. controls on capital inflows.
B. controls on capital outflows.
C. controls on both capital inflows and outflows.
D. fixed exchange rates.
Answer:
Central banks often find:
A. they can efficiently pursue all of their goals simultaneously.
B. there are tradeoffs that make pursuing all of their goals simultaneously impossible.
C. the goal(s) they pursue will be determined by their profitability.
D. they must keep their goals secret or else they cannot be attained.
Answer:
If 10% is the annual rate, considering compounding, the monthly rate is:
A. 0.0833%
B. 0.833%
C. 0.00797%
D. 1.0833%
Answer:
Hedging risk and spreading risk are two ways to:
A. increase expected returns from a portfolio.
B. diversify a portfolio.
C. lower transaction costs.
D. match up perfectly positively correlated assets.
Answer:
Which of the following is true?
A. Investments with higher risk generally have a higher expected return than risk-free
investments.
B. Investments that pay a return over a longer time horizon generally have less risk.
C. Investments with a greater variance in the size of the future payoff generally pay a
lower expected return.
D. Risk-free investments are the best benchmark for measuring the risk of all
investment strategies.
Answer:
If the equation of exchange is MV = PY the Y represents:
A. nominal GDP.
B. real GDP.
C. potential output.
D. economic growth.
Answer:
All other factors equal, if the costs of converting bonds and other financial securities to
a means of payment decrease:
A. the transactions demand for money should increase.
B. the transactions demand for money should decrease.
C. it shouldn’t impact the transactions demand for money.
D. nominal interest rates should decrease.
Answer:
In 2008, as a result of a run on government-sponsored enterprise debt, the U.S. Treasury
placed Fannie Mae and Freddie Mac in:
A. conservatorship.
B. receivership.
C. bankruptcy.
D. trusteeship.
Answer:
Setting an explicit numerical inflation target is most associated with the goal(s) of:
A. transparency.
B. accountability.
C. both transparency and accountability.
D. neither transparency nor accountability; it’s about moral hazard.
Answer:
All of the following are depository institutions, except:
A. commercial banks.
B. credit unions.
C. insurance companies.
D. savings banks.
Answer:
Most responsible central banks publish their balance sheet:
A. at least once a year.
B. quarterly.
C. at least monthly.
D. semi-annually.
Answer:
A country that frequently uses capital controls:
A. increases the risk for foreign investors.
B. decreases the risk for foreign investors.
C. should see lower interest rates on its domestic bonds and lower prices.
D. will attract more investment.
Answer:
The key part of the real business cycle theory model is:
A. the importance of monetary policy.
B. the short-run aggregate supply curve.
C. changes in aggregate demand.
D. changes in potential output.
Answer:
Primary credit extended by the Fed is:
A. for banks needing long-term loans to work out financial problems.
B. the highest interest rate loans offered by the Fed.
C. short-term, usually overnight loans.
D. loans offered at the prime interest rate for periods exceeding thirty days but less
than one year.
Answer:
The high volume of shares of stock that are traded on a normal day on stock markets
reflects the:
A. high transaction costs associated with these financial markets.
B. low transaction costs and high liquidity associated with these markets.
C. low transaction costs and low liquidity associated with these markets.
D. high transactions costs and low liquidity associated with these markets.
Answer:
Mary purchases a U.S. Treasury bond; the bond is a(n):
A. asset of the U.S. government as well as an asset for Mary.
B. liability of the U.S. government and an asset for Mary.
C. asset for Mary but not a liability of the U.S. Government.
D. asset for the government but a liability for Mary.
Answer:
You hold an FDIC insured savings account at your neighborhood bank. Your current
balance is $275,000. If the bank fails you will receive:
A. $275,000.
B. $250,000.
C. $100,000.
D. $125,000.
Answer:
Of the more than 6,100 banks in the United States at the end of 2013, by far the greatest
numbers of them were:
A. regional banks.
B. money center banks.
C. community banks.
D. savings banks.
Answer:
The option holder is:
A. the seller of an option.
B. another name for the clearinghouse used in futures contracts.
C. the buyer of an option.
D. always a spectator.
Answer:
Exchange-rate stability is likely to be a more important goal for the central banks of:
A. emerging market economies than the central bank of the U.S.
B. the U.S. and Japan than most small developing countries.
C. countries where exports and imports make up a small total of all economic activity.
D. large, closed economies.
Answer:
Consider a bond that costs $1000 today and promises a one-time future payment of
$1080 in four years. What is the approximate interest rate on this bond?
A. 2%
B. 4%
C. 8%
D. 10.8%
Answer:
If a lender wants to earn a real interest rate of 3% and expects inflation to be 3%, he/she
should charge a nominal interest rate that:
A. is at least 7%.
B. is anything above 0%.
C. equals the real rate desired plus expected inflation.
D. equals the real rate desired less expected inflation.
Answer:
The relationship between real estate markets and interest rates is:
A. nonexistent.
B. inverse; higher interest rates drive down real estate prices and vice versa.
C. complex; cuts in the short-term interest rate lead to increases in long-term rates and
higher real estate prices.
D. direct; high interest rates lead to high real estate values as people abandon other
financial assets.
Answer:
Bonds with the same tax status and ratings:
A. always have the same yield.
B. can have different yields due to different maturities.
C. should sell for the same price.
D. will still have different yields depending on their face values.
Answer:
If prices are not stable:
A. money becomes less useful as a store of value.
B. money performs better as a unit of account.
C. it may be an inconvenience, but resources are still allocated efficiently.
D. prices become highly useful for conveying information.
Answer:
If required reserves are expressed by RR; the required reserve rate by rD and deposits
by D, the simple deposit expansion multiplier is expressed as:
A. RDD.
B. (1/rD) D.
C. RD.
D. 1/rD.
Answer: