A central bank holds foreign exchange reserves for:
A. diversification purposes.
B. foreign exchange interventions.
C. safekeeping.
D. diversification and safekeeping.
Answer:
Which of the following cities has a Federal Reserve Bank located in it?
A. Denver
B. Philadelphia
C. Detroit
D. Miami
Answer:
If the Fed desired to fix the euro/dollar exchange rate, they would have to:
A. get the European Central Bank to also agree to fixed exchange rates.
B. maintain ample reserves of dollars.
C. be willing to exchange dollars for euros whenever anyone asked.
D. impose capital controls.
Answer:
Financial instruments used primarily to transfer risk would include all of the following,
except:
A. an insurance contract.
B. a futures contract.
C. options.
D. a bank loan.
Answer:
If a bond has a face value of $1,000 and the bondholder receives coupon payments of
$27.50 semi-annually, the bond’s coupon rate is:
A. 2.75%
B. 5.50%
C. 27.5%
D. a value that cannot be determined from the information provided.
Answer:
Financial instruments used primarily to transfer risk would not include:
A. a bank loan.
B. options.
C. an insurance policy.
D. home mortgages.
Answer:
Users of commodities are:
A. usually not participants in futures contracts.
B. speculators preferring to get the large returns which result from large risk.
C. likely to take the short position in a futures contract.
D. buyers of futures.
Answer:
The difference between a bank’s reserves and its required reserves is:
A. profits.
B. net interest income.
C. excess reserves.
D. vault cash.
Answer:
At any fixed interest rate, an increase in time, n, until a payment is made:
A. increases the present value.
B. has no impact on the present value since the interest rate is fixed.
C. reduces the present value.
D. affects only the future value.
Answer:
Moral hazard problems arise because:
A. lenders cannot distinguish good from bad risks.
B. borrowers have incentives to act in ways that do not reflect the lender’s interest.
C. firms hire incompetent employees.
D. lenders charge interest rates that are too low.
Answer:
Which fact about the term structure is the Expectations Theory able to explain?
A. Why interest rates on bonds with different terms to maturity tend to move together
over time.
B. Why yields on short-term bonds are more volatile than yields on long-term bonds.
C. Why longer-term yields tend to be higher than shorter-term yields.
D. Why long-term bonds usually are less liquid than short-term bonds with the same
default risk.
Answer:
International capital mobility:
A. contributes to the rigidity of exchange rates.
B. contributes to the equalization of expected returns across countries.
C. eliminates arbitrage opportunities.
D. makes interest rates equal across countries.
Answer:
The higher the future value of the payment the:
A. lower the present value.
B. higher the present value.
C. future value doesn’t impact the present value, only the interest rate really matters.
D. lower the present value because the interest rate must fall.
Answer:
Over the past twenty-five years, bank loans as a percentage of total credit:
A. increased from less than sixty percent to over 90 percent.
B. stayed fairly constant at around eighty percent.
C. decreased from accounting for virtually all of the credit to less than sixty percent.
D. dropped from seventy five percent to less than thirty percent.
Answer:
Property and casualty insurers will hold assets of shorter maturities than life insurance
companies because:
A. shorter maturity assets usually have higher returns.
B. life insurance companies may find they need to get liquid unexpectedly.
C. property and casualty insurers can find themselves needing to get liquid
unexpectedly.
D. life insurance companies generally take on more risk than property and casualty
companies.
Answer:
Which of the following statements best completes this sentence: “On a bank’s balance
sheet”?
A. assets show the sources of funds and the net worth shows the uses of funds.
B. net worth shows the sources of funds and liabilities show the uses of funds.
C. assets show the uses of funds and liabilities show the sources of funds.
D. net worth represents both a source and a use of funds.
Answer:
The financial crisis of 2007-2009 has made which of the following regulatory goals a
top priority for government:
A. disclosure of accounting information.
B. minimum capital requirements.
C. avoidance of systemic risk.
D. promotion of competition.
Answer:
Suppose the nominal interest rate on a one-year car loan is 8% and the inflation rate is
expected to be 3% over the next year. Based on this information, we know:
A. the ex ante real interest rate is 5%.
B. the lender benefits more than the borrower because of the difference in the nominal
versus real interest rates.
C. at the end of the year, the borrower pays only 5% in nominal interest.
D. the ex post real interest rate 11%.
Answer:
Answer:
The annual volume of foreign exchange transactions:
A. is small relative to most financial markets.
B. is one-eighth the world GDP.
C. is three times the world trade volume.
D. is more than 15 times larger than world GDP.
Answer:
The current yield of a bond:
A. is another term for the coupon rate.
B. is another term for the yield to maturity.
C. equals zero for a zero-coupon bond since these bonds have no coupon payments.
D. is the difference between its future value and its present value.
Answer:
The quantity of securities held by the Federal Reserve is controlled through:
A. the U.S. Treasury.
B. the Fed’s annual budget.
C. open market operations.
D. the purchases made by the regional Reserve banks.
Answer:
One key difference between options contracts and futures contracts is:
A. in a futures contract, one part has more rights than the other.
B. with an options contract both parties have equal rights.
C. in an options contract, the rights belong to one party.
D. in a futures contract all rights are held by just one party.
Answer:
The risk spread:
A. is also known as the default-risk premium.
B. should have a direct relationship with the bond’s price.
C. should have an inverse relationship with the bond’s yield.
D. is always constant.
Answer:
An individual who stores wealth in art rather than money will find that he/she:
A. suffers larger real losses during periods of high inflation.
B. has far more liquidity than most savers.
C. will incur higher transaction costs when he/she ultimately makes purchases.
D. will have to resort to barter exchanging the art for desired goods.
Answer:
During the financial crisis of 2007-2009 which of the following countries experienced a
decline in real GDP roughly twice that of the United States?
A. Canada
B. United Kingdom
C. Japan
D. Turkey
Answer:
In quoting exchange rates:
A. one should always quote these as units of foreign currency over a unit of domestic
currency.
B. one should always quote the rate as the units of domestic currency over a unit of
foreign currency.
C. usually one should quote the rate in such a way that the value is greater than one.
D. each country’s central bank determines how the rate is to be quoted.
Answer:
A decrease in the nation’s wealth, all other factors constant, would cause:
A. the bond demand curve to shift left.
B. bond prices to rise.
C. interest rates to decrease.
D. the bond supply curve to shift left.
Answer:
Which of the following is an example of the economies of scale argument for increased
profits for large financial holding companies?
A. Financial holding companies offer a wide array of services under one name.
B. Financial holding companies need only one CEO, one Board of Directors, and one
accounting system regardless of size.
C. Financial holding companies are well diversified so risk is reduced.
D. The profitability of financial holding companies does not rely on one particular line
of business.
Answer:
An inflation shock that shifts the short-run aggregate supply curve leftward and leaves
the long-run supply curve unchanged means the economy’s potential level of output
will:
A. increase.
B. not change.
C. decrease.
D. decrease only if monetary policymakers do not respond.
Answer:
Which of the following expresses 5.5%?
A. 0.0055
B. 5.50
C. 0.550
D. 0.0550
Answer: