One reason it took so long to have a central bank in the United States is that:
A. it wasn’t needed.
B. states feared centralization of power.
C. state currencies worked fine.
D. all of the answer options are correct.
Answer:
If a bond’s purchase price equals the face value the:
A. coupon rate equals the current yield, which is less than the yield to maturity.
B. current yield equals the yield to maturity, which exceeds the coupon rate.
C. coupon rate equals the yield to maturity, which equals the current yield.
D. coupon rate does not equal the current yield, which does not equal the yield to
maturity.
Answer:
There’s a call option written for 100 shares of GM stock for $85.00 a share, prior to the
third Friday of October 2017: The option writer:
A. has the option but not the requirement of selling 100 shares of GM for $85.00.
B. will sell 100 shares of GM for $85.00 on the third Friday of October 2017.
C. has the option to back out of this contract prior to the third Friday of October 2017.
D. is required to post margin.
Answer:
Which of the following statements best completes the following: “The Fed’s
independence can only be revoked by”?
A. The U.S. President
B. The Secretary of the Treasury
C. Congress
D. Changing the U.S. Constitution
Answer:
The Treaty of Maastricht was signed in:
A. 1999.
B. 2001.
C. 1992.
D. 1997.
Answer:
One of the conclusions from Akerlof’s paper titled “The Market for Lemons” was:
A. high quality goods will drive low quality goods out of the market.
B. lacking the ability to distinguish high from low quality, the quality the market will
end up offering will be the average quality.
C. lacking the ability to distinguish high from low quality, low quality may drive high
quality out of the market.
D. high quality is always demanded by consumers over low quality.
Answer:
Changes in the federal funds rate influence the economy’s growth rate through all of the
following except by:
A. making it more or less attractive to people save.
B. making it more or less expensive to borrow.
C. making investment spending more or less attractive.
D. altering the real interest rate when inflation is changing quickly.
Answer:
An investor puts $1,000 into an investment that will return $1,250 one-half of the time
and $900 the remainder of the time. The expected return for this investor is:
A. $1,075
B. 5.0%
C. 7.5%
D. 15.0%
Answer:
Vault cash is:
A. equal to the total amount of reserves and is an asset of the central bank.
B. not reserves but is a liability of the central bank.
C. a part of reserves and an asset of commercial banks.
D. not reserves but is an asset of central banks.
Answer:
Marking to market is a process that:
A. involves a transfer of risk.
B. ensures that the buyers and sellers receive what the contract promises.
C. always requires the sellers of contracts to transfer funds to the buyers of contracts.
D. buyers and sellers can request for an additional fee when the contract is created.
Answer:
The principal-agent problem is:
A. a form of adverse selection.
B. when stockholders are not acting in the best interest of managers.
C. a form of moral hazard.
D. due to managers not being able to monitor stockholder behavior.
Answer:
The price of a coupon bond can best be described as the:
A. present value of the face value.
B. future value of the coupon payments.
C. future value of the coupon payments and the face value.
D. present value of the face value plus the present value of the coupon payments.
Answer:
If the Fed entered the federal funds market as a borrower or a lender to make sure the
market rate always equals the target rate, they would be doing all of the following
except:
A. making unsecured loans.
B. in essence paying interest on excess reserves.
C. eliminating a lot of valuable information coming from the market.
D. following the directives issued by Congress.
Answer:
The practice of “placing the issue” is conducted by:
A. the underwriting services of investment banks.
B. mutual fund companies.
C. brokerage firms.
D. commercial banks.
Answer:
The forward exchange rate:
A. is the rate at which foreign exchange dealers are willing to commit today to buying
or selling a currency in the future.
B. is a synonymous term for the nominal exchange rate.
C. is the same as the spot rate.
D. is always above the spot rate since it carries greater risk.
Answer:
The expected return from a portfolio made up equally of two assets that move perfectly
opposite of each other would have a standard deviation equal to:
A. 1.0
B. -1.0
C. 0.0
D. 0.5
Answer:
The Federal Reserve surveys lending officers regularly to:
A. determine the interest rates they charge.
B. get a feel for the supply and demand for loans.
C. get a feel for the quantity and quality of loans.
D. all of the answers given are correct.
Answer:
If the euro/U.S.$ exchange rate is 1.1€/U.S.$ in New York but 1.05€/U.S.$ in London,
we should see:
A. people selling U.S. dollars and buying euros in New York and then selling those
euros and buying $’s in London.
B. people selling euros and buying $’s in New York and then buying euros by selling
$’s in London.
C. the price differential between the markets increase as people seek to take advantage
of the situation.
D. the $ should appreciate in New York relative to the euro.
Answer:
If a local government eliminates the tax exemption on municipal bonds, we’d expect to
see:
A. an increase in the yield on taxable bonds.
B. a decrease in the gap in yields on taxable and tax-exempt bonds.
C. a decrease in the yield on municipal bonds.
D. municipal bonds will become more attractive to investors.
Answer:
Each of the following factors contribute to the slope of the dynamic aggregate demand
curve, except the:
A. strength of the effect of inflation on real balances.
B. current level of technology.
C. extent to which monetary policymakers react to a change in current inflation.
D. size of the response of aggregate expenditures to changes in the interest rate.
Answer:
The Bank Holding Company Act of 1956:
A. significantly broadened the scope of what bank holding companies could do.
B. limited bank holding companies to operating only within their chartered state.
C. limited the scope of bank holding companies in terms of services offered.
D. repealed the McFadden Act of 1927.
Answer:
When nominal interest rates are high, the velocity of money should:
A. be low.
B. also be high.
C. not change; the velocity of money does not vary with the interest rate.
D. decrease by the same percent that the nominal interest rate has increased.
Answer:
The potential output of a country would increase as a result of each of the following,
except:
A. an increase in population.
B. an increase in capital per worker.
C. technological innovation that increases labor productivity.
D. depreciation of the capital stock.
Answer:
In comparing money to a U.S. Treasury bond held by an individual, we can say:
A. the treasury bond is an asset but money is not.
B. money is an asset but the U.S. bond is a liability of the individual.
C. both are stores of value.
D. money is a store of value but the bond is not.
Answer:
Which of the following is not a financial instrument?
A. A share of Microsoft stock
B. A U.S. Treasury Bond
C. An electric bill
D. A life insurance policy
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:
Control of money growth to stabilize inflation only works if velocity were constant. In
practice, changes in velocity:
A. can safely be ignored in countries with relatively low inflation rates.
B. are important when inflation is low.
C. must be taken into account no matter what the inflation rate.
D. can always safely be ignored.
Answer:
Which is a function of modern central banks?
A. To control securities markets
B. To control the government’s budget
C. To control the availability of money and credit
D. To manage fiscal policy
Answer:
In the U.S., most of the recessions are associated with:
A. ill-timed fiscal policy.
B. decreasing net exports.
C. decreases in investment.
D. large decreases in consumption.
Answer:
If the U.S. were to revert to a gold standard, trade deficits would:
A. result in gold reserves in the U.S. decreasing.
B. result in lower domestic interest rates.
C. quickly disappear.
D. result in high inflation.
Answer: