A borrower has information that is not available to a prospective lender; this is an
example of:
A. a wise borrower and an unwise lender.
B. a transfer of risk.
C. information asymmetry.
D. liquidity risk.
Answer:
Suppose the economy has an inverted yield curve. According to the Expectations
Hypothesis, which of the following interpretations could be used to explain this?
A. Interest rates are expected to fall in the future.
B. Investors prefer bonds with less default risk.
C. Investors prefer bonds with less interest-rate risk.
D. The term spread is positive.
Answer:
Each of the following is an example of a restrictive covenant on a mortgage loan,
except:
A. net worth requirements.
B. requiring that the borrower reside in a home for which he or she receives a
mortgage.
C. insisting the borrower carry physical damage insurance on the property securing the
loan.
D. requiring the borrower to obtain comprehensive health insurance.
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 open-market purchase of foreign bonds to increase a central bank’s international
reserves:
A. increases the central bank’s liabilities and assets.
B. decreases the central bank’s assets and liabilities.
C. increases the central bank’s assets but decreases its liabilities.
D. increases the central bank’s liabilities and decreases its assets.
Answer:
Money as a means of payment refers to:
A. only actual currency.
B. only coins and currency.
C. only coins, currency and credit cards.
D. anything that is generally accepted as payment for goods and services.
Answer:
Considering interest-rate swaps, the swap rate is:
A. the benchmark rate plus a premium.
B. the rate being offered on U.S. Treasury securities of similar maturities.
C. another name for the swap spread.
D. a measure of overall risk in the economy.
Answer:
An investment pays $1,200 a quarter of the time; $1,000 half of the time; and $800 a
quarter of the time. Its expected value and variance respectively are:
A. $1,000; 20,000 dollars2
B. $1,050; 20,000 dollars2
C. $1,000; 40,000 dollars2
D. $1,000; 80,000 dollar2
Answer:
Many people believed that when the calendar changed from December 31, 1999 to
January 1, 2000, many bank records were going to be wiped out, so many people
planned on withdrawing their funds. If this were to happen, this would be an example
of:
A. credit risk.
B. operational risk.
C. interest rate risk.
D. liquidity risk.
Answer:
If a negative supply shock is associated with a decline in potential output, policymakers
need to:
A. raise the real interest rate by even less than they would in the case of a recessionary
gap.
B. raise the real interest rate by even more than they would in the case of a
recessionary gap.
C. raise the real interest rate by the same amount as they would in the case of a
recessionary gap.
D. not shift the monetary policy reaction curve.
Answer:
Most of the non-cash retail payments made each year in the United States are made by:
A. check.
B. credit card.
C. debit card.
D. electronic funds transfers.
Answer:
Consumption can be sensitive to changes in the real interest rate because:
A. higher interest rates can increase the cost of durable goods like automobiles.
B. higher interest rates will result in less saving.
C. lower real interest rates will decrease spending on durable goods and increase
spending on non-durable goods.
D. lower interest rates increase savings.
Answer:
The supervision of banks includes:
A. requiring bank officers to attend classes on an annual basis.
B. on-site examinations of the bank.
C. extensive background checks of all bank officers.
D. requiring banks to file monthly reports on their revenues, expenses and profits.
Answer:
Which of the following statements is most correct?
A. Discount loans are initiated by the Federal Reserve.
B. Discount loans are made when banks need relatively small amounts of cash for the
long term.
C. Discount loans are made when banks need relatively large amounts of cash for the
long term.
D. Discount loans are made when banks need relatively small amounts of cash for the
short term.
Answer:
A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon
payment. Assume the price of this bond decreases to $1,100 over the next year. The
one-year holding period return is equal to:
A. -9.17%.
B. -8.33%.
C. -4.17%.
D. -3.79%.
Answer:
The tools of monetary policy available to the Fed include each of the following, except
the:
A. currency-to-deposit ratio.
B. discount rate.
C. target federal funds rate.
D. reserve requirement.
Answer:
An increase in European wealth, all other factors held constant should:
A. have no impact at all on the demand for dollars.
B. cause the demand for dollars to decrease.
C. cause the demand for dollars to increase.
D. cause the supply of dollars to increase while the demand stays constant.
Answer:
The main problem from inflation as seen by most economists is:
A. inflation raises prices more than wages.
B. inflation harms lenders more than it benefits borrowers.
C. during periods of inflation some prices fall.
D. inflation creates risk.
Answer:
The Federal Reserve’s surveys of bank loan officers contain questions about:
A. the interest rates being charged.
B. the supply of and demand for loans.
C. the quantity and quality of loans.
D. all of the answers given are correct.
Answer:
For fiscal policymakers, one of the results of an independent central bank is:
A. to finance government spending the Treasury has to order more currency from the
central bank.
B. fiscal policymakers always have to borrow to increase spending.
C. fiscal policymakers cannot borrow unless the Federal Reserve prints more money.
D. increased government spending has to be financed with either higher taxes or
increased government borrowing.
Answer:
One outcome that would result if the Fed paid interest on reserves would be:
A. banks would hold less excess reserves.
B. the federal government’s deficit would be larger (or surplus smaller).
C. banks would no longer hold excess reserves.
D. the target federal funds rate would have to be fixed at a constant rate.
Answer:
Sue has a checking account at the First National Bank; her checking account is a(n):
A. asset to the bank and a liability to Sue.
B. asset to Sue and a liability to the bank.
C. asset to Sue but actually a liability to the Federal Reserve.
D. liability to Sue until she spends the funds.
Answer:
Identify which of the following is not one of the five core principles of money and
banking.
A. Risk requires compensation
B. Time has value
C. Information is the basis for decisions
D. Stability creates risk
Answer:
A permanent increase of borrowing by the U.S. Treasury to finance growing budget
deficits will:
A. result in U.S. Treasury yields being higher than high-grade corporate bonds.
B. result in the price of U.S. Treasury bonds rising.
C. cause the yield on U.S. Treasury bonds to increase, but still be lower than corporate
bonds.
D. result in lower yields on corporate bonds.
Answer:
In the United States, the Federal Reserve is asked to:
A. deliver on a specific inflation target set by Congress.
B. meet an explicit target for economic growth.
C. meet a specific target for unemployment each year.
D. deliver price stability as one of a number of objectives.
Answer:
A monthly interest rate of 1% is a compounded annual rate of:
A. 12.68%
B. 10.00%
C. 14.11%
D. 6.00%
Answer:
If a bank has deposits of $250 million, reserves that total $30 million and has a required
reserve rate of 10 percent:
A. the bank is short of required reserves.
B. the bank has excess reserves of $27.5 million.
C. the bank has excess reserves of $5 million.
D. the bank has excess reserves of $3 million.
Answer:
If foreigners are restricted in their ability to buy 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:
In most companies, an employee must work for a number of years before qualifying for
pension benefits. This process is referred to as:
A. a defined-benefit period.
B. vesting.
C. regulated contribution period.
D. mandatory benefit pending.
Answer:
An open market sale of U.S. Treasury securities by the Fed will cause the Banking
System’s balance sheet to show:
A. only an increase in liabilities.
B. only a decrease in assets.
C. no net change in assets or liabilities, only a change in the composition of assets with
securities decreasing and reserves increasing.
D. no net change in assets or liabilities, only a change in the composition of assets with
securities increasing and reserves decreasing.
Answer:
The owner of a small business applies for a bank loan and tells the loan officer that the
funds will be used to expand inventory for the upcoming holiday season. The small
business finds itself in need of additional funds to meet the monthly rent for the next
quarter and the owner uses the loan proceeds to pay the rent. This is an example of:
A. liquidity risk.
B. default risk.
C. a lack of diversification for the bank.
D. information asymmetry.
Answer:
Which of the following is not a part of aggregate expenditure?
A. Consumption
B. The nominal interest rate
C. Government purchases
D. Net exports
Answer:
An investment has grown from $100.00 to $130.00 or by 30% over four years. What
annual increase gives a 30% increase over four years?
A. 7.50%
B. 6.30%
C. 6.78%
D. 7.24%
Answer:
As general business conditions improve, we would witness the following in the bond
market:
A. the bond demand curve shifting left.
B. the bond supply curve shifting left.
C. bond prices decreasing.
D. bond prices increasing.
Answer: