The risk structure of interest rates refers to the:
A. relationship among the interest rates of bonds with different maturities.
B. relationship among the interest rates of bonds from different issuers with the same
maturities.
C. relationship among the interest rates of bonds from the same issuer but different
maturities.
D. additional interest required to compensate the buyer for the longer maturity of the
bond.
Answer:
When expected inflation increases, for any given nominal interest rate the:
A. cost of borrowing increases and the desire to borrow decreases.
B. real interest rate increases.
C. bond supply curve shifts to the left.
D. cost of borrowing decreases and the desire to borrow increases.
Answer:
Considering the roughly $1.2 trillion in U.S. currency held by the public:
A. over 90% of the amount is held in the form of $1 bills.
B. more than three-fourths is held in the form of $100 bills.
C. over half of the currency held in the form of $20 bills.
D. the Federal Reserve distributes the amount equally across all denominations of bills.
Answer:
The Governors of the Federal Reserve System serve terms of:
A. four years that can be renewed.
B. fourteen years.
C. four years, the same as the U.S. President, and the terms are not renewable.
D. seven years.
Answer:
Which of the following is not a role of a financial institution acting as a financial
intermediary?
A. Pooling the resources of small savers
B. Formulating oversight regulations
C. Providing ways to diversify risk
D. Supplying liquidity
Answer:
One reason given for more central bankers releasing its decisions publicly is:
A. for monetary policy to work, people must be taken by surprise.
B. most people do not understand monetary policy so it really doesn’t do any harm to
release the decisions publicly.
C. so that central banks across the world can coordinate their policies.
D. monetary policy is more effective when households and businesses can understand
and anticipate it.
Answer:
The better the information provided to financial markets the:
A. less the amount of funds transferred between savers and borrowers.
B. greater the amount of funds transferred between savers and borrowers though risk
increases.
C. higher the return required by lenders.
D. greater will be the flow of funds in these markets.
Answer:
Financial instruments used primarily as stores of value would not include:
A. a car insurance policy.
B. a U.S. Treasury bond.
C. shares of General Motors stock.
D. a home mortgage.
Answer:
Which of the following is not typically used for qualifying mortgages as prime or
subprime?
A. The borrower’s income
B. The borrower’s credit score
C. The borrower’s ethnicity
D. The loan to value ratio
Answer:
More detailed financial instruments tend to be:
A. less costly because all possible contingencies are covered.
B. more costly because it will cost more to create.
C. more desirable than less detailed ones, no matter what the price.
D. less costly because they can be standardized more easily.
Answer:
Which of the following statements is incorrect?
A. A fall in the central bank’s target inflation rate shifts the monetary policy reaction
curve to the left.
B. A decrease in the central bank’s inflation target raises the real interest rate
policymakers set at each level of inflation.
C. Shifts in the monetary policy reaction curve shift the dynamic aggregate demand
curve in the same direction.
D. A fall in the central bank’s target inflation rate causes the monetary policy reaction
curve to flatten.
Answer:
A promise of a $100 payment to be received one year from today is:
A. more valuable than receiving the payment today.
B. less valuable than receiving the payment two years from now.
C. equally valuable as a payment received today if the interest rate is zero.
D. not enough information is provided to answer the question.
Answer:
When the Federal Reserve was unable to stem the bank panics of the 1930s, Congress
responded by:
A. taking over the lender of last resort function and assigning this function to the U.S.
Treasury.
B. ordering the printing of tens of billions of dollars of additional currency.
C. creating the FDIC and offering deposit insurance.
D. declaring a bank holiday and closing banks for 30 days.
Answer:
A cross-country analysis of money growth supports the conclusion that:
A. there is no correlation between the growth rate of the quantity of money and the rate
of inflation.
B. the correlation between the money growth rate and inflation in most countries was
positive but very small.
C. the correlation between inflation and money growth in most industrialized countries
was actually negative.
D. the correlation between inflation and the money growth rate was positive and
relatively strong.
Answer:
A bank usually treats the moral hazard problem by using all of the following, except:
A. not making loans.
B. requiring collateral.
C. requiring down payments.
D. restrictive covenants.
Answer:
Consider the bonds below. Which is subject to the greatest interest-rate risk?
A. A 30-year fixed-rate mortgage (fixed payment loan)
B. A consol
C. A Treasury bill
D. A 20-year corporate bond
Answer:
A rate of inflation that exceeds the growth rate of money for a country could be
explained by:
A. a growing real economy.
B. a constant velocity of money.
C. an increasing velocity of money.
D. a decreasing velocity of money.
Answer:
Governments employ three strategies to contain the risks created by government safety
nets. These include each of the following, except:
A. government supervision.
B. an excise tax on bank profits.
C. government regulation.
D. formal bank examination.
Answer:
Modern forms of insurance can be traced back to around:
A. the early 1900s.
B. the early 1400s.
C. the mid 1800s.
D. the late 1700s.
Answer:
In the long run the inflation rate equals the level implied by:
A. the rate of money growth.
B. aggregate demand.
C. the exchange rate.
D. fiscal policy.
Answer:
A U.S. Treasury bond dealer with a large portfolio who sells a futures contract for U.S.
Treasury bonds is:
A. taking on additional risk in hopes of getting a larger return.
B. ensuring the sales price of the bond through hedging.
C. not likely to find a buyer for this transaction.
D. should see the value of the futures contract increase as bond prices rise.
Answer:
Which of the following statements is most correct?
A. The current rate of inflation is the result of money growth.
B. Money growth is the result of inflation.
C. There is no clear link between high, sustained inflation and the monetary
aggregates.
D. It is impossible to have high, sustained inflation without monetary accommodation.
Answer:
A share of common stock represents a(n):
A. claim from a lender against a borrower.
B. share in the company’s debts.
C. share of ownership of the company.
D. unlimited liability to the owner of the stock.
Answer:
The primary risk in swaps is that:
A. interest rates will not change.
B. one of the parties will default.
C. they are highly liquid and the market price will change.
D. high U.S. government deficits will limit the availability of swaps.
Answer:
The balance-sheet channel of monetary policy works because it can:
A. increase a borrower’s asset value but not the burden of his/her liabilities.
B. change the value of a borrower’s assets and liabilities, but it can’t change a
borrower’s net worth.
C. increase a borrower’s assets and reduce the cost of his/her liabilities.
D. none of the answers given is correct.
Answer:
Each of the following is a transmission channel of monetary policy, except:
A. the household net worth channel.
B. the Treasury Securities channel.
C. the asset-price channel.
D. the exchange-rate channel.
Answer:
A cause of the decline in the velocity of money during the 2007-2009 financial crisis
was a result of:
A. the fiscal stimulus provided by the U.S. government.
B. the lowering of the discount rate by the Fed.
C. the use of unconventional policy tools by the Fed.
D. an increase in uncertainty.
Answer:
The measure of risk that focuses on the worst possible outcome is called:
A. expected rate of return.
B. risk-free rate of return.
C. standard deviation of return.
D. value at risk.
Answer:
If on average, a dollar is spent 4 times each year to purchase real output, the velocity of
money is:
A. one-fourth.
B. four.
C. the money supply divided by 4.
D. nominal GDP divided by four.
Answer:
The difference in the prices of a zero-coupon bond and a coupon bond with the same
face value and maturity date is simply:
A. zero, since they are the same.
B. the present value of the final payment.
C. the present value of the coupon payments.
D. the future value of the coupon payments.
Answer: