An unsterilized intervention in which the central bank sells foreign assets to purchase
domestic currency will result in
A) higher domestic interest rates.
B) lower domestic interest rates.
C) an increase in the money supply.
D) lower domestic interest rates and an increase in the money supply.
Answer:
The key to present value calculations is that they
A) are appropriate only for funds in the same time period.
B) provide a common unit for measuring funds at different times.
C) provide accurate answers only in a low-inflation environment.
D) provide accurate answers only in a high-inflation environment.
Answer:
If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England,
and the exchange rate is $1.35 = £1,
A) the law of one price has been violated.
B) either the British government or the American government must be interfering with
the market determination of the exchange rate.
C) the value of the dollar versus the pound is likely to rise.
D) there is no contradiction in the information given because pizza is not a tradeable
good.
Answer:
The role of the Commodity Futures Trading Commission is to
A) set the prices of futures contracts.
B) operate the Chicago Mercantile Exchange.
C) operate the Chicago Board of Trade.
D) monitor potential price manipulation in futures trading.
Answer:
Which of the following is NOT true of a fixed payment loan?
A) The borrower is required to make regular periodic payments to the lender.
B) The payments made by the borrower include both interest and principal.
C) The borrower is left with a substantial unpaid principal at the maturity of the loan.
D) A home mortgage is an example of fixed payment loan.
Answer:
In what way is a stronger yen/weaker dollar a burden for Japanese exporters?
A) They received dollars when they sell goods but most of their costs of production are
in yen.
B) They receive yen when they sell goods but most of their costs of production are in
dollars.
C) The price of their exports will decline, resulting in lower profits.
D) The stronger yen is likely to increase Japanese inflation, resulting in lower profits.
Answer:
If you purchase a Treasury bond, the Treasury bond is
A) an asset to you as well as an asset to the U.S. government.
B) an asset to you, but a liability to the U.S. government.
C) a liability to you, but an asset to the U.S. government.
D) a liability to you as well as a liability to the U.S. government.
Answer:
When the Fed allows the monetary base to respond to the purchase or sale of domestic
currency in the foreign exchange market, the process is called
A) open market operations.
B) hedging.
C) sterilized intervention.
D) unsterilized intervention.
Answer:
The financial system is primarily a means by which
A) funds are transferred from savers to borrowers.
B) money is put into circulation.
C) the government puts into operation its plans for the economy.
D) business firms distribute their goods.
Answer:
In the market for loanable funds, the seller is considered to be
A) the lender.
B) the borrower.
C) the lender or the borrower depending upon the use to which the funds are put.
D) the lender or the borrower depending upon whether interest rates are rising or
falling.
Answer:
In a competition of financial analysts vs. throwing a dart to choose stocks, according
Burton Malkiel, financial analysts came out ahead due to all of the following reasons
EXCEPT:
A) it considered only stock prices, not dividends
B) investors that followed the contest were influenced to purchase the stocks
recommended by the analysts
C) failure of the Efficient Markets Hypothesis
D) part of the return for the analysts resulted from compensation for the higher risk of
the stocks chosen
Answer:
What is the rate of return on a bond with a coupon of $38 payable in one year that was
purchased for $950 and sold one year later for $931?
A) 2%
B) 4%
C) 6%
D) 19%
Answer:
How can a country with a fixed nominal exchange rate, such as Greece, experience a
lower real exchange rate?
A) by experiencing higher inflation than its partners
B) by experiencing deflation if its partners have low inflation rates
C) by limiting the growth of productivity
D) by increasing wages at a faster rate than inflation
Answer:
The M2 aggregate
A) includes M1 plus short-term investment accounts.
B) includes M1 plus large-denomination time deposits.
C) equals currency plus checking account deposits at commercial banks.
D) is the best definition of money purely as a medium of exchange.
Answer:
When market participants have rational expectations,
A) the information they use contains only past experiences.
B) the information they use contains not only past experiences, but also their
expectations for the future.
C) the information they use contains only their expectations for the future.
D) their forecasts are always correct.
Answer:
Unless otherwise indicated, when economists or investors refer to the interest rate on a
financial asset, they referring to the:
A) current yield
B) coupon rate
C) yield to maturity
D) prime rate
Answer:
All of the following are reasons for caution when considering investing in emerging
markets EXCEPT:
A) in rapidly growing economies, expectations of future growth are already reflected in
stock prices.
B) economies experiencing rapid growth typically experience a dilution effect.
C) fees for investing in funds that specialize in emerging markets tend to be higher than
other funds.
D) most economists expect the economies of emerging markets to grow more slowly
than that of more advanced economies.
Answer:
The development of new financial securities or investment strategies using
sophisticated models is known as
A) underwriting.
B) factoring.
C) financial engineering.
D) hedging.
Answer:
A monetary aggregate is a measure of
A) the inflation rate.
B) the total economic activity of the country.
C) money broader than currency.
D) definitive money.
Answer:
In November 2012, HP claimed that they had weak earnings due to questionable
accounting by a company that they had taken over. This is an example of:
A) market risk
B) systemic risk
C) idiosyncratic risk
D) liquidity risk
Answer:
The default risk premium is
A) relevant only for securities issued by very small companies.
B) the additional yield a saver requires for holding a bond with some default risk.
C) zero for corporate bonds, but quite substantial for corporate stock.
D) constant across the business cycle.
Answer:
Which of the following best characterizes the profit of a buyer of a futures contract?
A) spot price at settlement minus futures price at purchase
B) futures price at settlement minus spot price at purchase
C) futures price at purchase minus spot price at settlement
D) spot price at purchase minus futures price at settlement
Answer:
Moral hazard problems arise when
A) lenders have difficulty in distinguishing between good and lemon firms.
B) when a downturn in economic activity makes repaying loans difficult for borrowers.
C) borrowers have an incentive to act in ways that do not reflect the lender’s interests.
D) borrowers default on loans.
Answer:
The velocity of money can best be described as
A) how quickly prices are increasing.
B) how quickly output is increasing.
C) the number of times each dollar in the money supply is used to buy goods and
services included in GDP.
D) the growth rate of the money supply.
Answer:
Differences in the taxation of returns
A) only affect the yields of illiquid credit market instruments.
B) have a negligible effect on the yields of credit market instruments.
C) only affect the yields of high-information cost credit market instruments.
D) create differences in yields among credit market instruments.
Answer:
Which of the following is included in M1, but not in M2?
A) currency
B) checking account deposits
C) travelers checks
D) Everything in M1 is in M2.
Answer:
When economists, policymakers, or journalists refer to the Fed’s balance sheet, they are
typically referring to the:
A) money supply
B) size of the Fed’s assets
C) amount of bank reserves
D) amount of foreign reserves
Answer:
Which type of offering typically has the lowest fees?
A) initial public offering of stocks
B) secondary offering
C) offering of investment-grade bonds
D) offering of non-investment-grade bonds
Answer:
According to AD-AS model, the primary long-run effect of increases in the money
supply is
A) higher price level.
B) higher GDP.
C) lower price level.
D) lower GDP.
Answer:
Which of the following concerns were raised as a result of record low interest rates in
2012?
A) high perceived risk of default
B) high interest rate risk
C) corporations facing a lack of demand for bonds
D) high risk premiums on investment-grade corporate bonds
Answer:
The amount of funds the borrower receives from the lender with a simple loan is called
the
A) principal.
B) equity.
C) claim.
D) collateral.
Answer:
Why are U.S. government securities referred to as a bank’s secondary reserves?
A) Their current market value may count toward meeting a bank’s legal reserve
requirements.
B) They are very liquid.
C) Banks are legally required to hold a certain minimum amount of these securities.
D) They are the same thing as vault cash.
Answer:
The law of one price does not hold for
A) agricultural goods.
B) tradeable goods.
C) differentiated goods.
D) goods whose production causes pollution.
Answer:
Which of the following did NOT significantly exacerbate the banking crisis of the early
1930s?
A) the Fed’s decision not to make loans to insolvent banks
B) the large number of small, poorly diversified banks
C) the large number of rural banks that held agricultural loans during a time of falling
commodity prices
D) the large amount of fraud carried out by bank managers
Answer: