The interest rate at which international banks loan to each other is called
A) LIBOR
B) federal funds rate
C) prime rate
D) international bank lending rate
Answer:
According to the efficient markets hypothesis, who should earn the highest
risk-adjusted return on stocks?
A) a financial expert who can devote considerable time to research
B) the average investor who doesn’t do too much research
C) someone throwing darts at possible stock picks
D) all of the above should earn the same average return
Answer:
Which of the following bonds will have the highest yield-to-maturity if all three bonds
appear identical to investors in terms of risk, liquidity, information costs, tax treatment?
A) one with a coupon of $50
B) one with a coupon of $100
C) one with a coupon of $200
D) none of the above
Answer:
The process by which simultaneous withdrawals by a particular bank’s depositors
results in the bank closing is known as a
A) contagion.
B) bank run.
C) financial crisis.
D) bank panic.
Answer:
Temporary, short-term discount loans to banks in areas in which agriculture and tourism
are important are known as
A) primary credit.
B) secondary credit.
C) seasonal credit.
D) repo loans.
Answer:
The “greater fool” theory assumes that
A) markets are efficient.
B) bubbles cannot exist in well-organized markets.
C) it makes sense for an investor to buy an asset as long as there is someone else to buy
it later for a higher price.
D) bond market returns are always above stock market returns.
Answer:
An ATS account
A) converts a corporation’s checking account balance at the end of the day into an
overnight repurchase agreement.
B) is the name given to NOW accounts outside of New England.
C) are negotiable certificates of deposit of less than $100,000.
D) were used during the Great Depression by depositors who had lost faith in
conventional checking accounts.
Answer:
Which of the following is an example of a barter transaction?
A) An individual pays her electric bill with a check.
B) An individual pays her electric bill with currency.
C) An individual provides three light bulbs to her neighbor in exchange for two gallons
of milk.
D) An individual deposits three twenty-dollar bills in her checking account.
Answer:
The theory of purchasing power parity assumes that
A) nominal exchange rates are not affected by movements in relative price levels.
B) real exchange rates are fixed.
C) movements in nominal exchange rates are the result of movements in real exchange
rates.
D) inflation rates are roughly the same in most countries.
Answer:
What is the yield on a discount basis for a U.S. Treasury bill that has a face value of
$10,000, has a price of $9500, and will mature in 180 days?
A) 5.00%
B) 5.25%
C) 10.00%
D) 10.67%
Answer:
As of 2011, which of the following was the largest stock exchange in terms of total
value traded?
A) the New York Stock Exchange
B) London Stock Exchange
C) Shanghai Stock Exchange
D) Tokyo Stock Exchange
Answer:
An increase in the expected profitability of investment will cause
A) IS to shift right.
B) IS to shift left.
C) MP to shift upward.
D) MP to shift downward.
Answer:
A portfolio is a
A) brokerage house specializing in the trading of common stock.
B) brokerage house specializing in the trading of corporate bonds.
C) measure of the risk involved with a holding a particular asset.
D) collection of assets.
Answer:
Which of the following accurately describes the Fed’s inflation target?
A) It is implicit rather than explicit.
B) It seeks to maintain an average inflation rate of 2% per year.
C) It seeks to keep inflation at 2% all the time.
D) Its goal is to achieve zero inflation.
Answer:
Which of the following cities contains a Federal Reserve bank?
A) Pittsburgh
B) Los Angeles
C) Seattle
D) Dallas
Answer:
The interest rate the Fed charges on loans to depository institutions is known as
A) the federal funds rate.
B) the Fed loan rate.
C) the discount rate.
D) the interbank clearing rate.
Answer:
What factors do some who promote the profitability of elaborate trading strategies leave
out?
A) the effect of trading costs and taxes
B) the difficulty of calculating the return on investment
C) ignoring the effect of dividends
D) not accounting for both capital gains and dividends
Answer:
The fee charged by the seller of an option is referred to as the
A) market price.
B) option premium.
C) futures fee.
D) call price.
Answer:
According to the new classical view, when the actual price level is greater than the
expected price level
A) aggregate output is above the full employment level.
B) aggregate output is below the full employment level.
C) the aggregate supply curve will slope downward.
D) the coefficient a is equal to zero.
Answer:
Alt-A borrowers were those who
A) used mortgages to purchase apartments.
B) chose adjustable-rate mortgages instead of fixed-rate mortgages.
C) borrowed using “interest-only” mortgages.
D) did not provide documentation of their income when applying for a mortgage.
Answer:
Which of the following is NOT a bank liability?
A) checkable deposits
B) CDs
C) mortgage loans
D) borrowings from the Federal Reserve
Answer:
Businesses typically issue bonds to finance
A) their inventories.
B) payments to their workers.
C) spending on new plant and equipment.
D) dividend payments to their stockholders.
Answer:
Which of the following bond ratings by Moody’s Investors Service would NOT be
considered to be below investment grade?
A) Baa
B) Ba
C) B
D) All of these ratings are considered below investment grade.
Answer:
All of the following took place during the economic crisis that began in 2007 EXCEPT:
A) the financial system was disrupted
B) large portions of the U.S. economy were cut off from the funds they needed to thrive
C) there was a devastating decline in the production of goods and services throughout
the economy
D) unlike households, most businesses still had easy access to funds
Answer:
Which of the following is when an investment bank purchases securities outright in
case it misjudged the state of the market and it may have to sell the securities at a lower
price than what was guaranteed?
A) credit risk
B) liquidity risk
C) principal risk
D) default risk
Answer:
Which of the following is a term for the total value of a firm’s outstanding shares?
A) market value
B) intrinsic value
C) fair value
D) fairness value
Answer:
A one-year bond currently pays 5% interest. It’s expected that it will pay 4.5% next year
and 4% the following year. The two-year term premium is 0.2% while the three-year
term premium is 0.35%. What is the interest rate on a two-year bond according to the
liquidity premium theory?
A) 4.5%
B) 4.75%
C) 4.95%
D) 4.975%
Answer:
Which of the following does NOT describe the relationship between banks and small
business during the 2000s (prior to the financial crisis)?
A) Banks typically applied fixed guidelines for granting loans, leaving little room for
personal judgment.
B) Fewer small businesses received loans as banks shifted their focus to mortgages.
C) Many small businesses were receiving loans from regional and national banks.
D) More banks became convinced that it would be profitable to loosen their loan
guidelines to make more borrowers eligible to receive credit.
Answer:
Which of the following financial futures contracts are traded in the United States?
A) Interest rates
B) Stock indexes
C) Currencies
D) All of the above
Answer:
On a bank’s balance sheet, “borrowings” are
A) loans to households.
B) loans to businesses.
C) nondeposit liabilities.
D) U.S. Treasury securities.
Answer:
According to the Gordon-Growth model, an increase in the required return on equity
A) increases the future value of the stock.
B) reduces the current dividend.
C) reduces the value of a stock.
D) reduces the expected growth rate of the dividend.
Answer:
The promise that was to hold the Bretton Woods system together was the agreement
that
A) no industrial country would allow high rates of inflation.
B) foreign central banks would be able to convert U.S. dollars into gold at a fixed price.
C) no country would raise tariffs on the products of other countries.
D) all countries would be willing to redeem their paper currencies for gold.
Answer: