1) Which of the following are reported as assets on a bank’s balance sheet?
A) Borrowings
B) Reserves
C) Savings deposits
D) Bank capital
2) Under exchange-rate targeting, the central bank in the targeting country ________
lose the ability to pursue its own independent monetary policy and any shocks to the
anchor country is ________ transmitted to the targeting country.
A) does; directly
B) does not; directly
C) does; not directly
D) does not; not directly
3) Measuring the sensitivity of bank profits to changes in interest rates by multiplying
the gap for several maturity subintervals times the change in the interest rate is called
A) basic gap analysis
B) the maturity bucket approach to gap analysis
C) the segmented maturity approach to gap analysis
D) the segmented maturity approach to interest-exposure analysis
4) The Dodd-Frank legislation of 2010 permanently increased the federal deposit
insurance to
A) $40,000
B) $100,000
C) $200,000
D) $250,000
5) Introduction of checks into the payments system reduced the costs of exchanging
goods and services. Another advantage of checks is that
A) they provide convenient receipts for purchases
B) they can never be stolen
C) they are more widely accepted than currency
D) the funds from a deposited check are available for use immediately
6) In the one-period valuation model, the current stock price increases if
A) the expected sales price increases
B) the expected sales price falls
C) the required return increases
D) dividends are cut
7) Under a fixed exchange rate regime, if a country has an ________ exchange rate,
then its central bank’s attempt to keep its currency from depreciating will result in a
________ of international reserves.
A) undervalued; gain
B) undervalued; loss
C) overvalued; gain
D) overvalued; loss
8) A decrease in the foreign interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
9) Which of the following statements is true?
A) State and local governments cannot default on their bonds
B) Bonds issued by state and local governments are called municipal bonds
C) All government issued bonds local, state, and federal are federal income tax exempt
D) The coupon payment on municipal bonds is usually higher than the coupon payment
on Treasury bonds
10) The fact that an economy always returns to the natural rate level of output is known
as
A) the excess demand hypothesis
B) the price-adjustment mechanism
C) the self-correcting mechanism
D) the natural rate of unemployment
11) In emerging market countries, many firms have debt denominated in foreign
currency like the dollar or yen. A depreciation of the domestic currency
A) results in increases in the firm’s indebtedness in domestic currency terms, even
though the value of their assets remains unchanged
B) results in an increase in the value of the firm’s assets
C) means that the firm does not owe as much on their foreign debt
D) strengthens their balance sheet in terms of the domestic currency
12) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, an increase in the reserve requirement
________ the demand of reserves and causes the federal funds interest rate to
________, everything else held constant.
A) decreases; fall
B) increases; fall
C) increases; rise
D) decreases; rise
13) A bank failure is less likely to occur when
A) a bank holds less U.S. government securities
B) a bank suffers large deposit outflows
C) a bank holds fewer excess reserves
D) a bank has more bank capital
14) Using the Gordon growth model, a stock’s current price decreases when
A) the dividend growth rate increases
B) the required return on equity decreases
C) the expected dividend payment increases
D) the growth rate of dividends decreases
15) Compared to interest rates on long-term U.S. government bonds, interest rates on
three-month Treasury bills fluctuate ________ and are ________ on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
16) What is the present value of $500.00 to be paid in two years if the interest rate is 5
percent?
A) $453.51
B) $500.00
C) $476.25
D) $550.00
17) If bonds with different maturities are perfect substitutes, then the ________ on these
bonds must be equal.
A) expected return
B) surprise return
C) surplus return
D) excess return
18) Everything else held constant, an increase in expected inflation, lowers the expected
return on ________ compared to ________ assets.
A) bonds; financial
B) bonds; real
C) physical; financial
D) physical; real
19) The M2 money multiplier is
A) negatively related to high-powered money
B) positively related to the time deposit ratio
C) positively related to the required reserve ratio
D) positively related to the excess reserves ratio
20) Everything else held constant, a decrease in holdings of excess reserves will mean
A) a decrease in the money supply
B) an increase in the money supply
C) a decrease in checkable deposits
D) an increase in discount loans
21) Uncertainty about interest-rate movements and returns is called
A) market potential
B) interest-rate irregularities
C) interest-rate risk
D) financial creativity
22) The Fed’s discount lending is of three types: ________ is the most common
category; ________ is given to a limited number of banks in vacation and agricultural
areas; ________ is given to banks that have experienced severe liquidity problems.
A) seasonal credit; secondary credit; primary credit
B) secondary credit; seasonal credit; primary credit
C) primary credit; seasonal credit; secondary credit
D) seasonal credit; primary credit; secondary credit
23) Everything else held constant, in the market for reserves, when the federal funds
rate is 1%, increasing the interest rate paid on excess reserves from 1% to 2%
A) lowers the federal funds rate
B) raises the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate
24) Because policies in the United States were too expansionary from 1965 through
1973, the U.S. suffered
A) demand-pull inflation
B) cost-push inflation, as workers sought higher wages in order to keep up with
inflation
C) both demand-pull and cost-push inflation
D) neither demand-pull nor cost-push inflation
25) U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the
Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.
A) a liability; an asset; increases
B) a liability; an asset; decreases
C) an asset; a liability; increases
D) an asset; a liability; decreases
26) Under the Gramm-Leach-Bliley Act states retain regulatory authority over
A) bank holding companies
B) securities activities
C) insurance activities
D) bank subsidiaries engaged in securities underwriting
27) Part of the increase in currency holdings in the 1960s and 1970s can be attributed to
A) increases in income tax rates
B) the switch from progressive to proportional income taxes
C) the adoption of regressive taxes
D) bracket creep due to inflation and progressive income taxes
28) A disadvantage of ________made from precious metals is that it is very heavy and
hard to transport from one place to another.
A) commodity money
B) fiat money
C) electronic money
D) paper money
29) A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to ________,
everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
30) The largest percentage of banks’ holdings of securities consist of
A) Treasury and government agency securities
B) tax-exempt municipal securities
C) state and local government securities
D) corporate securities
31) The quantity theory of inflation indicates that the inflation rate equals
A) the growth rate of the money supply minus the growth rate of aggregate output
B) the level of the money supply minus the level of aggregate output
C) the growth rate of the money supply plus the growth rate of aggregate output
D) the level of the money supply plus the level of aggregate output
32) Budget deficits are important because deficits
A) cause bank failures
B) always cause interest rates to fall
C) can result in higher rates of monetary growth
D) always cause prices to fall
33) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
money supply is ________ billion.
A) $10,000
B) $4000
C) $1400
D) $10,400
34) Prior to 1863, all commercial banks in the United States
A) were chartered by the U.S. Treasury Department
B) were chartered by the banking commission of the state in which they operated
C) were regulated by the Federal Reserve
D) were regulated by the central bank