Which best describes the relationship between the cost of acquiring information and
return?
A) A high return must compensate for a high cost of acquiring information.
B) A higher cost of information corresponds with a low return.
C) A low cost of acquiring information corresponds with a high return.
D) A higher return results in a lower cost of acquiring information.
Answer:
All of the following are steps involved in basic currency swaps EXCEPT
A) counterparties exchange the net interest at the end of the swap.
B) the parties exchange principals in two currencies.
C) the parties exchange periodic interest payments over the life of the agreement.
D) the parties exchange the principal amount at the end of the agreement.
Answer:
Which of the following statements is true about M2?
A) Its total value is smaller than that of M1.
B) Apart from those assets also included in M1, it includes no assets that offer
check-writing features.
C) Its total value is about five times as large as M1.
D) It includes large-denomination time deposits.
Answer:
Which of the following is NOT considered a payment in the balance of payments?
A) capital outflows
B) U.S. foreign aid to other countries
C) imports of goods
D) exports of services
Answer:
If a small open economy reduces its budget deficit, the result will be:
A) a lower world real interest rate, but no change in the domestic real interest rate
B) a lower domestic real interest rate, but no change in the world real interest rate
C) lower domestic and world real interest rates
D) no change in either the domestic or world real interest rate
Answer:
National banks are chartered by the
A) Office of the Comptroller of the Currency.
B) Office of Bank Supervision.
C) Securities and Exchange Commission.
D) Office of Management and the Budget.
Answer:
A bank run involves
A) a failure by a bank to get the maximum return on its investments.
B) large numbers of depositors withdrawing their deposits within a short period of time.
C) a bank being forced out of business.
D) fraud on the part of a bank’s managers.
Answer:
Which of the following countries does NOT use the euro?
A) Estonia
B) Belgium
C) Finland
D) United Kingdom
Answer:
Which interest rates is most relevant in determining aggregate expenditures?
A) federal funds rate
B) short-term real interest rate
C) long-term nominal interest rate
D) long-term real interest rate
Answer:
Monetary policy can have substantial effects on the economy even when nominal
interest rates are very low
A) since real rates are what affects borrowing and spending decisions.
B) by improving borrower and bank balance sheets.
C) by reducing transactions costs.
D) only when the policy is substantial.
Answer:
Which of the following statements accurately describes the Fed’s control of discount
policy?
A) It controls discount policy more completely than it controls open market operations.
B) It must abide by discount rates set by Congress.
C) It controls discount policy less completely than it controls open market operations.
D) It controls discount policy completely, just as it controls open market operations.
Answer:
The creation of a lender of last resort in the United States
A) occurred in response to banking panics.
B) was mandated in the U.S. Constitution.
C) occurred in response to the S&L crisis of the 1980s.
D) has been recommended by the Treasury in its report of late 1992.
Answer:
Which of the following is NOT a reason that credit ratings agencies became more
relevant beginning in the late 1970s?
A) the number of bond defaults rose due to periods of recession and inflation
B) rating agencies began to charge investors for their services
C) governments began to include bond ratings in their regulation of banks, mutual
funds, and other financial firms
D) rating agencies began to rate bonds issued by foreign governments and firms
Answer:
The formula for the yield to maturity, i, on a discount bond is
A) i = (Face value – Discount price)/Discount price.
B) i = (Discount price – Face value)/Discount price.
C) i = (Face value – Discount price)/Face value.
D) i = (Discount price – Face value)/Face value.
Answer:
Primary credit is only a backup source of funds for health banks since
A) the primary credit rate is set above the federal funds rate.
B) restrictions as to its use limit its benefits.
C) the secondary credit rate pays 0.5% more.
D) banks must seek funds from other sources prior to requesting a discount loan.
Answer:
Which of the following statements is correct?
A) New classicals believe that the aggregate supply curve is a vertical line in both the
short run and the long run.
B) Both new classicals and new Keynesians believe that the aggregate supply curve is
vertical in the long run.
C) New Keynesians believe that the aggregate supply curve is vertical in the short run
but not in the long run.
D) New Keynesians believe that the aggregate supply curve slopes upward in the long
run.
Answer:
The most important economic benefit from specialization is that it
A) makes it possible for an economy to begin using money.
B) leads to an increase in the standard of living in an economy.
C) makes barter possible.
D) eliminates the need for financial markets.
Answer:
Modern hedge funds typically make investments that involve
A) hedging.
B) speculating.
C) acquiring safe, short-term assets.
D) focus on stocks instead of bonds.
Answer:
When there’s asymmetric information, who tends to have the better information?
A) lender
B) borrower
C) intermediary
D) equally likely to be the borrower or the lender
Answer:
In an open economy, desired domestic lending
A) must equal desired domestic borrowing.
B) must equal desired domestic borrowing plus the amount of international lending.
C) is always greater than desired domestic borrowing.
D) is always less than desired domestic borrowing.
Answer:
With regard to crowd funding, all of the following accurately describe “qualified
investors” EXCEPT:
A) they must have incomes of at least $200,000 per year
B) there are no longer any distinctions between investors following the passage of the
JOBS act
C) they must have assets of at least $1 million not including the value of their house
D) they must make up a majority of investors in each start up
Answer:
Which of the following is a bank asset?
A) checkable deposits
B) savings deposits
C) borrowings in the federal funds market
D) cash items in the process of collection
Answer:
Other things equal, an increase in the tax on dividends is likely to result in all of the
following EXCEPT:
A) higher expected return on bonds relative to stocks
B) increased demand for bonds
C) lower interest rates
D) higher interest rates
Answer:
Suppose a coupon bond with a par value of $1000 is currently priced at $950 and has a
coupon of $40. Which of the following is true?
A) current yield > coupon rate
B) current yield < coupon rate
C) coupon rate has risen
D) coupon rate has declined
Answer:
If the value of bank’s loans declines, what is the corresponding reduction in a liability
entry that the bank makes?
A) Deposits are reduced by the amount of the decline in the value of the loan.
B) Borrowings are reduced by the amount of the decline in the value of the loan.
C) Net worth is reduced by the amount of the decline in the value of the loan.
D) Cash items in the process of collection are reduced by the amount of the decline in
the value of the loan.
Answer:
According to the liquidity premium theory, if market participants expect that inflation in
the future will be lower than it currently is, the yield curve will
A) slope upward.
B) be flat.
C) be inverted.
D) be vertical.
Answer:
Suppose that your marginal federal income tax rate is 30%, the sum of your marginal
state and local tax rates is 5%, and the yield on thirty-year U.S. Treasury bonds is 10%.
You would be indifferent between buying a thirty-year Treasury bond and buying a
thirty-year municipal bond issued within your state (ignoring differences in liquidity,
risk, and costs of information) if the municipal bond has a yield of
A) 6.5%.
B) 7.0%.
C) 9.5%.
D) 10.0%.
Answer:
What is the price of a coupon bond that has annual coupon payments of $85, a par value
of $1000, a yield to maturity of 10%, and a maturity of three years?
A) $211.38
B) $898.84
C) $962.70
D) $1255.0
Answer:
Liquidity
A) is the best available measure of the riskiness of an asset.
B) is a characteristic of money, and of no other asset.
C) is the ease with which an asset can be exchanged for money.
D) was declining for many financial assets during the 1990s.
Answer:
Profits from speculation arise because of
A) the spread between the bid and ask prices on bonds.
B) the illiquidity of markets for derivative instruments.
C) the high information costs in markets for derivative instruments.
D) disagreements among traders about future prices of a commodity or financial
instrument.
Answer: