1) According to the segmented markets theory of the term structure
A) bonds of one maturity are close substitutes for bonds of other maturities, therefore,
interest rates on bonds of different maturities move together over time
B) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond
C) investors’ strong preferences for short-term relative to long-term bonds explains why
yield curves typically slope downward
D) because of the positive term premium, the yield curve will not be observed to be
downward-sloping
2) Which of the following is not a disadvantage of controls on capital outflows?
A) The controls may lead to excessive risk taking by the domestic banks
B) They are seldom effective during a crisis
C) Capital flight may increase after they are put in place
D) Controls often lead to an increase in government corruption
3) Channeling funds from individuals with surplus funds to those desiring funds when
the saver does not purchase the borrower’s security is known as
A) barter
B) redistribution
C) financial intermediation
D) taxation
4) Looking at the Net Interest Margin indicates that the poor bank performance in the
late 1980s
A) was not the result of interest-rate movements
B) was not the result of risky loans made in the early 1980s
C) resulted from a narrowing of the gap between interest earned on assets and inters
paid on liabilities
D) resulted from a huge decrease in provisions for loan losses
5) In the generalized dividend model, the current stock price is the sum of
A) the actual value of the future dividend stream
B) the present value of the future dividend stream
C) the present value of the future dividend stream plus the actual future sales price
D) the present value of the future sales price
6) The other checkable deposits component of the M1 measure reported by the Federal
Reserve includes
A) negotiable time deposits
B) money market mutual fund shares
C) automatic transfer from savings accounts
D) money market deposit accounts
7) When you deposit $50 in currency at Old National Bank,
A) its assets increase by less than $50 because of reserve requirements
B) its reserves increase by less than $50 because of reserve requirements
C) its liabilities increase by $50
D) its liabilities decrease by $50
8) To calculate the growth rate of a variable, you will
A) calculate the percentage change from one time period to the next
B) calculate the difference between the two variables
C) add the ending value to the beginning value
D) divide the increase by the number of time periods
9) In a ________ banking system, commercial banks provide a full range of banking,
securities, and insurance services, all within a single legal entity.
A) universal
B) severable
C) barrier-free
D) dividerless
10) Today the United States has a dual banking system in which banks supervised by
the ________ and by the ________ operate side by side.
A) federal government; municipalities
B) state governments; municipalities
C) federal government; states
D) municipalities; states
11) The Federal Open Market Committee consists of the
A) five senior members of the seven-member Board of Governors
B) seven members of the Board of Governors and seven presidents of the regional Fed
banks
C) seven members of the Board of Governors and five presidents of the regional Fed
banks
D) twelve regional Fed bank presidents and the chairman of the Board of Governors
12) In the case of an insurance policy, ________ occurs when the existence of insurance
encourages the insured party to take risks that increase the likelihood of an insurance
payoff.
A) moral hazard
B) opportunism
C) adverse selection
D) shirking
13) ________ are short-term loans in which Treasury bills serve as collateral.
A) Repurchase agreements
B) Negotiable certificates of deposit
C) Federal funds
D) U.S. government agency securities
14) Equity and debt instruments with maturities greater than one year are called
________ market instruments.
A) capital
B) money
C) federal
D) benchmark
15) A decrease in the domestic 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
16) Economists have focused more attention on the formation of expectations in recent
years. This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a
major impact on economic activity
B) expectations influence only a few individuals, have little impact on the overall
economy, but can have important effects on a few markets
C) expectations influence many individuals, have little impact on the overall economy,
but can have distributional effects
D) models that ignore expectations have little predictive power, even in the short run
17) Large-denomination CDs are ________, so that like a bond they can be resold in a
________ market before they mature.
A) nonnegotiable; secondary
B) nonnegotiable; primary
C) negotiable; secondary
D) negotiable; primary
18) Suppose the economy is producing at the natural rate of output. An open market
sale of bonds by the Fed will cause ________ in real GDP in the short run and
________ in inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
19) In an agreement to exchange dollars for euros in three months at a price of $0.90
per euro, the price is the
A) spot exchange rate
B) money exchange rate
C) forward exchange rate
D) fixed exchange rate
20) When asset prices increase above their fundamental values it is called an
A) asset-price bubble
B) irrational bubble
C) asset-price spike
D) irrational spike
21) In a liquidity trap, monetary policy has ________ effect on aggregate spending
because a change in the money supply has ________ effect on interest rates.
A) no; no
B) no; a large
C) no; a small
D) a large; a large
22) Clauses in life insurance policies that eliminate death benefits if the insured person
commits suicide is an example of a
A) restrictive provision
B) restrictive covenant
C) anti-fraud exclusion
D) risk-based deductible
23) Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to sever the link between underwriting and research is an example of
A) regulate for transparency
B) supervisory oversight
C) separation of functions
D) socialization of information production
24) The political business cycle refers to the phenomenon that just before elections,
politicians enact ________ policies. After the elections, the bad effects of these policies
(for example, ________) have to be counteracted with ________ policies.
A) expansionary; higher unemployment; contractionary
B) expansionary; a higher inflation rate; contractionary
C) contractionary; higher unemployment; expansionary
D) contractionary; a higher inflation rate; expansionary
25) Holding many risky assets and thus reducing the overall risk an investor faces is
called
A) diversification
B) foolishness
C) risk acceptance
D) capitalization
26) Markets in which funds are transferred from those who have excess funds available
to those who have a shortage of available funds are called
A) commodity markets
B) fund-available markets
C) derivative exchange markets
D) financial markets
27) The Keynesian theory of money demand emphasizes the importance of
A) a constant velocity
B) irrational behavior on the part of some economic agents
C) interest rates on the demand for money
D) expectations
28) In contrast to the CAPM, the APT assumes that there can be several sources of
________ that cannot be eliminated through diversification.
A) nonsystematic risk
B) systematic risk
C) credit risk
D) arbitrary risk
29) The small-firm effect refers to the
A) negative returns earned by small firms
B) returns equal to large firms earned by small firms
C) abnormally high returns earned by small firms
D) low returns after adjusting for risk earned by small firms