If the Dow Jones Industrial Average is at 10,205 and it is up 4% from the previous day,
what was the index at the close of the market the previous day?
A. 10,201.0
B. 9,805.0
C. 9,812.5
D. 9800.0
Answer:
Suppose that the current dividend for a stock is Dtoday, the expected dividend growth
rate is r, and the interest rate is i. If we ignore risk, which of the following represents the
dividend-discount model formula for the fundamental price of a stock?
A. Dtoday/(i + g)
B. (i + g)/Dtoday
C. Dtoday(1 + g)/(i – g)
D. Dtoday/(i – g)
Answer:
Insurance company assets will include:
A. stocks and bonds.
B. only bonds.
C. only stocks.
D. only U.S. Treasury securities.
Answer:
The main purpose of reserve requirements today is to:
A. decrease the demand for reserves.
B. make sure depositors can withdraw currency on demand.
C. enable the FOMC to keep the market federal funds rate closer to the target reserve
rate.
D. keep banks sound.
Answer:
In the short run, a country’s exchange rate is determined by:
A. monetary policy.
B. purchasing power parity.
C. the domestic inflation rate.
D. supply and demand.
Answer:
Equity and property price bubbles are commonly associated with periods when:
A. financial assets are undervalued.
B. financial asset prices reflect the book value of companies.
C. financial asset prices are well above what seems to be a reasonable present value
estimate of earnings.
D. the earnings that companies report are overstated.
Answer:
When comparing stock indexes around the world we:
A. find that a given percentage change across all indexes has the same value.
B. observe that they always move together.
C. can see that the numeric change in indices allows investors to make easy
comparisons of value.
D. can examine their respective movements if we look at them as percentage changes.
Answer:
Disability Income Insurance is:
A. insurance borrowers can take out in case the company they invest in defaults.
B. insurance that makes payments of wages to workers when the company they work
for is disabled due to a natural disaster.
C. insurance that makes payments to workers when they are unable to work due to an
injury.
D. only available through the government as part of the Social Security System.
Answer:
Which of the following statements is most correct?
A. If the U.S. $ depreciates relative to the yen, then it is likely also depreciating
relative to the euro.
B. If the U.S. $ is appreciating relative to the euro, the euro is likely depreciating
relative to the yen.
C. If the U.S. $ is depreciating relative to the euro it is likely depreciating relative to all
currencies.
D. If the U.S. $ is appreciating relative to the yen, the yen is depreciating relative to the
U.S. $.
Answer:
The main asset held by a central bank in its role as the Banker’s Bank is:
A. foreign exchange reserves.
B. currency.
C. loans.
D. securities.
Answer:
There’s a call option written for 100 shares of GM stock for $85.00 a share, prior to the
third Friday of October 2017: The option writer:
A. has the option but not the requirement of selling 100 shares of GM for $85.00.
B. will sell 100 shares of GM for $85.00 on the third Friday of October 2017.
C. has the option to back out of this contract prior to the third Friday of October 2017.
D. is required to post margin.
Answer:
A central bank’s balance sheet would categorize each of the following as liabilities,
except:
A. currency.
B. loans.
C. the government’s account.
D. accounts of the commercial banks.
Answer:
The return on bonds rises relative to other assets, in the bond market this will result in:
A. the price of bonds falling and the yields increasing.
B. a rightward shift in the bond supply curve.
C. a shift to the left of the bond demand curve.
D. an increase in bond prices.
Answer:
The monetary base is the sum of:
A. reserves and M2.
B. M1 and reserves.
C. currency in the hands of the public, reserves and M1.
D. currency in the hands of the public and reserves in the banking system.
Answer:
An unsecured loan is:
A. a loan where the applicant does not have any net worth.
B. a loan where the applicant does not post any collateral.
C. another name for a mortgage loan.
D. usually a low-risk loan.
Answer:
To use money growth as a short-term monetary policy instrument, a central bank must:
A. believe there is a stable link between the monetary base and the rate of inflation.
B. believe that only money matters.
C. believe that there is an unpredictable relationship between money aggregates and
inflation.
D. believe the deposit expansion multiplier is volatile and unpredictable.
Answer:
A unit bank is a bank that:
A. only makes one type of loan, (i.e.; home mortgages).
B. only offers savings accounts.
C. provides a myriad of financial services, so customers get all or most of their
financial needs taken care of at the bank.
D. has no branches.
Answer:
Sometimes spreading has an advantage over hedging to lower risk because:
A. it can be difficult to find assets that move predictably in opposite directions.
B. it is cheaper to spread than hedge.
C. spreading increases expected returns, hedging does not.
D. spreading does not affect expected returns.
Answer:
In its role as the bankers’ bank, the Federal Reserve performs all of the following
services, except:
A. collecting and making available data on business conditions.
B. making discount loans.
C. managing U.S. Treasury borrowings.
D. clearing paper checks and transferring funds electronically.
Answer:
The specific goals of central banks include each of the following, except:
A. high and stable real growth.
B. low and stable inflation.
C. high levels of exports.
D. low and stable unemployment.
Answer:
France, Germany, and Italy are:
A. all members of the European Union and the Euro system.
B. all members of the Euro system but not the European Union.
C. all members of the European Union but not the Euro system.
D. not members of either the Euro system or the European Union; they have their own
economic union.
Answer:
With regard to exchange rate determination, the law of one price is a useful theory only
when applied to:
A. long-run periods of time.
B. forward exchange rates.
C. very short-run periods of time.
D. futures contracts.
Answer:
Financial intermediaries pool funds of:
A. many small savers and provide it to a few large borrowers.
B. few large savers and provide it to many small borrowers.
C. few large savers a few large borrowers.
D. many small savers and provide it to many borrowers.
Answer:
Universal banks are:
A. firms that engage in banking services across many countries.
B. firms that engage a wide array of financial and non-financial activities.
C. banks that make direct investment in non-financial firms.
D. multinational corporations that own U.S. banks.
Answer:
A bank’s assets tend to be long-term while its liabilities are short-term. Therefore, when
interest rates rise, the value of the bank’s assets:
A. increases by more than the value of its liabilities.
B. will decrease by more than the value of its liabilities.
C. increases and the value of its liabilities decreases.
D. decreases and the value of its liabilities increases.
Answer:
Newly issued U.S. Treasury Securities are sold in:
A. the primary financial market.
B. only to the Federal Reserve who then resells them.
C. the secondary market since bonds cannot be sold in the primary market.
D. secondary markets but only using registered bond dealers.
Answer:
Under the purchase-and-assumption method of dealing with a failed bank, the FDIC:
A. finds another bank to take over the insolvent bank.
B. takes over the day to day management of the bank.
C. sells the failed bank to the Federal Reserve.
D. sells off the profitable loans of the failed bank in an open auction.
Answer:
Mom’s Bakery goes out of business due to decreasing sales resulting from the dramatic
increase in people on low carbohydrate diets. The decrease in business also results in
Mom’s defaulting on the loan they have with the bank. This is an example of:
A. lack of perfect information in financial markets.
B. asymmetric information in financial markets.
C. moral hazard in financial markets.
D. symmetric information in financial markets.
Answer:
In the long run, a country’s exchange rate is determined by:
A. domestic monetary.
B. purchasing power parity.
C. the domestic inflation rate.
D. supply and demand.
Answer:
Which component of aggregate expenditures is the least sensitive to changes in the real
interest rate?
A. Investment
B. Consumption
C. Net exports
D. Government purchases
Answer:
If interest rates are expected to fall, bond prices will:
A. fall as the demand for bonds decreases.
B. remain constant until interest rates actually change.
C. fall as people fear capital losses in the future.
D. increase due to the demand for bonds increasing.
Answer:
In the United States, control of the quantity of money is given to the:
A. President.
B. Federal Reserve System.
C. Bureau of Printing and Engraving.
D. Department of the Treasury.
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