If the slope of the monetary policy reaction curve is relatively flat, it means that central
bankers are:
A. very concerned about keeping inflation close to the target rate.
B. not concerned at all about inflation.
C. less concerned about keeping inflation close to its short-run target.
D. not going to let inflation deviate from its target at all.
Answer:
One argument why farmers in poor countries remain poor is:
A. they know very little about farming techniques needed for the crop they are
growing.
B. they are poor assessors of the risks they face.
C. risk taking is a deterrent to growth.
D. poor farmers in many countries lack access to commodity futures markets.
Answer:
A foreign exchange intervention that alters the domestic monetary base is:
A. sterilized.
B. unsterilized.
C. not likely to change domestic interest rates.
D. impossible.
Answer:
If a government were to find that it cannot raise taxes any further, and that it cannot
borrow any further from financial markets, the government:
A. cannot increase its spending any further.
B. can increase spending by having the central banks purchase its bonds.
C. is in default.
D. can decrease the amount of money in circulation.
Answer:
Which of the following is not a goal of the Dodd-Frank Act of 2010?
A. To anticipate and prevent financial crises by limiting systemic risk
B. To end “too big to fail”
C. To promote competition
D. To reduce moral hazard
Answer:
Financial instruments are different from money because they:
A. can act as a store of value and money cannot.
B. can’t be a means of payment but money can.
C. can allow for the transfer of risk.
D. have greater liquidity.
Answer:
One reason the government requires public corporations to disclose so much
information is to:
A. minimize the monopoly profits some corporations earn.
B. give small corporations a better chance of competing against large corporations.
C. address the potential harm from asymmetric information.
D. discourage risk-taking by investors.
Answer:
The theory of purchasing power parity assumes:
A. the real exchange and nominal exchange rates are fixed.
B. the nominal exchange rate is fixed but the real exchange rate is flexible.
C. the real exchange rate is fixed but the nominal exchange rate is flexible.
D. the real exchange rate varies with the inflation differential.
Answer:
Large companies seeking to raise funds often will use a well-known investment bank
because:
A. the investment bank’s reputation identifies the company as being credit worthy.
B. they are required to by government regulation.
C. the investment bank is paying the company for the publicity and goodwill it will
generate.
D. this minimizes moral hazard.
Answer:
Which of the following would be classified as intermediate targets for U.S. monetary
policy?
A. M2 but not M1
B. The federal funds rate
C. M1 and M2
D. M1 but not M2
Answer:
The ultimate role of the financial system of a country is to:
A. provide a place for wealthy households to save.
B. be a low-cost source of funds for government.
C. facilitate production, employment, and consumption.
D. provide jobs in the financial sector.
Answer:
During the financial crisis of 2007-2009 in the United States it was revealed that the
function of a lender of last resort had not kept pace with the evolving financial system
because:
A. financial intermediaries had grown sufficiently large so as not to need a lender of
last resort.
B. shadow banks lacked access to the financial resources available through the lender
of last resort.
C. banks were sufficiently linked to one another that the need for a lender of last resort
had diminished.
D. banks had become sufficiently diversified so as to be able to provide for their own
liquidity.
Answer:
Governments supervise banks mainly to do each of the following, except:
A. reduce the potential cost to taxpayers of bank failures.
B. be sure the banks are following the regulations set out by banking laws.
C. reduce the moral hazard risk.
D. eliminate all risk faced by investors.
Answer:
If the federal government replaced the current income tax with a national sales tax, the
price of:
A. corporate bonds and municipal bonds would rise.
B. municipal bonds would rise and corporate bonds would not change.
C. corporate bonds would fall while the price of municipal bonds would rise.
D. municipal bonds would fall while the price of corporate bonds would rise.
Answer:
Evidence points out that since the mid-1950’s just about every recession was preceded
by:
A. low interest rates.
B. rising interest rates.
C. falling interest rates.
D. negative real interest rates.
Answer:
If we have a stock selling for $95.00 and a call option for this stock has a strike price of
$82.00 and an option price of $13.60:
A. the intrinsic value of the option is $0.60 and the time value of the option is $13.00.
B. the intrinsic value is $82.00 and the time value of the option is $13.60.
C. the intrinsic value of the option is $13.00 and the time value of the option is $0.60.
D. the intrinsic value is $0 since the option is out of the money.
Answer:
As general business conditions improve, all other factors constant the:
A. price of bonds will increase.
B. yield on bonds will increase.
C. bond demand curve shifts right.
D. bond supply curve shifts left.
Answer:
If the Fed entered the federal funds market as a borrower or a lender to make sure the
market rate always equals the target rate, they would be doing all of the following
except:
A. making unsecured loans.
B. in essence paying interest on excess reserves.
C. eliminating a lot of valuable information coming from the market.
D. following the directives issued by Congress.
Answer:
If a bank has $100 million in assets and a net worth of $10 million, its debt-to-equity
ratio is:
A. 10 to 1.
B. 5 to 1.
C. 9 to 1.
D. 0.1 to 1.
Answer:
The difference between standard deviation and value at risk is:
A. nothing, they are two names for the same thing.
B. value at risk is a more common measure in financial circles than is standard
deviation.
C. standard deviation reflects the spread of possible outcomes where value at risk
focuses on the value of the worst outcome.
D. value at risk is expected value times the standard deviation.
Answer:
When the price of a bond equals the face value the:
A. yield to maturity will be above the coupon rate.
B. yield to maturity will be below the coupon rate.
C. current yield is equal to the coupon rate.
D. yield to maturity is greater than the current yield.
Answer:
The Board of Governors of the Fed performs each of the following functions, except:
A. analyzing financial and economic conditions.
B. setting the reserve requirement.
C. approving bank merger applications.
D. making discount loans.
Answer:
Which of the following statements is most accurate?
A. Yield to maturity is equal to the coupon rate if the bond is held to maturity.
B. Yield to maturity is the same as the coupon rate.
C. Yield to maturity will exceed the coupon rate if the bond is purchased for face value.
D. Yield to maturity is the same as the coupon rate if the bond is purchased for face
value and held to maturity.
Answer:
One negative consequence of regulatory competition is:
A. it is expensive.
B. financial institutions are over regulated at a cost to customers.
C. financial institutions often seek out the most lenient regulator.
D. it minimizes competition.
Answer:
When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a
check, when the check returns, the Fed’s balance sheet will show:
A. an increase in assets and a decrease in liabilities of $1 million.
B. only an increase in assets of $1 million.
C. only an increase in liabilities of $1 million.
D. an increase in assets and liabilities of $1 million.
Answer:
Which of the following statements is not true?
A. The potential growth rate in the U.S. economy may have fallen following the
financial crisis of 2007-2009.
B. Periods of growth below the potential level are periods of low unemployment.
C. Periods of growth above the potential level are periods of low employment.
D. Periods of growth below the potential level are periods of high unemployment.
Answer:
The theory of efficient markets:
A. rules out high returns due to chance.
B. says insider information makes markets less efficient.
C. allows for higher than average returns if the investor takes higher than average risk.
D. assumes people have equal luck.
Answer:
Which of the following statements is incorrect?
A. A foreign exchange intervention affects the value of a country’s currency by
changing domestic interest rates.
B. Any central bank policy that influences the domestic interest rate will affect the
exchange rate.
C. Higher U.S. interest rates would likely result in an appreciation of the U.S. dollar.
D. Sterilized changes in foreign exchange reserves alter a country’s monetary base.
Answer:
Municipal bonds are usually purchased by:
A. retired investors who have no other taxable income.
B. investors looking for securities to buy for their IRA accounts.
C. investors who live in cities with high municipal tax rates.
D. investors who are in high marginal tax brackets.
Answer:
One lesson that Akerlof’s Lemons model provides is:
A. that for high quality providers to survive they must provide a way that customers
can distinguish high quality from low quality.
B. low quality will not survive in a market.
C. people always prefer high quality to low quality goods.
D. moral hazard is unavoidable.
Answer:
If the required reserve rate is ten percent and banks do not hold any excess reserves and
there are no changes in currency holdings, a $1 million open market purchase by the
Fed will result in what change in loans?
A. No change
B. A decrease of $1 million
C. An increase of $10 million
D. An increase of $1 million
Answer:
If inflation in country A exceeds inflation in country B, we can express the percentage
change in the units of currency of country A per unit of currency of country B as:
A. the inflation rate in country B – the inflation rate in country A.
B. the inflation rate in country A – the inflation rate in country B.
C. the inflation rate in country A times the inflation rate in country B.
D. the inflation rate in country A divided by the inflation rate in country B.
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Suppose that IBM considers expanding its operations. The expansion will require $400
million for two new factories which the corporation plans to raise by selling stock and
bonds. Which of the core principles will come into play as investors decide whether or
not to buy the stock and the bonds?
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer:
Answer: