An open market sale of securities by the central bank to banks usually will:
A. diminish the inclination of banks to make loans.
B. induce the banks to make more loans since their revenue will decrease if they do
nothing.
C. increase the amount of deposits in the banking system.
D. increase the banks’ willingness and ability to make loans.
Answer:
A non-transaction deposit would include each of the following, except:
A. a savings account.
B. a checking account.
C. a passbook savings account.
D. a certificate of deposit.
Answer:
Lines of credit provided by financial intermediaries:
A. decrease liquidity for customers but increase income for the intermediary.
B. are pre-approved loans that can increase liquidity and lowering transaction costs.
C. are costly for intermediaries to provide so are only available to large commercial
customers.
D. require deposits in the intermediary that equal or exceed the amount of the line of
credit.
Answer:
If M = the quantity of money, m the money multiplier, MB the Monetary Base, C =
Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess
reserves, then m would equal:
A. R/ER.
B. M/MB.
C. C + D.
D. D – C
Answer:
Diversification is the principle of:
A. eliminating risk.
B. reducing the risk we carry to just two.
C. holding more than one asset to reduce risk.
D. eliminating investments from our portfolio that have idiosyncratic risk.
Answer:
If money were valued in terms of how many minutes a person needs to work to buy a
dollar, an increase in the number of minutes of work needed would be:
A. a decline in the price of money.
B. an increase in the price of money.
C. no change in the real price of money, just the nominal price increases.
D. no change in the real or nominal price of money.
Answer:
When the Fed makes a discount loan, the impact on the Fed’s balance sheet will reflect:
A. no change in liabilities but an increase in assets.
B. a decrease in assets and liabilities.
C. an increase in assets and liabilities.
D. an increase in assets and a decrease in liabilities.
Answer:
A financial instrument would include:
A. only a written obligation and a transfer of value.
B. only a written obligation and a specified date.
C. a written obligation, a transfer of value, a future date, and certain conditions.
D. a written obligation, a transfer of value, a specific date for payment, uncertain
conditions.
Answer:
The empirical data reveals the velocity of M2 to be:
A. relatively stable in the long run.
B. highly volatile in the long run.
C. stable only when measured annually.
D. higher than the velocity of M1.
Answer:
If the current market federal funds rate equals the target rate and the demand for
reserves decreases, the likely response in the federal funds market will be:
A. the market federal funds rate will decrease.
B. the market federal funds rate will equal the target rate.
C. the market federal funds rate will increase.
D. nothing; the Fed would act immediately and the market would not be affected.
Answer:
During the Civil War, the North issued currency, known as “greenbacks”. Which of the
following is true of “greenbacks”?
A. Greenbacks are still legal tender in the U.S.
B. Greenbacks were tied to the value of gold and silver.
C. The South used “greenbacks” to pay for salaries and supplies.
D. Greenbacks are a historical example of commodity money.
Answer:
If a saver has a positive rate of time preference then the present value of $100 to be
received 1 year from today is:
A. more than $100.
B. not calculable.
C. less than 100.
D. unknown to the saver.
Answer:
A bank that makes most of its long-term loans at adjustable interest rates is:
A. reducing both interest rate and credit risk.
B. increasing credit risk and reducing interest rate risk.
C. reducing credit risk and increasing interest-rate risk.
D. increasing both interest-rate and credit risk.
Answer:
The market for bonds is initially described by the supply of bonds – S0, and the demand
for bonds – D0, with the equilibrium price and quantity being P0 and Q0. An increase in
the nation’s wealth, all else constant, would cause the
A. Bond supply curve to shift to S1.
B. Bond demand curve to shift to D1.
C. Bond supply curve to shift to S2.
D. Bond demand curve to shift to D2.
Answer:
Interest rate volatility is a problem because:
A. it adds to uncertainty, thereby diminishing the investment.
B. it decreases risk.
C. it can impact productivity in a positive way.
D. financial decisions become less difficult when interest rates are more volatile.
Answer:
Marking to market is a process that:
A. involves a transfer of risk.
B. ensures that the buyers and sellers receive what the contract promises.
C. always requires the sellers of contracts to transfer funds to the buyers of contracts.
D. buyers and sellers can request for an additional fee when the contract is created.
Answer:
The Dow Jones Industrial Average is:
A. an index made up of the stock prices of the 100 largest corporations in the U.S.
B. an index that measures the value of purchasing 100 shares in each of the
corporations that make up the index.
C. the average price of stock in 30 of the largest companies in the U.S.
D. the broadest measure of stock market performance.
Answer:
The largest of the regional Federal Reserve Banks is located in:
A. Washington D.C.
B. San Francisco since it serves almost one-third of the country.
C. New York City.
D. Kansas City.
Answer:
One of the results of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 was:
A. a reversal of the branching restrictions of the McFadden Act.
B. an increase in the number of banks in the U.S.
C. a decrease in the average size of banks.
D. a decrease in commercial banks but an increase in the number of savings and loans
and savings banks.
Answer:
Ava buys a $2,000 computer using a paper check. At which step does $2,000 get
recorded in M1?
A. When Ava hands the $2,000 check to the computer merchant.
B. Once the $2000 is credited to the merchant bank’s reserve account and is debited
from Ava’s bank account.
C. Once the Federal Reserve sends the paper check (or an electronic image) to Ava’s
bank.
D. The check is never M1. The $2000 is M1 both in Ava’s bank account and, later, in
the merchant’s account. It is the deposit balance that is counted.
Answer:
Discount lending ties into the Fed’s function of:
A. lender of last resort.
B. open market operations.
C. the government’s bank.
D. regulation of banking.
Answer:
Bonds must have positive yields because:
A. the U.S. treasury guarantees all bonds to have a positive yield.
B. the banking technology does not exist to deal with negative yields.
C. people can always hold cash.
D. all of the answers given are correct.
Answer:
The Federal Reserve’s surveys of bank loan officers can help the Fed determine
whether:
A. a drop in the quantity of loans granted resulted from fewer applications or a
tightening of credit standards.
B. an increase in the quantity of loans granted resulted from fewer applications or a
tightening of credit standards.
C. climbing interest-rate spreads are the result of more borrowers or fewer loans being
granted.
D. an increase in the quantity of new loans was due to a decrease in supply or an
increase in demand.
Answer:
Holding liquidity and default risk constant, an investor earning 4% from a tax-exempt
bond who is in a 20% tax bracket would be indifferent between that bond and a taxable
bone with a(n):
A. 7.5% yield.
B. 8.0% yield.
C. 5% yield.
D. 6% yield.
Answer:
A category of assets for banks is cash items in the process of collection. This is:
A. uncollected funds the bank is due to receive from the clearing of checks.
B. currency the bank is due from the Treasury.
C. late fees the bank is owed from loan payments that were not made on time.
D. payments from the FDIC insurance fund due the bank.
Answer:
In September of 2000, the Federal Reserve Bank of New York sold dollars in exchange
for euro. To keep the federal funds rate on target, the Open Market desk:
A. sold U.S. Treasury bonds.
B. bought U.S. Treasury bonds.
C. bought dollars.
D. sold dollars.
Answer:
Management fees for mutual funds are:
A. different across funds and can significantly impact the return to an investor.
B. fixed by regulation.
C. fixed by regulation but can vary by the size of the fund.
D. usually a percentage of the return achieved by fund managers.
Answer:
Which of the following statements regarding checkable deposits is most accurate?
A. Checkable deposits are a larger source of bank funds today than in 1970.
B. Checkable deposits are no longer a source of bank funds.
C. Checkable deposits are a less important source of bank funds today than in 1970.
D. Checkable deposits continue to be the largest source of bank funds.
Answer:
An economic rationale for government protection of small investors is that:
A. large investors can better afford losses.
B. many small investors cannot adequately judge the soundness of their bank.
C. there is inadequate competition to ensure a bank is operating efficiently.
D. banks are often run by unethical managers who will often exploit small investors.
Answer:
Most central banks of industrialized countries have monetary policy formed by:
A. an individual, usually the minister of finance.
B. their version of Congress.
C. a committee made up of members of their central bank.
D. an individual, usually the person heading the central bank at the time.
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