Every one percent decrease in the rate of inflation will:
A. raise the target federal funds rate by 1.5%.
B. lower the target federal funds rate by 0.5%.
C. lower the target federal funds rate by 1.5%.
D. raise the target federal funds rate by 0.5%.
Answer:
Which of the following is not a pillar of the latest Basel Accord?
A. A revised set of minimum capital requirements
B. It includes liquidity requirements in addition to capital requirements
C. It supplements capital requirements based on risk-weighted assets with restrictions
on leverage
D. Uniform international laws for bank regulation
Answer:
Which of the books used at the FOMC meetings contains anecdotal information collect
by the Federal Reserve Banks?
A. The blue book
B. The beige book
C. The teal book
D. Both the beige and blue books
Answer:
The Nasdaq Composite Index:
A. is made of mainly newer, smaller firms
B. is a price-weighted index
C. is made up of over 5000 companies traded on the NYSE
D. is made of mainly older firms and is heavily weighted by manufacturing
Answer:
Contagion is:
A. the failure of one bank spreading to other banks through depositors withdrawing of
funds.
B. the phenomenon that if one bank loan defaults it will cause other bank loans to
default.
C. the rapid contraction of investment spending that occurs when interest rates are
increased by the Federal Reserve.
D. the rapid inflation that results from the printing of money.
Answer:
The interest rates charged on most credit cards is:
A. high due to the problem of adverse selection.
B. high because Visa and MasterCard have a virtual monopoly on this business.
C. high due to diseconomies of scale that exist in this market.
D. lower than they should be given the problem of adverse selection.
Answer:
Which of the following would be most likely to earn an AAA rating from Standard &
Poor’s?
A. A 10-year bond issued by Canada
B. A bond issue by a new vegetarian fast-food chain
C. A 10-year bond issued by a state or municipality
D. Shares of stock in Coca-Cola
Answer:
Credit may dry up at the start of an economic downturn because of all of the following
except:
A. lenders require information and accurate information is more difficult to obtain.
B. it becomes more difficult for lenders to determine the creditworthiness of borrowers.
C. lenders see greater risk in making loans to borrowers.
D. the free-rider problem worsens during a downturn.
Answer:
Which of the following statements is most correct?
A. All banks are financial intermediaries, but not all financial intermediaries are banks.
B. Financial intermediaries must be public corporations.
C. All financial intermediaries are insurance companies.
D. Financial intermediaries are government agencies.
Answer:
Between January and November of 2001, the FOMC reduced the target federal funds
rate from 6½ to 1¾. A reason for this was that the FOMC:
A. was acting preemptively.
B. feared over stimulating the economy.
C. was taking a wait and see approach to previous cuts.
D. was feeling political pressure to act.
Answer:
The price (P) of a consol offering an annual coupon payment (C) is best expressed by:
A. F/C
B. C(1 + i)
C. C/(1 + i)
D. C/i
Answer:
Which of the following statements is correct?
A. The long-run real interest rate varies directly with changes in non-interest sensitive
components of aggregate demand and inversely with potential output.
B. The long-run real interest rate varies inversely with changes in non-interest sensitive
components of aggregate demand and inversely with potential output.
C. The long-run real interest rate varies directly with changes in non-interest sensitive
components of aggregate demand and directly with potential output.
D. The long-run real interest rate varies directly with changes in non-interest sensitive
components of aggregate demand and does not vary with potential output.
Answer:
The short-run effects from an increase in aggregate demand will include:
A. an increase in potential output.
B. an increase in the current inflation rate.
C. a decrease in current output.
D. a recessionary gap.
Answer:
In the late 1970s and early 1980s, the velocity of money increased significantly. The
main reason(s) for the increase was:
A. as presidential election years near the velocity of money increases.
B. the introduction of stock and bond mutual funds with draft writing privileges and
low nominal interest rates.
C. high nominal interest rates.
D. the introduction of stock and bond mutual funds with draft writing privileges along
with high nominal interest rates.
Answer:
Considering the balance sheet for all commercial banks in the U.S., the net worth of
banks is:
A. about 5 times the total assets.
B. about 1/11 of total assets.
C. just about the same as total assets.
D. about the same as total liabilities.
Answer:
If the euro/U.S.$ exchange rate is 1.1€/U.S.$ in New York but 1.05€/U.S.$ in London,
we should see:
A. people selling U.S. dollars and buying euros in New York and then selling those
euros and buying $’s in London.
B. people selling euros and buying $’s in New York and then buying euros by selling
$’s in London.
C. the price differential between the markets increase as people seek to take advantage
of the situation.
D. the $ should appreciate in New York relative to the euro.
Answer:
The reasons for the government to get involved in the financial system include each of
the following, except:
A. to protect the bank’s monopoly position.
B. to protect investors.
C. to ensure the stability of the financial system.
D. to protect bank customers from monopolistic exploitation.
Answer:
Financial intermediaries reduce the problems in lending associated with information
asymmetries by all of the following except:
A. collecting and processing standardized information.
B. screening applicants to be sure they are creditworthy.
C. monitoring loan recipients to be sure the funds are used properly.
D. charging interest rates high enough to discourage undesirable borrowers.
Answer:
Considering the value of a financial instrument, the more likely it is the payment will be
made:
A. the more valuable the financial instrument.
B. the less valuable is the instrument because risk is lower.
C. the less valuable is the financial instrument because it is highly liquid.
D. the greater the uncertainty; therefore the less valuable is the financial instrument.
Answer:
A company that continues to have strong profit performance during an economic
downturn when many other companies are suffering losses or failing should see:
A. an increase in the yield of their bonds and the price of the bond increases.
B. their bond rating maintained or actually increase.
C. the demand for their bonds decrease and their yields decrease.
D. the demand and price for their bonds decrease.
Answer:
Which of the following best completes the sentence; “Under a gold standard a central
bank “?
A. can have too much gold.
B. can have too little gold but never have too much.
C. wants to keep their gold reserves fixed.
D. will have gold reserves depleted when exports exceed imports.
Answer:
When the price of a bond is below the face value, the yield to maturity:
A. is below the coupon rate.
B. will be above the coupon rate.
C. will equal the current yield.
D. will equal the coupon rate.
Answer:
Which of the following best expresses the equation for holding period return?
A. Current yield + coupon rate
B. Yield to maturity – current yield
C. Current yield + capital gain
D. Coupon rate + capital gain
Answer:
Which of the following is not true of over-the-counter markets?
A. Traders are linked by computer.
B. Dealers buy and sell only for their customers.
C. Trading does not take place in one physical location.
D. Traders are willing to buy and sell stocks and bonds at posted prices.
Answer:
If a bank has $200 million in deposits, the required reserve rate is 10 percent and the
bank has $23 million in reserves:
A. the bank is short of required reserves.
B. the bank has excess reserves of $21 million.
C. the bank has excess reserves of $13 million.
D. the bank has excess reserves of $3 million.
Answer:
Because most insurance companies insure many people, they do not have to worry
about the problem of:
A. moral hazard.
B. adverse selection.
C. spreading of risk.
D. information asymmetry.
Answer:
Used car dealers that provide warranties on the cars they sell are addressing the:
A. lemons problem.
B. monopoly problem.
C. problem of people preferring foreign cars.
D. free rider problem of buyers preferring new versus used cars.
Answer:
Considering the euro-U.S. dollar market, as a euro purchases a larger number of U.S.
dollars, we should see:
A. the quantity of dollars demanded decrease.
B. the quantity of dollars supplied increase.
C. an increase in the purchase of U.S. assets by Europeans.
D. a decrease in American exports to Europe.
Answer:
The user of a commodity who is trying to insure against the price of the commodity
rising would:
A. take the short position in a futures contract.
B. take the long position in a futures contract.
C. be better off speculating on price movements and earning higher profits.
D. want to hedge by selling a futures contract.
Answer:
The Treaty of Maastricht was signed in:
A. 1999.
B. 2001.
C. 1992.
D. 1997.
Answer:
An increase in the nation’s wealth, all other factors constant, would cause:
A. bond prices to fall and yields to increase.
B. bond prices and yields to increase.
C. bond prices to rise and yields to decrease.
D. the bond supply curve to shift right.
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Consider the following: there are two countries, A and B. Each country has the same
resources, and produces the same goods. The residents of country A use money; the
residents of country B rely on bartering of goods. Will each country produce the same
quantity of output? Explain.
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