According to the liquidity premium theory of the term structure, a steeply upward
sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future.
B. remain unchanged in the future.
C. decline moderately in the future.
D. decline sharply in the future.
Answer:
The directive of prompt corrective action means that
A. the FDIC will intervene earlier and more vigorously when a bank gets into trouble.
B. the banks must take actions quickly to resolve reserve disputes.
C. bank failures cannot occur.
D. there must be an immediate response to an increase in interest rates.
Answer:
All else equal, the ________ the coupon rate on a bond, the ________ the bond’s
duration.
A. higher; longer
B. higher; shorter
C. lower; shorter
D. greater; longer
Answer:
During the bank panics of the Great Depression the currency ratio
a. increased sharply.
b. decreased sharply.
c. increased slightly.
d. decreased slightly.
Answer:
Tests used to rate the performance of rules developed in technical analysis conclude that
technical analysis
A. outperforms the overall market.
B. far outperforms the overall market, suggesting that stockbrokers provide valuable
services.
C. does not outperform the overall market.
D. does not outperform the overall market, suggesting that stockbrokers do not provide
services of any value.
Answer:
Which of the following statements is FALSE?
A. A bank’s assets are its uses of funds.
B. A bank issues liabilities to acquire funds.
C. The bank’s assets provide the bank with income.
D. Bank capital is recorded as an asset on the bank balance sheet.
Answer:
Prior to 2008, bank managers looked on reserve requirements
A. as a tax on deposits.
B. as a subsidy on deposits.
C. as a subsidy on loans.
D. as a tax on loans.
Answer:
Everything else held constant, a weaker dollar will likely hurt
A. textile exporters in South Carolina.
B. wheat farmers in Montana that sell domestically.
C. automobile manufacturers in Michigan that use domestically produced inputs.
D. furniture importers in California.
Answer:
A long contract requires that the investor
A. sell securities in the future.
B. buy securities in the future.
C. hedge in the future.
D. close out his position in the future.
Answer:
Suppose, at a given federal funds rate, there is an excess demand for reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A. sale; increase
B. purchase; increase
C. sale; decrease
D. purchase; decrease
Answer:
The interest rate falls when either the demand for bonds ________ or the supply of
bonds ________.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Answer:
A decrease in the liquidity of corporate bonds will ________ the yield of corporate
bonds and ________ the yield of Treasury bonds, everything else held constant.
A. increase; increase
B. decrease; decrease
C. increase; decrease
D. decrease; increase
Answer:
New computer technology has
A. increased the cost of financial innovation.
B. increased the demand for financial innovation.
C. reduced the cost of financial innovation.
D. reduced the demand for financial innovation.
Answer:
Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation by
comparing
A. how fast prices rise relative to wages.
B. the unemployment rate with its natural rate level.
C. when prices rise relative to wages.
D. government debt to real GDP.
Answer:
The long-run rate of unemployment to which an economy always gravitates is the
A. normal rate of unemployment.
B. natural rate of unemployment.
C. neutral rate of unemployment.
D. inflationary rate of unemployment.
Answer:
________ are asymmetric information problems that act as a barrier to efficient
allocation of capital.
A. Asset prices
B. Credit imbalances
C. Financial frictions
D. Financial derivatives
Answer:
In response to banks entering into the insurance business, insurance companies have
started to supply ________ insurance.
A. debt
B. credit
C. equity
D. currency
Answer:
The demand for houses decreases, all else equal, when
A. wealth increases.
B. real estate prices are expected to increase.
C. stock prices become more volatile.
D. gold prices are expected to increase.
Answer:
Which of the following insurance practices attempts to minimize the adverse selection
problem insurance companies face?
A. prevention of fraud
B. risk-based premiums
C. restrictive provisions
D. deductibles
Answer:
According to the Taylor Principle, when the inflation rate rises, the nominal interest rate
should be ________ by ________ than the inflation rate increase.
A. increased; more
B. increased; less
C. decreased; more
D. decreased; less
Answer:
Using the information in Situation 20-1, if aggregate output is equal to $10,000, then
unplanned inventory investment equals
A. -$1000
B. -$100
C. $0
D. $100
Answer:
The quantity of reserves demanded equals
A. required reserves plus borrowed reserves.
B. excess reserves plus borrowed reserves.
C. required reserves plus excess reserves.
D. total reserves minus excess reserves.
Answer:
Of the three players in the money supply process, most observers agree that the most
important player is
A. the United States Treasury.
B. the Federal Reserve System.
C. the FDIC.
D. the Office of Thrift Supervision.
Answer:
An option that gives the owner the right to buy a financial instrument at the exercise
price within a specified period of time is a
A. call option.
B. put option.
C. American option.
D. European option.
Answer:
A key factor in producing high economic growth is
A. eliminating foreign trade.
B. well-functioning financial markets.
C. high interest rates.
D. stock market volatility.
Answer:
The theory of portfolio choice indicates that factors affecting the demand for money
include
A. income.
B. nominal interest rate.
C. riskiness of money.
D. all the above.
Answer:
Bank ________ is/are listed on the liability side of the bank’s balance sheet.
A. reserves
B. capital
C. securities
D. cash items
Answer:
Which of the followings is a duty of the Board of Governors of the Federal Reserve
System?
A. setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B. setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C. regulating credit with the approval of the president under the Credit Control Act of
1969
D. All governors advise the president of the United States on economic policy.
Answer:
U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a
lower purchase price than the amount you receive at maturity.
A. premium
B. collateral
C. default
D. discount
Answer:
Vesting refers to
A. the length of time an insurance company has been in business.
B. the length of time that a person must be enrolled in a pension plan before being
entitled to receive benefits.
C. the length of time until a CD matures.
D. the premium required under term insurance.
Answer:
A higher ________ means that an asset’s return is more sensitive to changes in the value
of the market portfolio.
A. alpha
B. beta
C. CAPM
D. APT
Answer:
Because information is scarce
A) helps explain why equity contracts are used so much more frequently to raise capital
than are debt contracts.
B) monitoring managers gives rise to costly state verification.
C) government regulations, such as standard accounting principles, have no impact on
problems such as moral hazard.
D) developing nations do not rely heavily on banks for business financing.
Answer:
Tobin’s q is defined as the market value of firms ________ the replacement cost of
capital.
A. times
B. minus
C. plus
D. divided by
Answer:
If a bank manager wants to protect the bank against losses that would be incurred on its
portfolio of treasury securities should interest rates rise, he could ________ options on
financial futures.
A. buy put
B. buy call
C. sell put
D. sell call
Answer: