Which of the following statements is most correct?
A. The use of monetary policy in the U.S. has not changed much since the creation of
the Fed.
B. The quantitative impact on output of altering the target federal funds rate has been
quite stable.
C. Monetary policymakers operate in an environment with very little uncertainty.
D. Monetary policymakers operate in an environment where change is quite common.
Answer:
When expected inflation increases, for any given nominal interest rate the:
A. real cost of repayment for bond issuers increases.
B. real return for bondholders increases.
C. real cost of repayment for bond issuers decreases.
D. bond demand curve shifts right.
Answer:
A bank that cannot meet its loan commitments is experiencing the results of:
A. interest rate risk.
B. credit risk.
C. trading risk.
D. liquidity risk.
Answer:
It is difficult for depositors to know the true health of banks because:
A. regulations prohibit banks making their financial statements publicly available.
B. the financial statements of banks are too difficult for most people to understand.
C. most of the information on bank loans is private and based on sophisticated models.
D. banking is competitive and financial records of banks are not divulged to prevent
competitor banks from having an advantage.
Answer:
Dollarization is associated with each of the following, except:
A. slower integration into world markets.
B. adopting the monetary policy of the country whose currency is being used.
C. the central bank no longer has the ability to be the lender of last resort.
D. the loss of revenue from printing currency.
Answer:
Suppose Mary receives an $8,000 loan from First National Bank. Mary repays $8,480
to First National Bank at the end of one year. Assuming the simple calculation of
interest, the interest rate on Mary’s loan was:
A. 8.00%
B. $480
C. 6.00%
D. 5.66%
Answer:
A bank’s loan loss reserves are:
A. the amount of loans that have defaulted in the past twelve months.
B. the same as equity capital.
C. an amount the bank sets aside to cover potential losses from defaulted loans.
D. a liability of the bank since it is a source of funds.
Answer:
The inter-bank loans that appear on banks’ balance sheets represent what proportion of
bank capital?
A. Nearly ten percent
B. Almost three-fourths
C. About one-third
D. Less than one percent
Answer:
The Fed would use a reverse repo when they:
A. want to temporarily increase the monetary base.
B. forecast a permanent decrease in the demand for monetary base.
C. forecast a permanent increase in the demand for monetary base.
D. want to temporarily decrease the monetary base.
Answer:
A derivative instrument:
A. comes into existence after the underlying instrument is in default.
B. is a low-risk financial instrument used by highly risk-averse savers.
C. gets its value and payoff from the performance of the underlying instrument.
D. should be purchased prior to purchasing the underlying security.
Answer:
In calculating the current yield for a bond the:
A. coupon payment is ignored.
B. present value of the capital gain/loss is ignored.
C. present value of the final payment is the only important consideration.
D. present value of the coupon payments is the only important consideration.
Answer:
Which of the following statements best completes the following sentence; “Prior to
World War I, when the U.S. was on the gold standard, inflation in the U.S.”?
A. averaged 3.5 percent per year but was highly variable.
B. averaged less than one percent per year and was highly variable.
C. averaged less than one percent per year and was stable.
D. averaged 3.5 percent per year and was stable.
Answer:
A share of Ford Motor Company stock is an example of:
A. a non-standardized financial instrument.
B. a standardized financial instrument.
C. a non-standardized financial instrument since their prices can differ over time.
D. a financial instrument without risk.
Answer:
If a one-year zero-coupon bond has a face value of $100, is purchased for $94, and is
held to maturity the:
A. holding period return will exceed the yield to maturity.
B. yield to maturity will exceed the holding period return.
C. yield to maturity will be 6.38%.
D. holding period return is 6.0%.
Answer:
If Europeans increase their demand for American cars, everything else constant, we
should observe the following change in the U.S. dollar-euro market:
A. the supply curve of dollars shifts left.
B. the demand curve for dollars shifts left.
C. the demand curve for dollars shifts right.
D. the supply curve of dollars shifts right.
Answer:
Over the last few decades, central bankers have:
A. mostly abandoned intermediate targets.
B. greatly increased their focus on intermediate targets.
C. found that the links between the operating instruments and intermediate targets have
become more stable.
D. developed more intermediate targets.
Answer:
The use of coinsurance clauses and deductibles is an attempt by insurance companies to
deal with the problem of:
A. non-payment of premiums.
B. adverse selection.
C. insufficient government regulation.
D. moral hazard.
Answer:
Which of the following have the same impact on the Fed’s balance sheet?
A. An open market purchase and an increase in loans by the Fed to banks
B. An open market sale and an increase in foreign exchange reserves
C. An open market purchase and a decrease in foreign exchange reserves
D. An increase in loans by the Fed to banks and a decrease in foreign exchange
reserves
Answer:
The fact that central bankers tend to respond to higher rates of inflation by increasing
the real interest rate is:
A. one reason the dynamic aggregate demand curve shifts left.
B. one reason the dynamic aggregate demand curve slopes downward.
C. one reason the dynamic aggregate demand curve shifts right.
D. why the monetary policy reaction curve has a negative slope.
Answer:
A business needs a loan to help keep its shelves stocked. This is an example of:
A. an inventory loan.
B. sales finance.
C. equipment leasing.
D. consumer finance.
Answer:
What is the highest bond rating assigned by Standard and Poor’s?
A. AA
B. EEE
C. AAA
D. A
Answer:
Between 1998 and the end of 2000, the U.S. ran a large trade deficit; this should have
caused the dollar to depreciate against foreign currencies but instead the dollar
appreciated. The main reason for this is:
A. foreign exchange markets are slow to react.
B. the supply of dollars actually fell.
C. the dramatic increase in U.S. stock prices attracted a lot of foreign capital increasing
the demand for dollars by more than the increase in the supply of dollars.
D. the demand for dollars shifted left by more than the supply of dollars shifted right.
Answer:
In the long run, current output will:
A. equal potential output.
B. be less than potential output.
C. be above potential output.
D. only equal potential output if unemployment is zero.
Answer:
The Fed holds its euro reserves primarily in the form of:
A. euro currency.
B. a weighted portfolio of European government bonds.
C. German government bonds.
D. international mutual funds.
Answer:
One result of the Riegle-Neal Interstate Banking and Branching Efficiency Act was
that:
A. banking system efficiency decreased.
B. banks became less geographically diversified.
C. banking system efficiency increased.
D. banks became less geographically diversified and banking system efficiency
decreased.
Answer:
The autonomy of modern central banks means that governments cannot increase their
spending by:
A. raising taxes.
B. issuing bonds.
C. printing money.
D. either issuing bonds or printing money; both represent debt.
Answer:
The interest rate at which banks lend each other Eurodollars is known as:
A. the international federal funds rate.
B. the London Interbank Offered Rate.
C. the discount rate.
D. the International Prime Rate.
Answer:
The New York Stock Exchange is an example of a:
A. financial instrument.
B. financial institution.
C. financial market.
D. bank.
Answer:
One key difference between the Fed and the European Central Bank (ECB) in their
reserve requirements is that the:
A. reserve requirements of the ECB are at a much higher rate than the Fed’s.
B. ECB’s reserve requirements are more difficult for banks to predict.
C. reserve requirement of the ECB are determined annually.
D. ECB reserve requirement is based on all of a bank’s liabilities.
Answer:
The Federal Reserve District that covers the largest geographic area is serviced by the
Bank located in:
A. Chicago.
B. Richmond.
C. Atlanta.
D. San Francisco.
Answer:
Suppose a particular depository institution that specializes in residential mortgages is
owned by its depositors. The institution is probably a:
A. regional or super-regional bank.
B. money center bank.
C. community bank.
D. savings bank.
Answer: