Finance companies perform all of the following functions, except:
A. issue commercial paper and securities.
B. take deposits.
C. make loans.
D. lease equipment to firms.
Answer:
If financial intermediaries did not have the ability to pool the resources of small savers:
A. borrowers needing large amounts of money would find it more costly to obtain the
funds.
B. the economy would grow faster.
C. people would likely save more.
D. the risk associated with lending would decrease.
Answer:
Leverage:
A. reduces risk.
B. is synonymous with risk-free investment.
C. increases expected rate of return.
D. leads to smaller changes in the investment’s price.
Answer:
For the Fed to use money growth as a direct monetary policy target, which of the
following needs to exist?
A. A highly variable deposit expansion multiplier
B. A stable link between the monetary base and the quantity of money
C. A predictable link between the quantity of money and the deposit expansion
multiplier
D. A stable link between the monetary base and the quantity of money and a
predictable relationship between the quantity of money and the rate of inflation
Answer:
The risk premium that investors associate with a bond increases with all of the
following except:
A. maturity.
B. inflation risk increases.
C. interest-rate risk.
D. an improved bond rating.
Answer:
U.S. currency is:
A. A commodity money
B. Fiat money
C. Tied to the value of gold at a fixed rate
D. The only store of value
Answer:
A foreign exchange intervention that does not alter the domestic monetary base is:
A. sterilized.
B. unsterilized.
C. likely to change domestic interest rates.
D. impossible.
Answer:
One use of a monetary policy framework is to clarify all of the following except:
A. the likely response when policy goals are in conflict with one another.
B. the goal that is currently receiving the most attention.
C. how goals will be measured.
D. why zero inflation is not desirable.
Answer:
Whole life insurance differs from term life in which of the following ways?
A. Whole life has a rising premium as the policyholder ages, but term life has a fixed
premium.
B. Term life has a savings component while whole life is pure insurance.
C. Term life is usually more expensive than whole life.
D. Whole life is a combination of term life insurance and a savings account.
Answer:
The financial crisis in the United States in 2007-2009 brought about all but which of the
following changes:
A. a rise in the number of unit banks.
B. an increase in the deposit share of the top four U.S. commercial banks.
C. the placement of the two government-sponsored enterprises for housing finance into
conservatorship.
D. a run on money-market mutual funds.
Answer:
In reading bond quotes:
A. the bid price is usually above the asked price.
B. the asked price is fixed over the life of the bond.
C. the asked price is usually above the bid price.
D. bid and asked prices must be equal as set forth by SEC regulations.
Answer:
An investment will pay $2000 a quarter of the time; $1,600 half of the time and $1,400
a quarter of the time. The standard deviation of this asset is:
A. $600
B. $1,650
C. $47,500
D. $217.94
Answer:
A borrower who makes a $1000 loan for one year and earns interest in the amount of
$75, earns what nominal interest rate and what real interest rate if inflation is two
percent?
A. A nominal rate of 5.5% and a real rate of 2.0%.
B. A nominal rate of 7.5% and a real rate of 5.0%.
C. A nominal rate of 7.5% and a real rate of 9.5%.
D. A nominal rate of 7.5% and a real rate of 5.5%.
Answer:
The law of one price is not expected to hold for:
A. differentiated goods.
B. financial assets.
C. commodity goods.
D. oil.
Answer:
The need for a lender of last resort was identified as far back as:
A. the start of the Great Depression in 1929.
B. 1913, when the Federal Reserve was created.
C. 1873, by British economist Walter Bagehot.
D. 1776, by the first U.S. Secretary of the Treasury, Alexander Hamilton.
Answer:
Consider a zero-coupon bond with a $1,100 payment in one year. Suppose the interest
rate decreases from 10% to 8%. The price of this bond:
A. increases from $1,000 to $1,018.
B. increases from $1,000 to $1,375.
C. decreases from $110 to $88.
D. decreases from $1,210 to $1,188.
Answer:
All of the following are true about electronic funds transfers except:
A. sometimes involve the Federal Reserve sending electronic images of checks to
banks.
B. occur when banks or individuals deposit/withdraw from one bank account to
another electronically.
C. include automated clearinghouse transactions (ACH).
D. include credit card payments made online.
Answer:
Which of the following statements would you say best reflects monetary policy?
A. It is a hard and fast science.
B. Its impact is impossible to predict.
C. It is a lot like gambling because the outcomes are most of the time uncertain.
D. There is certainly some science involved, a lot of understanding that is needed, but a
lot of uncertainty still remains.
Answer:
Crises that occasionally hit financial markets will increase the demand for money
since:
A. the return on money increases.
B. the return on financial assets increases.
C. there is no risk with holding money.
D. the risk of holding money relative to other financial assets decreases.
Answer:
Within the European Central Bank, banks with excess reserves:
A. can deposit them with the ECB and earn an interest rate below the target refinancing
rate.
B. earn no interest on excess reserves, similar to the system in the U.S.
C. must deposit the excess with the ECB’s Deposit Facility.
D. none of the above answers is correct; there are no required reserves for the ECB and
so therefore no excess reserves.
Answer:
Any central bank policy that influences the domestic interest rate will:
A. have no effect on the exchange rate if exchange rates are flexible.
B. have an effect on the exchange rate.
C. not impact the supply of and demand for the domestic currency if exchange rates are
flexible.
D. be compatible with fixed exchange rates.
Answer:
Which of the following statements best completes the following statement: “Over the
past 40 years, the percentage(s) of assets for all financial intermediaries”?
A. controlled by banks has increased while the percentage for mutual funds has
decreased.
B. controlled by banks has decreased as has the percentage for mutual funds while
insurance companies have increased their percentage.
C. controlled by insurance companies and mutual funds has decreased and the
percentage controlled by banks has increased.
D. controlled by banks has decreased while the percentage for mutual funds has
increased.
Answer:
Most economists agree that a well-designed central bank would:
A. be independent of political pressure.
B. make its policy actions difficult to interpret.
C. be accountable only to other banks.
D. be run by one key policy maker.
Answer:
Banks exert some control over who will regulate them because banks:
A. spend a lot of money contributing to political campaigns.
B. can switch their charter from state to federal and vice versa.
C. have the right to decide on which regulator will oversee their bank.
D. pay the salary of the regulator.
Answer:
The efficient allocation of resources requires:
A. that prices reflect the relative value of goods and services.
B. that inflation not exceed three percent a year.
C. deflation.
D. prices to remain constant.
Answer:
The dividend-discount model of stock valuation:
A. is an application of the net present value formula.
B. takes the net present value of expected dividends and add it to the future sale price
of the stock.
C. takes the net present value of the expected future price of the stock and adds the
annual dividend.
D. takes the annual dividend, adds it to the expected future selling price and divides by
the number of years to get the current price.
Answer:
The objectives set for the Fed by Congress are:
A. very specific; this adds to the Fed’s accountability.
B. by design, quite vague, allowing the Fed to really set its own goals.
C. specific regarding inflation, but vague on all other goals.
D. specific on the growth rate for the economy, but vague on all other objectives.
Answer:
The nominal exchange rate:
A. is the price of a good in one country expressed in units of the same good in another
country.
B. is fixed by the central banks of countries.
C. is the price of one country’s currency stated in units of another country’s currency.
D. is adjusted once a year and is the price at which goods are traded.
Answer:
One thing the Fed has learned over the past twenty-five years is:
A. the money multiplier is fairly constant no matter what changes are made to the
monetary base.
B. the money multiplier is unstable over time.
C. the money multiplier has a trend rate of growth that is fairly constant.
D. it should focus its attention on targeting M2.
Answer:
The holding period return on a bond:
A. can never be more than the yield to maturity.
B. will equal the yield to maturity if the bond is purchased for face value and sold at a
lower price.
C. will be less than the yield to maturity if the bond is sold for more than face value.
D. will be less than the yield to maturity if the bond is sold for less than face value.
Answer:
Short-run movements in inflation and output are ultimately attributed to changes in:
A. aggregate demand.
B. aggregate supply.
C. foreign policy.
D. aggregate demand and aggregate supply.
Answer:
Banking regulations prevent banks from:
A. holding more than 10 percent of their assets in common stock of companies.
B. owning corporate jets.
C. owning common stocks of corporations.
D. building big office buildings.
Answer:
If domestic residents are restricted in their ability to purchase foreign assets then their
government is imposing:
A. controls on capital inflows.
B. controls on capital outflows.
C. controls on both capital inflows and outflows.
D. fixed exchange rates.
Answer:
An investment with a large spread between possible payoffs will generally have:
A. a low expected return.
B. a high standard deviation.
C. a low value at risk.
D. both a low expected return and a low value at risk.
Answer:
If a local government eliminates the tax exemption on municipal bonds, we’d expect to
see:
A. an increase in the yield on taxable bonds.
B. a decrease in the gap in yields on taxable and tax-exempt bonds.
C. a decrease in the yield on municipal bonds.
D. municipal bonds will become more attractive to investors.
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