1) Everything else held constant, when the government has higher budget deficits
A) the demand curve for bonds shifts to the left and the interest rate rises
B) the demand curve for bonds shifts to the left and the interest rate falls
C) the supply curve for bonds shifts to the right and the interest rate falls
D) the supply curve for bonds shifts to the right and the interest rate rises
2) Special Drawing Rights (SDRs) are issued to governments by the ________ to settle
international debts and have replaced ________ in international transactions.
A) Federal Reserve System; gold
B) Federal Reserve System; dollars
C) International Monetary Fund; gold
D) International Monetary Fund; dollars
3) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market sale ________ the ________ of reserves, causing the
federal funds rate to increase, everything else held constant.
A) increases; supply
B) increases; demand
C) decreases; supply
D) decreases; demand
4) 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
5) When the growth rate of the money supply is increased, interest rates will fall
immediately if the liquidity effect is ________ than the other money supply effects and
there is ________ adjustment of expected inflation.
A) larger; fast
B) larger; slow
C) smaller; slow
D) smaller; fast
6) 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
7) The type of credit insurance that landed AIG into trouble in 2008 is called
A) insurance rate swaps
B) monoline insurance
C) default insurance
D) credit default swaps
8) Factors causing an increase in currency holdings include
A) an increase in the interest rates paid on checkable deposits
B) an increase in the cost of acquiring currency
C) a decrease in bank panics
D) an increase in illegal activity
9) Professional athletes often have contract clauses prohibiting risky activities such as
skiing and motorcycle riding. These clauses are
A) limited-liability clauses
B) risk insurance
C) restrictive covenants
D) illegal
10) If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per
dollar, then the franc depreciates from ________ U.S. dollars per franc to ________
U.S. dollars per franc.
A) 0.80; 0.67
B) 0.67; 0.80
C) 0.50; 0.33
D) 0.33; 0.50
11) The demand for money as a cushion against unexpected contingencies is called the
A) transactions motive
B) precautionary motive
C) insurance motive
D) speculative motive
12) If a bank needs to raise the amount of capital relative to assets, a bank manager
might choose to
A) buy back bank stock
B) pay higher dividends
C) shrink the size of the bank
D) sell securities the bank owns and put the funds into the reserve account
13) Bank holding companies that rival money center banks in size, but are not located
in money center cities are
A) superregional banks
B) bank clearing houses
C) international banks
D) local banks
14) If the Fed expects currency holdings to rise, it conducts open market ________ to
offset the expected ________ in reserves.
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease
15) A fully amortized loan is another name for
A) a simple loan
B) a fixed-payment loan
C) a commercial loan
D) an unsecured loan
16) The government safety net creates ________ problem because risk-loving
entrepreneurs might find banking an attractive industry.
A) an adverse selection
B) a moral hazard
C) a lemons
D) a revenue
17) Which of the following is not a form of e-money?
A) a debit card
B) a credit card
C) a stored-value card
D) a smart card
18) A put option gives the owner the
A) right to sell the underlying security
B) obligation to sell the underlying security
C) right to buy the underlying security
D) obligation to buy the underlying security
19) In practice, the Fed’s policy of targeting money market conditions in the 1960s
proved to be
A) countercyclical, helping to stabilize the economy
B) procyclical, destabilizing the economy
C) procyclical, helping to stabilize the economy
D) countercyclical, destabilizing the economy
20) Typically, borrowers have superior information relative to lenders about the
potential returns and risks associated with an investment project. The difference in
information is called
A) moral selection
B) risk sharing
C) asymmetric information
D) adverse hazard
21) The ability to use the too-big-to-fail policy was curtailed by the passage of the
FDICIA. To use this action today, the FDIC must get approval of a two-thirds majority
of both the Board of Governors of the Federal Reserve and the directors of the FDIC
and also the approval of the
A) Secretary of the Treasury
B) Senate Finance Committee Chairperson
C) President of the United States
D) Governor of the state in which the failed bank is located
22) The Fed is considering eliminating
A) primary credit lending
B) secondary credit lending
C) seasonal credit lending
D) its lender of last resort function
23) A nominal anchor promotes price stability by
A) outlawing inflation
B) stabilizing interest rates
C) keeping inflation expectations low
D) keeping economic growth low
24) At its inception, the Federal Reserve was intended to be
A) the Treasury’s banker
B) the issuer of government debt
C) a lender-of-last-resort
D) a regulator of bank holding companies
25) Total Reserves minus vault cash equals
A) bank deposits with the Fed
B) excess reserves
C) required reserves
D) currency in circulation
26) When the SEC requires companies to publicly release financial statements, which
of the following remedies of conflicts of interest does this fall under?
A) Leave it to the market
B) Regulate for transparency
C) Supervisory oversight
D) Separation of functions
27) Long-term customer relationships ________ the cost of information collection and
make it easier to ________ credit risks.
A) reduce; screen
B) increase; screen
C) reduce; increase
D) increase; increase
28) Banks develop statistical models to calculate their maximum loss over a given time
period. This approach is known as the
A) stress-testing approach
B) value-at-risk approach
C) trading-loss approach
D) doomsday approach
29) When a corporation announces a major decline in earnings, the stock price may
initially decline significantly and then rise back to normal levels over the next few
weeks. This impact is called
A) the January effect
B) mean reversion
C) market overreaction
D) the small-firm effect
30) As a store of value, money
A) does not earn interest
B) cannot be a durable asset
C) must be currency
D) is a way of saving for future purchases