With a futures contract:
A. payment is made when the contract is created.
B. no payment is made until the settlement date.
C. the short position agrees to purchase the underlying asset.
D. the risk is eliminated for both parties.
Answer:
The government regulates bank mergers, sometimes denying the proposed merger.
Often the reason given for the denial is to protect small investors. What are small
investors being protected from?
A. with a larger bank the bank is likely to take greater risk and may fail.
B. in order to pay for the merger, the bank may seek higher returns putting the
depositors’ funds at greater risk.
C. mergers can increase the monopoly power of banks and the bank may seek to
exploit this power by raising prices and earning unwarranted profits.
D. bank runs hurt larger banks more than smaller banks.
Answer:
The payoff method used by the FDIC to address the insolvency of a bank is when the
FDIC:
A. pays the owners of the bank for the losses they would otherwise face.
B. pays off all depositors the balances in their accounts so no depositor suffers a loss,
though the owners of the bank may suffer losses.
C. pays off the depositors up to the current $250,000 limit, so it is possible that some
depositors will suffer losses.
D. takes all of the assets of the bank, sells them, pays off the liabilities of the bank, in
full and then replenishes their fund with any remaining balance.
Answer:
Prior to 1980:
A. member banks of the Federal Reserve did not have to hold non-interest-bearing
reserve deposits at the Fed.
B. nonmember banks had to hold non-interest-bearing reserve deposits at the Fed.
C. nonmember banks did not have to hold non-interest-bearing reserve deposits at the
Fed.
D. all banks, member or not, had to hold reserve deposits at the Fed in a
non-interest-bearing account.
Answer:
Considering foreign exchange transactions:
A. the U.S. dollar is exchanged in roughly 50% of all currency transactions.
B. all transactions involve the use of the U.S. dollar.
C. most of these transactions are handled in New York.
D. more transactions are handled in London than anywhere else.
Answer:
Many governments give their central bank control over issuing currency because:
A. printing currency can be profitable for a government so government officials may
have a strong incentive to print too much.
B. having large amounts of currency can lead to lower rates of inflation.
C. central banks use the profits from issuing currency to finance their operations.
D. the only way to distribute currency to banks is through the central bank.
Answer:
The failure of the Argentinean currency board can be attributed to many factors,
including the:
A. failure right from the start to lower inflation.
B. pegging of the Argentine peso to the euro.
C. pegging of the Argentine peso to the U.S. dollar, even though the countries’
economies were not that highly integrated.
D. prices of goods Argentine exported dropped significantly in the late 1990s hurting
their economy.
Answer:
All but which of the following is a reason policymakers are concerned about the
strength of the rebound from the 2007-2009 financial crisis:
A. Banks would make credit expensive and difficult to obtain
B. Investors would be cautious about buying securitized assets
C. Households would prefer to save more and borrow less
D. The pace of technological change would slow
Answer:
Sue uses a credit card to purchase a new pair of jeans. Sue is:
A. using money to buy her jeans since credit cards is money.
B. creating a liability that she will ultimately have to pay with money.
C. using an electronic payment form of money.
D. using a form of money included in M2.
Answer:
Commissions paid to a stock broker are an example of:
A. risk transfer.
B. transaction costs.
C. information asymmetry.
D. liquidity.
Answer:
Any theory of the term structure of interest rates needs to explain each of the following,
except why:
A. short-term yields are more volatile than long-term yields.
B. the yields of different maturities tend to move together.
C. short-term yields are usually higher than long-term yields.
D. long-term yields are usually higher than short-term yields.
Answer:
A good definition for intermediate targets of monetary policy would be:
A. instruments under the direct control of central bankers but one step removed from
operational targets.
B. instruments that are not under the direct control of the central banks but lie between
operational instruments and objectives.
C. the quantity or non-price targets of monetary policy.
D. the real goals of monetary policy.
Answer:
Central bank accountability means:
A. politicians will establish goals and central bankers will report on their progress.
B. central bankers are not accountable to any elected officials.
C. central bankers are only accountable to the banks in their respective countries.
D. central bankers must hold press conferences to explain their monetary policy views.
Answer:
A futures contract is an example of:
A. a derivative instrument.
B. an instrument used solely by financial institutions.
C. a high-risk security that will only have value if certain events occur.
D. a contract that is traded but is not a financial instrument.
Answer:
The International Monetary Fund was created as a part of:
A. the United Nations.
B. the Bretton Woods System.
C. the European Monetary Union.
D. the Federal Reserve System.
Answer:
Standardization of financial instruments has occurred as a result of:
A. the rule of 70.
B. the law of demand.
C. economies of scale.
D. the law of supply.
Answer:
One thing that is true about economic policy in the U.S. is:
A. fiscal and monetary policy never conflict.
B. monetary and fiscal policy need not, but may conflict.
C. monetary policy ultimately controls fiscal policy since the Fed controls the money
supply.
D. fiscal policy ultimately controls monetary policy since Congress can control the
Fed’s budget.
Answer:
In 2002, the Federal Reserve changed its discount lending procedures. Which of the
following statements is correct?
A. For most of its history the Federal Reserve has lent reserve to banks at a rate equal
to the target federal funds rate; after 2002 the rate would be below the target federal
funds rate.
B. The changes made in 2002 have made it more difficult for the Fed to meet its
interest-rate stability objective.
C. Before 2002 the Fed discouraged banks from borrowing and actually destabilized
the interbank market for reserves.
D. The Fed now controls the quantity of credit extended as well as its price.
Answer:
The largest liability for commercial banks in the U.S. is:
A. demand deposits.
B. non-transaction deposits.
C. borrowing from other U.S. banks.
D. borrowing from the Federal Reserve.
Answer:
If the Fed were to increase the required reserve rate from ten percent to twenty percent,
the simple deposit expansion multiplier would:
A. double.
B. increase by 10 percent.
C. decrease by a factor of ten.
D. be half as large as it was before the increase.
Answer:
Statistical analysis reveals that the long-run money velocity (for euro-area M3, which is
equivalent to U.S. M2):
A. is unstable in the euro similar to the instability that exists in the U.S.
B. is much more stable in the U.S. than in the euro area.
C. has increased in the euro area since 1980.
D. is more stable in the euro area than in the U.S.
Answer:
The required stock return an investor seeks can best be represented by which of the
following?
A. Risk Premium – Risk-free Return
B. Risk-free Return × Risk Premium
C. (Risk-free Return + Risk Premium)/(1 + i)
D. Risk-free Return + Risk Premium
Answer:
A bank has 10,000 depositors, each of whom deposits $100 in the bank. If the bank
makes 1000 loans for $1,000 each then each depositor has contributed:
A. $1 to each loan.
B. $100 to each loan.
C. $0.10 to each loan.
D. $10 to each loan.
Answer:
“Official” recessions in the United States are declared by:
A. the Federal Reserve.
B. the U.S. department of the Treasury.
C. the National Bureau of Economic Research.
D. Congress.
Answer:
The real and nominal exchange rates differ in the sense that:
A. the real exchange rate does not express differences in the purchasing power of a
currency.
B. the nominal exchange rate is adjusted for price differences between countries and
the real is not.
C. the nominal exchange rate does not reflect differences in purchasing power between
currencies.
D. nominal exchange rates are fixed but real rates are flexible.
Answer:
When the yield curve is downward sloping:
A. people are expecting an economic slowdown.
B. short-term yields are lower than long term yields.
C. people are expecting higher inflation in the future.
D. people could be expecting a tightening in monetary policy.
Answer:
The reserve requirement is applied to two-week balances on:
A. transactions deposits.
B. savings deposits.
C. both transactions deposits and savings deposits.
D. savings deposits and one-week balances on transactions deposits.
Answer:
One cost that potentially could result from central banks targeting money growth is:
A. high inflation.
B. a slowdown in financial innovation.
C. volatile interest rates.
D. decreased independence.
Answer:
One way inflation reduces aggregate demand is by:
A. increasing nominal GDP.
B. increasing velocity.
C. reducing real balances.
D. increasing wealth.
Answer:
The time value of the option can best be defined as (excluding its intrinsic value):
A. the commission earned by a broker.
B. the fee earned for the potential benefits from buying the option.
C. the service fee charged by the SEC for regulating the option market.
D. the fee paid for the potential benefits from buying an option.
Answer:
When measuring the risk of an asset:
A. one must measure the uncertainty about the size of future payoffs.
B. it is necessary to incorporate uncertainties that are not quantifiable.
C. one must remember that the concept of risk applies only to financial markets, not to
financial intermediaries.
D. one cannot use other investments to evaluate the asset’s risk.
Answer:
The stability of the financial system is enhanced by the ability of central banks to:
A. be a lender of last resort.
B. provide loans to insolvent banks.
C. provide deposit insurance.
D. convert poorly run banks into branches of the central bank.
Answer:
Banks are required to disclose certain information. This disclosure is done for all of the
following reasons except:
A. to enable regulators to more easily assess the financial condition of banks.
B. to allow financial market participants to penalize banks that carry additional risk.
C. to allow customers to more easily compare prices for services offered by banks.
D. create uniform prices for standard bank services.
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