Most of the buying and selling in primary markets:
A. is in the public view.
B. is highly transparent and closely monitored by the SEC.
C. involve an investment bank.
D. is done by the Federal Reserve.
Answer:
Secondary credit provided by the Fed is designed for:
A. banks who qualify for a lower interest than what is available under primary credit.
B. banks that are in trouble and cannot obtain a loan from anyone else.
C. banks that want to borrow without putting up collateral.
D. foreign banks.
Answer:
A proposed increase in the federal income tax rates may actually be viewed favorably
by many mayors of cities because:
A. it will allow them to also raise their tax rates.
B. it will cause the demand for municipal bonds to increase and their yields to increase.
C. people will pay less attention to local taxes.
D. it will cause the price of municipal bonds to increase and their yields to decrease.
Answer:
The U.S. has many banks because:
A. small banks are more profitable than large banks.
B. many states outlawed bank branching.
C. the Great Depression caused the failure of the large banks, leaving many small
banks.
D. the Glass-Steagall Act forced the splitting up of large banks.
Answer:
Financial intermediaries pool the resources of many small savers so that they can:
A. charge fees to these small savers and earn substantial income.
B. obtain the funds necessary to make loans to borrowers seeking large amounts.
C. lower their transaction costs of obtaining funds.
D. avoid paying any interest to obtain funds to lend.
Answer:
The United States would be characterized as having:
A. a controlled domestic interest rate, a closed capital market and a flexible exchange
rate.
B. a controlled domestic interest rate, an open capital market and a flexible exchange
rate.
C. no control over the domestic interest rate, an open capital market and a flexible
exchange rate.
D. a controlled domestic interest rate, an open capital market and a fixed exchange
rate.
Answer:
Sue sells a futures contract for U.S. Treasury bonds and on the settlement date the
interest rate on U.S. Treasury bonds is lower than Sue expected. Sue will have:
A. lost money on her short position.
B. gained money on her long position.
C. gained money on her short position.
D. lost money on her long position.
Answer:
The monetary base is the sum of:
A. reserves and currency in the hands of the public.
B. reserves and M2.
C. currency in the hands of the public and M2.
D. currency in the hands of the public M1.
Answer:
Which of the following best expresses the future value of $100 left in a savings account
earning 3.5% for three and a half years?
A. $100(1.035)3.5
B. $100(0.35)3.5
C. $100 × 3.5 × (1.035)
D. $100(1.035)3/2
Answer:
Two characteristics that make owning stock attractive are:
A. unlimited liability and first claim on assets.
B. share prices are relatively inexpensive and are transferable.
C. each share represents a large percentage of ownership and dividends are fixed.
D. dividends are paid before any other distributions are made and stocks are
transferable.
Answer:
Real business cycle theory seeks to explain business cycle fluctuations by focusing on:
A. shifts in potential output.
B. the inflexibility of prices and wages.
C. aggregate demand.
D. changes in monetary policy.
Answer:
You start with a $1000 portfolio; it loses 50% over the next year, the following year it
gains 50% in value. At the end of two years your portfolio is worth:
A. $1,000.
B. $500.
C. $750.
D. $950.
Answer:
People who claim to have the ability to accurately predict the future prices of stocks:
A. are strong advocates of the theory of efficient markets.
B. should be looked at with skepticism, unless they have information not available to
others.
C. are unusually lucky, and should be listened to intently.
D. are always psychologists.
Answer:
A decrease in expected inflation for any given nominal interest rate will cause:
A. bond prices to increase and interest rates to decrease.
B. bond prices to decrease and interest rates to increase.
C. the bond demand curve to shift to the left.
D. the bond supply curve to shift to the left.
Answer:
How many prices would a trader of a particular good need to know in a barter economy
with 20 goods?
A. 190
B. 100
C. 20
D. 40
Answer:
Which of the following statements is most correct?
A. A sterilized foreign exchange intervention will alter the composition of a central
bank’s assets and alter commercial bank reserves.
B. A sterilized foreign exchange intervention will not alter the composition of a central
bank’s assets.
C. An unsterilized foreign exchange intervention will alter commercial bank reserves.
D. A sterilized foreign exchange intervention will leave the central bank’s holdings of
foreign reserves unchanged.
Answer:
The default-risk premium:
A. should vary directly with the bond’s yield and inversely with its price.
B. is less than 0 (zero) for a U.S. Treasury bond.
C. should be lower for a highly speculative bond than for an investment-grade bond.
D. should vary directly with the bond’s yield and the bond’s price.
Answer:
If the monetary policy reaction curve has a relatively flat slope, the dynamic aggregate
demand curve is likely to have a:
A. relatively steep slope.
B. relatively flat slope.
C. positive slope.
D. zero slope.
Answer:
The bond dealer’s spread is:
A. the asking price less the bid price.
B. the difference between the current yield and the yield to maturity.
C. the bid price less the asking price.
D. usually negative; the dealer makes a profit holding the bonds.
Answer:
One argument for an independent central bank is:
A. successful monetary policy requires a long time horizon usually well beyond the
next election of most public officials.
B. without independence competent people would not take a position in a central bank.
C. the central bank usually hires more competent individuals than the Treasury
department or other finance ministries.
D. central bankers have a short-run focus that usually corrects problems faster.
Answer:
One lesson policymakers have learned, and which was evident from Japan’s experience
in 2002, is:
A. an intervention in the foreign exchange market will not work unless accompanied
by a change in the policy interest rate.
B. an intervention in the foreign exchange market is almost always effective if done on
a regular basis.
C. in order for foreign exchange interventions to work, they must be frequent and
expected.
D. for an intervention in the foreign exchange market to work, the interest rate must be
held constant by the central bank.
Answer:
The process of marking to market:
A. is done by the clearing corporation to reduce risk in futures contracts.
B. involves the margin accounts of only the buyers of future contracts.
C. involves the margin accounts of only the sellers of future contracts.
D. usually requires margin accounts to be adjusted weekly by the clearing corporation.
Answer:
One of the conclusions from Akerlof’s paper titled “The Market for Lemons” was:
A. high quality goods will drive low quality goods out of the market.
B. lacking the ability to distinguish high from low quality, the quality the market will
end up offering will be the average quality.
C. lacking the ability to distinguish high from low quality, low quality may drive high
quality out of the market.
D. high quality is always demanded by consumers over low quality.
Answer:
Suppose that the expected return on bonds falls relative to other assets. In the bond
market this will result in:
A. the bond supply curve shifting left.
B. a movement down the bond demand curve.
C. a shift to the left of the bond demand curve.
D. an increase in the price of bonds.
Answer:
The fact that banks can be either nationally or state chartered creates:
A. situations where some banks go unregulated.
B. situations where banks operating in more than one state can escape regulation.
C. regulatory competition.
D. banks being simultaneously regulated by more than one agency.
Answer:
An option’s value will never be less than zero because:
A. the intrinsic value is always less than zero.
B. the option seller is required to make up any shortfall faced by the option buyer.
C. an option holder will never make an additional payment to exercise the option.
D. the time value of the option is always less than zero.
Answer:
Financial institutions, acting as financial intermediaries, perform all of the following,
except:
A. provide ways to diversify risk.
B. pooling resources of small savers.
C. increase transactions costs.
D. provide safekeeping and accounting services.
Answer:
A call option described as out of the money would find:
A. the market price of the stock is above the strike price.
B. the option has been exercised.
C. the option has expired.
D. the strike price is above the market price of the stock.
Answer:
Within the United States, every city has:
A. a fixed exchange rate with every other city.
B. a floating exchange rate with every other city.
C. an independent monetary policy.
D. their own currency board.
Answer:
Aggregate supply is the quantity of:
A. real output supplied at each level of inflation.
B. nominal output supplied at each level of inflation.
C. real output supplied at each level of real interest rate.
D. output the country wants at each level of inflation.
Answer:
A central bank’s balance sheet will categorize the following as liabilities:
A. currency.
B. loans.
C. securities.
D. foreign exchange reserves.
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Have the growth rates of the two measures of money moved together over time?
Explain.
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