Which of the following would a bank not hold as insurance against the highest cost of
deposit outflow-bank failure?
A) Excess reserves
B) Secondary reserves
C) Bank capital
D) Mortgages
Answer:
The National Bank Act of 1863, and subsequent amendments to it,
A) created a banking system of state-chartered banks.
B) established the Office of the Comptroller of the Currency.
C) broadened the regulatory powers of the Federal Reserve.
D) created insurance on deposit accounts.
Answer:
Which of the following is not a financial institution?
A) a life insurance company
B) a pension fund
C) a credit union
D) a business college
Answer:
The sum of the current yield and the rate of capital gain is called the
A) rate of return.
B) discount yield.
C) pertuity yield.
D) par value.
Answer:
The chartering process is similar to ________ potential borrowers and the restriction of
risk assets by regulators is similar to ________ in private financial markets.
A) screening; restrictive covenants
B) screening; branching restrictions
C) identifying; branching restrictions
D) identifying; credit rationing
Answer:
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say First
National Bank has ________ million dollars in vault cash.
A) one
B) two
C) nine
D) ten
Answer:
Credit risk management tools include
A) deductibles.
B) collateral.
C) interest rate swaps.
D) duration analysis.
Answer:
Bank capital is listed on the ________ side of the bank’s balance sheet because it
represents a ________ of funds.
A) liability; use
B) liability; source
C) asset; use
D) asset; source
Answer:
Which of the following is not an element of inflation targeting?
A) A public announcement of medium-term numerical targets for inflation
B) An institutional commitment to price stability as the primary long-run goal
C) An information-inclusive approach in which only monetary aggregates are used in
making decisions about monetary policy
D) Increased accountability of the central bank for attaining its inflation objectives
Answer:
If you expect the inflation rate to be 12 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) -5 percent.
B) -2 percent.
C) 2 percent.
D) 12 percent.
Answer:
When yield curves are flat,
A) long-term interest rates are above short-term interest rates.
B) short-term interest rates are above long-term interest rates.
C) short-term interest rates are about the same as long-term interest rates.
D) medium-term interest rates are above both short-term and long-term interest rates.
Answer:
An instrument developed to help investors and institutions hedge interest-rate risk is
A) a put option.
B) a call option.
C) a financial derivative.
D) a mortgage-backed security.
Answer:
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A) Eurobond.
B) foreign bond.
C) British bond.
D) currency bond.
Answer:
If $22,050 is the amount payable in two years for a $20,000 simple loan made today,
the interest rate is
A) 5 percent.
B) 10 percent.
C) 22 percent.
D) 25 percent.
Answer:
Each Federal Reserve bank has nine directors. Of these ________ are appointed by the
member banks and ________ are appointed by the Board of Governors.
A) three; six
B) four; five
C) five; four
D) six; three
Answer:
The price of one country’s currency in terms of another country’s currency is called the
A) exchange rate.
B) interest rate.
C) Dow Jones industrial average.
D) prime rate.
Answer:
Thrift institutions importance as a source of funds for borrowers
A) has shrunk from around 40 percent of total credit advanced in the late 1970s to
below 30 percent by 2011.
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around
3 percent by 2011.
C) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 25 percent by 2011.
D) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 30 percent by 2011.
Answer:
The measure of the aggregate price level that is frequently the focus of Federal Reserve
officials is the
A) consumer price index.
B) producer price index.
C) GDP deflator.
D) PCE deflator.
Answer:
If monetary policy can influence ________ prices and conditions in ________ markets,
then it can affect spending through channels other than the traditional interest-rate
channel.
A) asset; labor
B) asset; credit
C) commodity; labor
D) commodity; credit
Answer:
________ in the foreign interest rate causes the demand for domestic assets to shift to
the left and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Answer:
When stock prices become more volatile, the ________ curve for gold shifts right and
gold prices ________, everything else held constant.
A) demand; increase
B) demand; decrease
C) supply; increase
D) supply; decrease
Answer:
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market sale ________ the supply of reserves causing the
federal funds rate to ________, everything else held constant.
A) decreases; decrease
B) increases; decrease
C) increases; increase
D) decreases; increase
Answer:
The European System of Central Banks signals the stance of its monetary policy by
setting a target for the
A) federal funds rate.
B) overnight cash rate.
C) lombard rate.
D) reserve rate.
Answer:
U.S. government bonds have no default risk because
A) they are backed by the full faith and credit of the federal government.
B) the federal government can increase taxes to pay its obligations.
C) they are backed with gold reserves.
D) they can be exchanged for silver at any time.
Answer:
A phenomenon closely related to market overreaction is
A) the random walk.
B) the small-firm effect.
C) the January effect.
D) excessive volatility.
Answer:
According to the traditional interest-rate channel, expansionary monetary policy lowers
the real interest rate, thereby raising expenditure on
A) business fixed investment.
B) government expenditure.
C) consumer nondurables.
D) net exports.
Answer:
Of the sources of external funds for nonfinancial businesses in the United States,
corporate bonds and commercial paper account for approximately ________ of the
total.
A) 5%
B) 10%
C) 32%
D) 50%
Answer:
________ are financial intermediaries that acquire funds by selling shares to many
individuals and using the proceeds to purchase diversified portfolios of stocks and
bonds.
A) Mutual funds
B) Investment banks
C) Finance companies
D) Credit unions
Answer:
The money multiplier is
A) negatively related to high-powered money.
B) positively related to the excess reserves ratio.
C) negatively related to the required reserve ratio.
D) positively related to holdings of excess reserves.
Answer:
In 1977, he pioneered the concept of selling new public issues of junk bonds for
companies that had not yet achieved investment-grade status.
A) Michael Milken
B) Roger Milliken
C) Ivan Boskey
D) Carl Ichan
Answer:
Everything else held constant, if a factor increases the demand for ________ goods
relative to ________ goods, the domestic currency will appreciate.
A) foreign; domestic
B) foreign; foreign
C) domestic; domestic
D) domestic; foreign
Answer:
An essential characteristic of credit unions is that
A) they are typically large.
B) branching across state lines is prohibited.
C) their lending is primarily for mortgage loans.
D) they are organized for individuals with a common bond.
Answer:
The Federal Reserve System was created to
A) make it easier to finance budget deficits.
B) promote financial market stability.
C) lower the unemployment rate.
D) promote rapid economic growth.
Answer: