On the settlement date of a futures contract:
A. the future’s price is always above the price of the underlying asset.
B. the future’s price is always below the price of the underlying asset.
C. the future’s price is equal to the price of the underlying asset.
D. the future’s price may be above or below the price of the underlying asset but not
equal to it.
Answer:
The “coupon rate” is:
A. the annual amount of interest payments made on a bond as a percentage of the
amount borrowed.
B. the change in the value of a bond expressed as a percentage of the amount
borrowed.
C. another name for the yield on a bond, assuming the bond is sold before it matures.
D. the total amount of interest payments made on a bond as a percentage of the amount
borrowed.
Answer:
According to the equation of exchange, if real output and the money supply stay the
same and the price level increases:
A. the velocity of money has to increase.
B. the velocity of money has to decrease.
C. the real GDP had to rise.
D. nominal GDP remains constant.
Answer:
The information concerning the issuer of a financial instrument:
A. needs to be complete and closely monitored by the buyers of the instrument for
change.
B. is somewhat non-standardized to minimize the cost of the instrument.
C. is usually standardized to the essential information required by the buyers.
D. is closely monitored by the buyers of these instruments for change.
Answer:
Which of the following would be classified as a negative supply shock?
A. An increase in the legal minimum wage
B. A decrease in the price of oil
C. An increase in government purchases
D. An increase in demand for exports
Answer:
You have a portfolio valued at $1000. Over the next twelve months it loses 75% of its
value. What return does the portfolio need to earn over the following twelve months to
restore the portfolio to its original value?
A. 75%
B. 200%
C. 300%
D. 25%
Answer:
The operational components required for truly independent central banks include:
A. a budget controlled by Congress.
B. the ability to have policies reversed.
C. monetary policies that cannot be reversed by anyone outside of the central bank.
D. the chairperson of the bank being answerable only to the President.
Answer:
An advantage that money has over other assets is that it:
A. increases in value over time.
B. has lower transaction costs to use as a means of payment than other assets.
C. provides a higher return to the owner.
D. is a safer asset to hold during times of inflation.
Answer:
The term structure of interest rates:
A. always results in an upward sloping yield curve.
B. represents the variation in yields for securities differing in maturities.
C. usually results in a flat yield curve.
D. usually results in a downward sloping yield curve.
Answer:
Which of the following is the best analogy? Inflation is like:
A. a pound having more ounces.
B. a day having more hours.
C. a minute having fewer seconds.
D. a mile having more feet.
Answer:
Suppose that interest rates are expected to remain unchanged over the next few years.
However, there is a risk premium for longer-term bonds. According to the liquidity
premium theory, the yield curve should be:
A. upward sloping and very steep.
B. upward sloping and relatively flat.
C. inverted.
D. vertical.
Answer:
The theory of purchasing power parity:
A. contradicts the law of one price.
B. explains exchange rate movements in the short run, while the law of one price
explains exchange rate movements over the long run.
C. assumes away inflation to have any validity.
D. extends the law of one price to a basket of goods.
Answer:
All of the following are associated with a fixed exchange rate policy except:
A. sacrificing control of the domestic inflation rate.
B. higher import prices.
C. the need to maintain ample international reserves.
D. it means importing monetary policy.
Answer:
Business cycles are viewed as:
A. movements in the short-run equilibrium.
B. situations where aggregate demand does not equal short-run aggregate supply.
C. inevitable; every economy must experience them.
D. movements in the long-run equilibrium.
Answer:
The fact that investors can always hold cash creates:
A. a problem for monetary policymakers when the short-term interest rates approach
zero.
B. an opportunity for the U.S. treasury to issue bonds that actually have negative
nominal interest rates.
C. an upward bound on nominal interest rates.
D. negative nominal interest rates.
Answer:
The largest Federal Reserve District geographically is serviced by:
A. the Reserve Bank in San Francisco.
B. the Reserve Bank in Chicago.
C. the Reserve Bank in New York.
D. the districts are divided fairly equally.
Answer:
The reason financial intermediaries play such an important role in economies has to do
with all of the following except:
A. information costs.
B. transaction costs.
C. complexity of a lot of financial transactions.
D. the composition of GDP.
Answer:
Current critics of fiat money are urging governments to do what?
A. Return to a system of legal tender.
B. Move to a system of electronic transactions only.
C. Return to a gold standard.
D. Place limits on the creation.
Answer:
Which of the following is necessarily true of coupon bonds?
A. The price exceeds the face value.
B. The coupon rate exceeds the interest rate.
C. The price is equal to the coupon payments.
D. The price is the sum of the present value of coupon payments and the face value.
Answer:
Prior to the Civil War most state banks issued their own banknotes. This resulted in all
of the following problems except:
A. their values decreased as the holder moved further from the bank.
B. they were worthless if the bank failed.
C. they were not efficient as a means of payment if the holder was far from the bank.
D. they were usually redeemable in gold.
Answer:
What is the present value of $200 promised two years from now at 5% annual interest?
A. $190.00
B. $220.00
C. $180.00
D. $181.41
Answer:
When the Russian government defaulted on its bonds in August 1998:
A. risk spreads decreased significantly.
B. yields on U.S. Treasury securities fell while yields on corporate bonds rose.
C. yields on U.S. Treasury securities rose while prices of corporate bonds rose.
D. risk spreads did not change.
Answer:
Voting rights in a corporation are held by the:
A. board of directors.
B. preferred stockholders.
C. corporate bondholders.
D. common stockholders.
Answer:
If inflation in country A exceeds inflation in country B, purchasing power parity implies
that:
A. the currency of country B should depreciate relative to the currency of country A.
B. the inflation rate in country B will rise to match the inflation rate in country A.
C. the currency of country A will depreciate relative to the currency of country B.
D. the inflation rate in country A will fall to match the inflation rate in country B.
Answer:
Financial institutions:
A. raise the level of transaction costs relating to borrowing/lending.
B. can lower the information asymmetry involved with borrowing/lending.
C. decrease the liquidity to savers.
D. are required for all financial transactions.
Answer:
One of the results of the limit on bank branching was:
A. increased diversification in the loan portfolio of small banks.
B. curtailment of credit availability for borrowers in small towns.
C. lower profits for banks.
D. increased efficiency in the operations of banks.
Answer:
Some good did come from the internet bubble of the late 1990s. One good thing was
that:
A. people learned they should not invest in dotcom companies.
B. start-up companies found they could bypass venture capitalists and raise funds
directly from the capital markets.
C. stock market bubbles do not have to result in an inefficient allocation of resources.
D. the theory of efficient markets doesn’t always hold and consistently
better-than-market returns are achievable.
Answer:
Bonds issued by the U.S. Treasury are referred to as benchmark bonds because:
A. they are always purchased for a premium.
B. they are highly liquid and virtually free of default risk.
C. all bonds from national governments are labeled as benchmark bonds.
D. all bonds from the U.S. government have the same rate of interest.
Answer:
According to Robert Shiller, speculative bubbles are difficult to predict because:
A. they depend on the existence of a particular pattern of thinking which is difficult to
predict.
B. they are totally random events.
C. they arise because of government regulatory activity which is difficult to predict.
D. turns in business cycles are difficult to predict.
Answer:
The number of voting members on the Federal Open Market Committee is:
A. 7.
B. 12.
C. 19.
D. 8.
Answer:
With a call option that is described as in the money:
A. the market price of the stock is below the strike price.
B. the market price of the stock equals the strike price.
C. the market price of the stock is above the strike price.
D. the option has been exercised.
Answer:
If reserve demand is volatile, in order for the central bank to keep interest rates from
being volatile, it must:
A. target the quantity of reserves.
B. set targets for both interest rates and the quantity of reserves.
C. not target the interest rates.
D. let the quantity of reserves fluctuate.
Answer:
When a negative supply shock occurs it is extremely important for monetary
policymakers to discern whether or not potential output has decreased. Why does that
matter?
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