Automatic teller machines and debit cards are examples of
A) electronic funds transfer systems.
B) commodity monies.
C) legal tender in the United States.
D) modern barter systems.
Answer:
Smaller firms tend to rely on financial intermediaries instead of financial markets for
external financing due to
A) transactions costs.
B) adverse selection.
C) moral hazard.
D) all of the above.
Answer:
Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the
expected annual inflation rate over the life of the mortgage is 2%. What is the expected
real interest rate?
A) 3%
B) 4%
C) 8%
D) 12%
Answer:
Which of the following was the main reason for increased counterparty risk in the
shadow banking system prior to the financial crisis of 2007-2009?
A) increased leverage
B) government insuring money market deposits
C) many firms borrowing long term for short-term investments
D) trading of derivatives on exchanges
Answer:
Which function of money enhances the ability of households to accumulate wealth
A) medium of exchange
B) store of value
C) valuable relative to its weight
D) does not become worn out too quickly
Answer:
If you have a checking account at First National Bank, the account is
A) an asset to both you and First National.
B) a liability to both you and First National.
C) an asset to First National and a liability to you.
D) an asset to you and a liability to First National.
Answer:
Charging drivers with good records lower premiums than drivers with bad records is an
example of an attempt by insurance companies to deal with the problem of
A) moral hazard.
B) adverse selection.
C) drunk driving.
D) failure of policyholders to keep paying their premiums.
Answer:
Which of the following statements is NOT true of the VIX?
A) It is calculated based on prices of call and put options of the S&P
B) Investors who want to hedge against stock market volatility can sell VIX options.
C) A VIX of 10 indicates investors expect the S&P 500 to fluctuate by 10% at an annual
rate over the next 30 days.
D) The VIX is a measure of fear in the stock market.
Answer:
According to the liquidity premium theory, a steep yield curve may be an indicator of
A) expectations of a significant increase in inflation.
B) an upcoming recession.
C) an economic slowdown.
D) lower future short-term interest rates.
Answer:
If market participants have rational expectations, then the best forecast of the price of a
stock in the next period is
A) equal to an average of the prices of the stock in previous periods.
B) equal to the price of the stock in the current period.
C) dependent upon all information available in the current period, including, but not
limited to, the price of the stock in the current period.
D) dependent on information available in the previous period.
Answer:
What does it mean for a money market mutual fund to “break the buck”?
A) The value of its share declines below $1.
B) It incurs losses on its investments.
C) It increases its fees to more than 1% of net asset value.
D) It is unable to meet the demand for withdrawals by investors.
Answer:
In a defined contribution pension plan,
A) pension income varies depending on how well the plan’s investments have done.
B) the employee is promised an assigned benefit based on earnings and years of service.
C) if the funds in the pension plan exceed the amount promised, the excess accrues to
the issuing firm or institution.
D) all earnings are taxable as regular income.
Answer:
Which of the following is NOT fixed on a coupon bond?
A) coupon
B) coupon rate
C) market price
D) par value
Answer:
Which of the following is likely to be more of a problem after the introduction of
deposit insurance?
A) moral hazard
B) adverse selection
C) contagion
D) bank runs
Answer:
If the current price of a bond is greater than its face value
A) an investor will receive a capital gain by holding the bond until maturity.
B) the yield to maturity must be less than the coupon rate.
C) the coupon rate must be less than the current yield.
D) the coupon rate must be equal to the current yield.
Answer:
The members of Federal Reserve district bank boards of directors who are leaders in
industry, commerce, and agriculture are known as
A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.
Answer:
The aggregate demand curve illustrates the relationship between
A) the aggregate expenditure for goods and services, and the real interest rate.
B) the aggregate expenditure for goods and services, and the level of current output.
C) the level of current output and the real interest rate.
D) the aggregate expenditure for goods and services, and the price level.
Answer:
Venture capital firms attempt to overcome the principal-agent problem by
A) investing only in industries with high profit rates.
B) charging high interest rates on loans.
C) holding large equity stakes in the firms they invest in.
D) avoiding investing in common stock.
Answer:
Increases in interest rates
A) reduce borrowers’ net worth.
B) reduce lenders’ net worth.
C) increase the present value of borrowers’ assets.
D) raise the cost to businesses of internal funding.
Answer:
By ‘specialization” economists mean a situation where
A) individuals produce the goods or services for which they have relatively the best
ability.
B) goods are traded directly for goods and money is not used.
C) individuals who produce goods do not also produce services and individuals who
produce services do not also produce goods.
D) individuals are assigned to occupations on the basis of tests that gauge their relative
abilities.
Answer:
Factoring
A) involves selling stocks and using the proceeds to buy bonds.
B) is purchasing accounts receivable at a discount.
C) is calculating the optimal par values of stocks and bonds.
D) has been declared illegal under the Factoring Reform Act of 1994.
Answer:
The Franklin National Bank Crisis had its greatest impact on the market for
A) commercial paper.
B) commodity futures.
C) negotiable certificates of deposit.
D) Eurodollars.
Answer:
The Fed’s monetary policy tools
A) have proven to be of little value in helping the Fed to achieve its monetary policy
goals.
B) have allowed the Fed to achieve its monetary policy goals directly.
C) have allowed the Fed to achieve its monetary policy goals indirectly.
D) are no longer as effective in achieving its monetary policy goals, due to restrictive
legislation passed by Congress in the 1990s.
Answer:
The difference between money and income is that whereas income is an individual’s
A) flow of earnings over a period of time, money is an individual’s stock of currency
and currency substitutes.
B) stock of all assets, money is an individual’s stock of currency and currency
substitutes.
C) flow of earnings over a period of time, money is an individual’s stock of all assets.
D) stock of currency and currency substitutes, money is an individual’s stock of all
assets.
Answer:
A coupon bond involves
A) interest payments from the borrower to the lender periodically during the life of the
loan and payment by the borrower to the lender of the face value of the loan at maturity.
B) interest and principal payments from the borrower to the lender periodically during
the life of the loan.
C) periodic payments by the borrower to the lender that include both principal and
interest.
D) periodic payments by the borrower to the lender that include principal, but not
interest.
Answer:
If you sell a futures contract for U.S. Treasury bills and on the delivery date the interest
rate of T-bills is higher than you expected, you will have
A) lost money on your long position.
B) gained money on your long position.
C) lost money on your short position.
D) gained money on your short position.
Answer:
At the time monetary union in Europe began in 1999, which of the following countries
declined to participate?
A) France
B) United Kingdom
C) Italy
D) Germany
Answer:
According to a 2012 study of the crowd funding site Kickstarter, what percent of firms
failed to meet the deadlines for finishing a product?
A) 25%
B) 50%
C) 75%
D) 90%
Answer:
What does it mean for an investment bank conducts a “road show”?
A) It involves an investment bank marketing its services to firms considering new
issues.
B) It is when an investment bank goes to the SEC to seek approval for a new issue.
C) It is when firms seeking an underwriter consider alternative investment banks.
D) It involves visits to institutional investors who might want to buy the security issue.
Answer:
As a result of low interest rates on CDs and the perceived riskiness of alternative
investments following the financial crisis of 2007-2009, the bond market was affected
in all of the following ways EXCEPT:
A) higher demand for bonds
B) higher real interest rates
C) lower nominal interest rates
D) higher price of bonds
Answer: