Credit Unions are regulated by a combination of agencies which includes:
A. state authorities.
B. The Federal Reserve.
C. The Federal Deposit Insurance Corporation.
D. The Office of the Comptroller of the Currency.
Answer:
Criteria used to judge a central bank’s independence include each of the following,
except:
A. budgetary independence.
B. long terms for members.
C. cabinet or ministry level of authority.
D. irreversible decisions.
Answer:
During the 1990s, the Japanese recession did not respond to the continual interest rate
reductions implemented by monetary policymakers. Which of the following
contributing to this lack of response?
A. Many banks were actually insolvent
B. The Japanese stock market collapsed
C. Property values fell dramatically
D. All of the answers given are correct
Answer:
The three branches of the Federal Reserve System include each of the following,
except:
A. the Board of Governors.
B. the Federal Deposit Insurance Corporation.
C. the Federal Open Market Committee.
D. the twelve regional Federal Reserve Banks.
Answer:
A lender is promised a $100 payment (including interest) one year from today. If the
lender has a 6% opportunity cost of money, he/she should be willing to accept what
amount today?
A. $100.00
B. $106.20
C. $96.40
D. $94.34
Answer:
Stock market bubbles are:
A. the increase in a stock’s price resulting from reported higher profits by a firm.
B. persistent and expanding gaps between stocks’ actual prices and the prices warranted
by the fundamentals.
C. synonymous to stock market crashes.
D. those periods of time when the overall level of the stock market is rising at a slow
rate reflecting market fundamentals.
Answer:
Which of the following statements is not true?
A. The largest source of funds for banks to lend comes from the owner’s capital.
B. Transaction deposits make up less than 10 percent of banks sources of funds.
C. The largest sources of funds for banks are non-transactions accounts.
D. Borrowing is a larger source of funds for banks than transaction deposits.
Answer:
A speculative attack on a country with a fixed exchange rate occurs when:
A. financial market participants believe the government will have to devalue its
currency.
B. financial market participants believe the government has a large excess of
international reserves.
C. financial market participants believe the currency is undervalued.
D. the country converts its gold reserves into foreign exchange.
Answer:
Comparing the banking systems of Japan and the U.S. during the 1990s and early
2000s, one would be likely to say that:
A. the U.S. banking system was much shakier than the Japanese banking system.
B. Japanese banks are certainly more tightly regulated from an accounting perspective.
C. the U.S. banking system was much stronger than the Japanese banking system.
D. monetary policy worked far better in the Japanese banking system during this time
frame.
Answer:
One reason customers do not care about the quality of their bank’s assets is:
A. most people cannot distinguish an asset from a liability.
B. the quality of a bank’s assets changes almost daily.
C. they assume the bank only has high quality assets.
D. with deposit insurance, there isn’t any real reason to care; their deposits are
protected even if the bank fails.
Answer:
Stagflation is a term that usually describes an economy experiencing:
A. low inflation.
B. low inflation coupled with low growth.
C. high inflation with a recessionary gap.
D. low unemployment rates and low inflation rates.
Answer:
A 10-year Treasury note as a face value of $1,000, price of $1,200, and a 7.5% coupon
rate. Based on this information, we know the:
A. present value is greater than its price.
B. current yield is equal to 33%.
C. coupon payment on this bond is equal to $75.
D. coupon payment on this bond is equal to $90.
Answer:
Assume we have a stock currently worth $100. We also assume the interest rate is zero,
and we can buy options for this stock with a strike price of $100. If the stock can rise or
fall by $5 with equal probability over the option period, and the option cannot be
exercised until the expiration date, what is the time value of the option?
A. $10
B. $5
C. $0
D. None of the answers is correct.
Answer:
The Federal Reserve was created in:
A. 1929.
B. 1913.
C. 1909.
D. 1945.
Answer:
Firm A has assets that are mainly in financial securities and whose liabilities carry
variable interest rates; Firm B has the same assets as Firm A and the same amount of
liabilities but its liabilities are all at fixed interest rates. If the central bank lowers
interest rates, everything else constant:
A. Firm B’s net worth will increase more than Firm A’s.
B. Firm A’s net worth will increase more than Firm B’s.
C. Neither firm’s net worth will change.
D. The net worth of both firms will increase and by the same amount.
Answer:
One characteristic that distinguishes holding period return from the coupon rate, the
current yield, and the yield to maturity is:
A. all of the other returns can be calculated at the time the bond is purchased, but
holding period return cannot.
B. holding period return will always be the highest return.
C. holding period return will usually be less than the other returns.
D. only the holding period return includes the capital gain/loss.
Answer:
A country that suffers from bouts of high inflation and wants to fix its exchange rate
should tie its currency to the currency of a:
A. country with a strong reputation for low inflation.
B. larger country.
C. country with similar inflation performance.
D. country that is still on the gold standard.
Answer:
Consider a one-year corporate bond that has a 20% probability of default. The payoff
on the bond is $2,000 if the corporation does not default. The interest rate is 10%. If
buyers of this bond are risk-neutral, this bond will sell for:
A. $400
B. $909.09
C. $1,454.54
D. $1,600
Answer:
Tom obtains a car loan from Old Town Bank.
A. The car loan is Tom’s asset and the bank’s liability.
B. The car loan is Tom’s asset, but the liability belongs to the bank’s depositors.
C. The car loan is Tom’s liability and an asset for Old Town Bank.
D. The car loan is Tom’s liability and a liability of the bank until Tom pays it off.
Answer:
The focus for most central banks today is:
A. the quantity of M
B. interest rates.
C. the quantity of M2.
D. controlling the size of the money multiplier.
Answer:
An increase in the rate of inflation:
A. can only result from increases in aggregate demand.
B. can only result from upward shifts in the short-run aggregate supply curve.
C. will result only if the long-run aggregate supply curve is vertical.
D. can result from shifts in either the dynamic aggregate demand curve or the short-run
aggregate supply curve.
Answer:
If the economy was initially at a long-run equilibrium, the short-run effects from a
decrease in aggregate demand will include:
A. a recessionary gap.
B. a decrease in potential output.
C. an increase in the current inflation rate.
D. a decrease in the target rate of inflation.
Answer:
Over the years most monetary policy experts would agree with each of the following
statements, except:
A. the reserve requirement is not useful as an operational instrument.
B. central bank lending is necessary to ensure financial stability.
C. short-term interest rates are the best tool to use to stabilize short-term fluctuations in
prices and output.
D. transparency in policy making hinders accountability.
Answer:
Current law regarding the Fed’s Board of Governors stipulates that:
A. no more than three governors can come from the same district.
B. no more than two governors can come from the same district.
C. every district must have at least one governor on the board.
D. no more than one governor can come from the same district.
Answer:
Central banks can improve the welfare of a society by doing all of the following
except:
A. serving the interests of government rather than the public at large.
B. helping to promote economic growth.
C. focusing on keeping the overall level of prices stable.
D. helping to reduce the volatility of business cycles.
Answer:
The First Bank of Podunk has recently suffered some extraordinary losses on its loan
portfolio due to the closing of the largest employer in town. As a result, the bank’s
management decides to raise the interest rate to new loan applicants. This move is
likely to:
A. increase the profitability of the bank.
B. cause even greater losses.
C. significantly increase both loan applicants and profits.
D. treat the problem of adverse selection that contributed to the losses the bank is
experiencing.
Answer:
If the U.S. government’s borrowing needs increase, all other factors constant the:
A. price of bonds will increase.
B. supply of bonds will increase.
C. demand for bonds will decrease.
D. supply of bonds and the demand for bonds will both increase.
Answer:
Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If
Mary leaves the funds in the CD for two years she will have $540.80. What amount is
Mary depositing?
A. $520.00
B. $514.50
C. $500.00
D. $512.40
Answer:
To make sure the U.S. President cannot unduly influence the Board of Governors:
A. the terms of the governors are staggered.
B. the law prevents a resident from appointing more than one governor.
C. the terms of the governors are ten years long.
D. only three governors can be replaced in any one year.
Answer:
A baker of bread has a long-term fixed-price contract to supply bread. Which of the
following would NOT reduce her risk?
A. Taking the long position in wheat futures contract
B. Hedging this risk in the wheat futures market
C. Finding a wheat farmer who will take the short position in a wheat futures contract
D. Finding a wheat farmer who will take the long position in a wheat futures contract
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