On a particular day, the actual federal funds rate can deviate from the target federal
funds rate. This might be due to all of the following except:
A. unexpected changes in the demand for reserves.
B. the forecasts of the Fed’s staff were in error.
C. there may have been more float in the banking system than anticipated.
D. daily changes in the target rate.
Answer:
The Volcker rule in the Dodd-Frank Act does which of the following?
A. Creates a host of new agencies to streamline the regulatory process
B. Increases oversight of specific institutions regarded as a systemic risk
C. Introduces significant regulation of hedge funds
D. Forbids insured depositories from proprietary trading
Answer:
Which of the following statements best completes the following: “The Fed’s
independence can only be revoked by”?
A. The U.S. President
B. The Secretary of the Treasury
C. Congress
D. Changing the U.S. Constitution
Answer:
An individual who is risk-averse:
A. never takes risks.
B. accepts risk but only when the expected return is very small.
C. requires larger compensation when the risk increases.
D. will accept a lower return as risk rises.
Answer:
A bank is a financial intermediary. Which of the following statements is most accurate?
A. The bank’s depositors are the ultimate lenders and the bank is the ultimate borrower.
B. People seeking loans from the bank are the ultimate spenders while the bank is the
ultimate lender.
C. The bank’s depositors are the ultimate lenders, while those seeking loans from the
bank are the ultimate spenders.
D. Those seeking loans from the bank are the ultimate spenders; the bank’s
stockholders are the ultimate lenders.
Answer:
If the economy’s output response to changes in current inflation is small, the slope of
the dynamic aggregate demand curve will be:
A. flat.
B. steep.
C. positive.
D. zero.
Answer:
You have savings accounts at two separately FDIC insured banks. At one of the banks
your account has a balance of $200,000. At the other bank the account balance is
$60,000. If both banks fail, you will receive:
A. $250,000.
B. $60,000.
C. $260,000.
D. $200,000.
Answer:
An over-the-counter (OTC) market is:
A. made up of dealers who only sell government bonds.
B. an example of a centralized market.
C. made up of dealer who buy and sell only for their own accounts.
D. made up of dealers who buy and sell for their customers and for their own accounts.
Answer:
The main difference between sales finance and consumer finance is:
A. the type of borrower.
B. the size of the purchase involved.
C. the length of time until the loan has to be repaid.
D. one deals with equipment leasing and the other does not.
Answer:
Requiring a large net worth on the part of an applicant is one way lenders treat the
problem of:
A. free-riders.
B. adverse selection.
C. moral hazard.
D. the Lemons market.
Answer:
Globalization and trade:
A. reduce inflation in the short run but not in the long run.
B. reduce inflation in the short run and in the long run.
C. increase inflation in the short run but not in the long run.
D. reduce inflation in the short run but increase inflation in the long run.
Answer:
If we ignore transportation costs and the price of a pair of Nike shoes in Detroit is $100
U.S. what should be the price of the Nike shoes in Windsor, Canada (in Canadian
dollars) if the nominal exchange rate is 1.36 Canadian dollars/1 U.S. dollar?
A. 74
B. 100
C. 136
D. 64
Answer:
For many of the countries that made up the Soviet Union, the period immediately
following the collapse of the Soviet Union in 1990 found these countries experiencing
extremely high rates of inflation. To solve this problem, a number of countries:
A. turned the authority to print money over to an independent central bank.
B. imposed price controls.
C. devalued their currencies.
D. returned to a gold standard.
Answer:
There was a lot of pressure on U.S. policymakers in late 1999 and into the early 2000’s
to decrease the value of the dollar. This pressure was coming mainly from:
A. importers.
B. foreign manufacturers.
C. U.S. manufacturers.
D. foreign central banks.
Answer:
If someone wants to start a bank today they would have to:
A. obtain a charter from the federal government.
B. simply have $5 million is startup capital, a charter is no longer needed.
C. obtain a charter either from the federal or state government.
D. obtain a state charter, the federal government stopped issuing charters in 1970.
Answer:
Great Britain is:
A. a member of the European Union but not a member of the Euro system.
B. a member of the Euro system but not a member of the European Union.
C. not a member of the Euro system or the European Union.
D. a member of both the European Union and the Euro system.
Answer:
Which of the following is not considered to be a shadow bank?
A. Credit unions
B. Brokerages
C. Insurers
D. Money-market mutual funds
Answer:
The real exchange rate is defined as:
A. the nominal exchange rate plus the rate of inflation.
B. the spot exchange rate.
C. the cost of a basket of goods and services in one country compared to the cost of the
same basket in another country.
D. the exchange rate that would exist if nominal rates were not fixed by governments.
Answer:
The central bank has the ability to create money; this means it:
A. can control the availability of money but not the availability of credit in the
economy.
B. can make loans only when other institutions can.
C. can impact the rate of inflation.
D. has an objective to maximize its profit.
Answer:
Stock prices rise:
A. usually six to twelve months after interest rates are reduced.
B. immediately after interest rates are increased.
C. in anticipation of an interest rate reduction.
D. only after people are convinced the central bank interest rate cut is permanent.
Answer:
Well-run financial markets:
A. keep transactions costs high to benefit brokers
B. prevent the widespread pooling of information
C. ensure that resources are allocated efficiently
D. are usually the result of little or no government regulation
Answer:
Seasonal credit provided by the Fed is not as common as it used to be because:
A. there are fewer banks in seasonal areas.
B. other sources for long-term loans have developed for banks in seasonal areas.
C. seasonal credit has been replaced by secondary credit.
D. seasonal credit is being replaced by primary credit.
Answer:
If government policymakers intervene in foreign exchange markets to cause the
domestic currency to appreciate:
A. this will benefit all residents of the country.
B. this will be beneficial to exporters.
C. this would be harmful to exporters.
D. this would be harmful to importers.
Answer:
Commercial banks increased their involvement in mortgages over the years due to:
A. the ability to securitize mortgages which made them more liquid.
B. the demands of regulators.
C. the increase in commercial loans demanded due to the development of the
commercial paper market.
D. the reduced risk of borrowers’ defaulting on mortgage loans.
Answer:
A central bank’s sale of securities from its portfolio will:
A. decrease the size of its balance sheet.
B. have no impact at all on the balance sheet.
C. only change the composition of its liabilities.
D. only change the composition of its assets.
Answer:
If the U.S. were to revert to a gold standard, trade deficits would:
A. result in gold reserves in the U.S. increasing.
B. result in higher domestic interest rates.
C. quickly disappear.
D. result in high inflation.
Answer:
The concept of limited liability says a stockholder of a corporation:
A. is liable for the corporation’s liabilities, but nothing more.
B. cannot receive dividends that exceed his/her investment.
C. cannot lose more than his/her investment.
D. is only responsible for any taxes that the corporation may owe but not its other
debts.
Answer:
If Great Britain experiences higher rates of inflation than the United States over a long
period of time, we should expect the British £ (pound) per U.S. $ (dollar) exchange rate
to:
A. increase.
B. hold constant, there isn’t any link between inflation and exchange rates.
C. decrease.
D. fluctuate in a narrow range set by the Bank of England.
Answer:
Which of the following statements is not true?
A. For most of history gold has been the most common commodity money.
B. The most common form of money in the U.S. is not a commodity money.
C. Gold is an example of a fiat money.
D. U.S. currency is legal tender.
Answer:
Which of the following statements about the result of a deterioration in business
conditions that also causes a decrease in a nation’s wealth is false?
A. The impact on bond prices will be ambiguous since both the bond demand and
supply curves shift left.
B. The price of bonds will increase if bond supply decreases more than bond demand.
C. Interest rates will increase if bond demand decreases more than bond supply.
D. Neither bond demand nor bond supply will shift.
Answer:
The two best known bond rating services are:
A. the Federal Reserve and Moody’s Investment Services.
B. the Federal Reserve and the U.S. Treasury.
C. Standard & Poor’s and the Wall Street Journal.
D. Standard & Poor’s and Moody’s Investment Services.
Answer:
Suppose that Fly-By-Night Airlines Inc., has a return of 5% twenty percent of the time
and 0% the rest of the time. The expected return from Fly-By-Night is:
A. 10%.
B. 0.1%.
C. 0.2%.
D. 1.0%.
Answer:
If a bond’s purchase price equals the face value the:
A. coupon rate equals the current yield, which is less than the yield to maturity.
B. current yield equals the yield to maturity, which exceeds the coupon rate.
C. coupon rate equals the yield to maturity, which equals the current yield.
D. coupon rate does not equal the current yield, which does not equal the yield to
maturity.
Answer:
Which of the following would not be an example of a secondary financial market
transaction?
A. You call a broker and purchase 100 shares of McDonalds Corp. stock.
B. You go to the bank and purchase a $5000 certificate of deposit.
C. You call a broker and purchase a U.S. Treasury bond.
D. You call a broker and purchase a bond issued by General Motors.
Answer:
Many financial instruments are standardized because:
A. it is believed that most parties to a contract do not read them anyway.
B. complexity is costly, the more complex a contract, the more it costs to create.
C. the standardization of contracts makes them harder to understand.
D. it is required by the government.
Answer:
Explain why the following statement is true, “money is an asset but not all assets are
money.”
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Consider an island where people use sand dollars (shells) as currency. For simplicity,
assume that people consume only one good: fish. Currently, there are 400 sand dollars
in circulation and there are 200 fish purchased each year. Based on this information,
what is the price of fish?
Now, suppose that a change in climate leads to new sand dollars washing ashore,
leaving a total of 500 sand dollars. If there are still 200 fish purchased each year, what
is the new price of fish? In order to prevent inflation, what would have to happen to the
amount of fish purchased each year?
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