In general, banks would prefer to acquire funds quickly by ________ rather than
________.
A. reducing loans; selling securities
B. reducing loans; borrowing from the Fed
C. borrowing from the Fed; reducing loans
D. “calling in” loans; selling securities
Answer:
The type of monetary policy that is used in Canada, New Zealand, and the United
Kingdom is
A. monetary targeting.
B. inflation targeting.
C. targeting with an implicit nominal anchor.
D. interest-rate targeting.
Answer:
Everything else held constant, a shift in tastes in the U.S. towards American goods will
________ net exports in the U.S. and cause the quantity of aggregate output demanded
to ________ in Mexico.
A. decrease; rise
B. decrease; fall
C. increase; rise
D. increase; fall
Answer:
If the relationship between the monetary aggregate and the goal variable is weak, then
A. monetary aggregate targeting is superior to exchange-rate targeting.
B. monetary aggregate targeting is superior to inflation targeting.
C. inflation targeting is superior to exchange-rate targeting.
D. monetary aggregate targeting will not work.
Answer:
Long-term customer relationships ________ the cost of information collection and
make it easier to ________ credit risks.
A. reduce; screen
B. increase; screen
C. reduce; increase
D. increase; increase
Answer:
The Federal Reserve ________ pay interest on reserves held on deposit. The European
System of Central Banks ________ pay interest on reserves held on deposit.
A. does; does
B. does; does not
C. does not; does
D. does not; does not
Answer:
In the one-period valuation model, the current stock price increases if
A. the expected sales price increases.
B. the expected sales price falls.
C. the required return increases.
D. dividends are cut.
Answer:
A major disruption in financial markets characterized by sharp declines in asset prices
and firm failures is called a
A. financial crisis.
B. fiscal imbalance.
C. free-rider problem.
D. “lemons” problem.
Answer:
A financial crisis is
A. not possible in the modern financial environment.
B. a major disruption in the financial markets.
C. a feature of developing economies only.
D. typically followed by an economic boom.
Answer:
Unlike banks, ________ have been allowed to branch statewide since
A) federally-chartered S&Ls
B) state-chartered S&Ls
C) financially troubled S&Ls
D) technically insolvent S&Ls
Answer:
A balance of payments deficit is associated with a ________ of international reserves,
while a balance of payments surplus is associated with a ________.
A) loss; loss
B) loss; gain
C) gain; loss
D) gain; gain
Answer:
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent,
and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A. 2 percent.
B. 3 percent.
C. 4 percent.
D. 5 percent.
Answer:
Because of the adverse selection problem
A. good credit risks are more likely to seek loans causing lenders to make a
disproportionate amount of loans to good credit risks.
B. lenders may refuse loans to individuals with high net worth, because of their greater
proclivity to ‘skip town.”
C. lenders are reluctant to make loans that are not secured by collateral.
D. lenders will write debt contracts that restrict certain activities of borrowers.
Answer:
________ policy involves decisions about government spending and taxation.
A. Monetary
B. Fiscal
C. Financial
D. Systemic
Answer:
This agency acts like an international lender of last resort to cope with financial
instability.
A) World Bank
B) European Central Bank
C) IMF
D) International Bank for Reconstruction and Development
Answer:
According to Keynes’s theory of liquidity preference, velocity increases when
A. income increases.
B. wealth increases.
C. brokerage commissions increase.
D. interest rates increase.
Answer:
________ is creating a marketable capital market instrument by bundling a portfolio of
mortgage or auto loans.
A. Diversification
B. Arbitrage
C. Computerization
D. Securitization
Answer:
Large-denomination CDs are ________, so that like a bond they can be resold in a
________ market before they mature.
A. nonnegotiable; secondary
B. nonnegotiable; primary
C. negotiable; secondary
D. negotiable; primary
Answer:
Which of the following is NOT an argument against using monetary policy to prick
asset-price bubbles?
A. The effect of increasing interest rates on asset prices is uncertain.
B. A bubble may only exist in some asset-prices and monetary policy will affect all
asset prices.
C. Using monetary policy to prick an asset-price bubble may have adverse effect on the
aggregate economy.
D. Even though credit-drive bubbles are easier to identify, they are still relatively hard
to identify.
Answer:
Keynes hypothesized that the transactions component of money demand was primarily
determined by the level of
A. interest rates.
B. velocity.
C. income.
D. stock market prices.
Answer:
The primary liabilities of a commercial bank are
A. bonds.
B. mortgages.
C. deposits.
D. commercial paper.
Answer:
The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as
A. the real interest rate.
B. the nominal interest rate.
C. the rate of inflation.
D. the rate of deflation.
Answer:
In the generalized dividend model, a future sales price far in the future does not affect
the current stock price because
A. the present value cannot be computed.
B. the present value is almost zero.
C. the sales price does not affect the current price.
D. the stock may never be sold.
Answer:
The collapse of the Bank of Credit and Commerce International, BCCI, showed the
difficulty of international banking regulation. BCCI operated in more than ________
countries and was supervised by the small country of ________.
A. 70, Luxembourg
B. 100, Monaco
C. 70, Monaco
D. 100, Luxembourg
Answer:
In the Keynesian cross diagram, an increase in investment spending because companies
become more optimistic about investment profitability causes the aggregate demand
function to shift ________, the equilibrium level of aggregate output to rise, and the IS
curve to shift to the ________, everything else held constant.
A. up; left
B. up; right
C. down; left
D. down; right
Answer:
An increase in the quantity of money supplied shifts the money supply curve to the
________ and the LM curve to the ________, everything else held constant.
A. right; left
B. right; right
C. left; left
D. left; right
Answer:
So-called fallen angels differ from junk bonds in that
A. junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels
refer to previously issued bonds that have had their credit ratings fall below Baa.
B. junk bonds refer to previously issued bonds that have had their credit ratings fall
below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings.
C. junk bonds have ratings below Baa, whereas fallen angels have ratings below C.
D. fallen angels have ratings below Baa, whereas junk bonds have ratings below C.
Answer:
Examples of discount bonds include
A. U.S. Treasury bills.
B. corporate bonds.
C. U.S. Treasury notes.
D. municipal bonds.
Answer:
If a central bank does not want to see its currency rise in value, it may pursue ________
monetary policy to ________ the domestic interest rate, thereby weakening its currency.
A) expansionary; raise
B) contractionary; raise
C) expansionary; lower
D) contractionary; lower
Answer:
Hedging risk for a short position is accomplished by
A. taking a long position.
B. taking another short position.
C. taking additional long and short positions in equal amounts.
D. taking a neutral position.
Answer:
In response to the overvalued dollar in the early 1970s, the German Bundesbank bought
dollars and sold marks to keep the exchange rate fixed, gaining international reserves.
The huge purchase of international reserves meant that the German monetary base
began to ________, leading to ________ growth in the German money supply.
A) decline; sluggish
B) decline; rapid
C) grow; sluggish
D) grow; rapid
Answer:
For simple loans, the simple interest rate is ________ the yield to maturity.
A. greater than
B. less than
C. equal to
D. not comparable to
Answer:
If a security pays $55 in one year and $133 in three years, its present value is $150 if
the interest rate is
A. 5 percent.
B. 10 percent.
C. 12.5 percent.
D. 15 percent.
Answer: