During a recession you would expect the difference between the commercial paper rate
and the yield on U.S. T-bills of the same maturity to:
A. be the same since their maturities are the same.
B. increase reflecting the possibility of higher default risk for commercial paper.
C. decrease.
D. fluctuate rarely.
Answer:
Fixing an exchange rate between two countries makes the most sense when:
A. the countries macroeconomic fluctuations are positively correlated.
B. the countries macroeconomic fluctuations are negatively correlated.
C. the countries’ macroeconomic fluctuations are uncorrelated.
D. one country has a lot of international reserves and the other doesn’t.
Answer:
Considering a put option, an increase in the strike price:
A. causes the intrinsic value of the option to decrease if it is above zero.
B. causes the intrinsic value of the option to increase if it is above zero.
C. causes the value of the option to decrease.
D. makes the option worthless.
Answer:
Monetary policy operations for central banks are run through changes in the liability
category of:
A. government’s accounts.
B. currency.
C. reserves.
D. gold.
Answer:
When the price level increases, the purchasing power of money:
A. increases by a similar amount.
B. stays the same since the purchasing power of money is not impacted by price levels.
C. decreases.
D. first increases and then decreases as people get used to higher prices.
Answer:
Trading risk faced by U.S. banks results from:
A. the free-rider problem.
B. changes in regulations.
C. adverse selection.
D. moral hazard.
Answer:
Hedge funds:
A. are strictly for millionaires.
B. are heavily regulated.
C. issue commercial paper and bonds.
D. always employ diversification techniques called “hedging.”
Answer:
In considering the holding period return, the longer the term of the bond the:
A. less important is the capital gain and the more important in the current yield.
B. less important is the coupon rate and the more important is the current yield.
C. less important is the capital gain.
D. more important is the capital gain.
Answer:
Aggregate supply is the quantity of:
A. real output supplied at each level of inflation.
B. nominal output supplied at each level of inflation.
C. real output supplied at each level of real interest rate.
D. output the country wants at each level of inflation.
Answer:
A permanent increase of borrowing by the U.S. Treasury to finance growing budget
deficits will:
A. result in U.S. Treasury yields being higher than high-grade corporate bonds.
B. result in the price of U.S. Treasury bonds rising.
C. cause the yield on U.S. Treasury bonds to increase, but still be lower than corporate
bonds.
D. result in lower yields on corporate bonds.
Answer:
As a portion of total assets measured in billions of dollars, the least important asset on
the Fed’s balance sheet is:
A. gold.
B. securities.
C. foreign exchange reserves.
D. loans.
Answer:
In terms of economic growth, the central bank would like to:
A. have the maximum growth rate possible.
B. keep the growth rate averaging zero.
C. keep the economy close to its potential or sustainable rate of growth.
D. balance every recession with a boom.
Answer:
If a bond’s rating improves it should cause the bond’s price:
A. and yield to increase, all other factors constant.
B. and yield to decrease, all other factors constant.
C. to increase and its yield to decrease, all other factors constant.
D. to decrease and its yield to increase, all other factors constant.
Answer:
The central banks of Australia, Canada and New Zealand have eliminated reserve
requirements and conduct monetary policy through a “channel” or “corridor” system
that involves setting:
A. target interest rate only.
B. target interest rate and a lending rate only.
C. target interest rate and a deposit rate only.
D. target interest rate, a lending rate, and a deposit rate.
Answer:
Which of the following statements is most correct?
A. the higher the deposit insurance limit the lower the risk of moral hazard.
B. the higher the deposit insurance limit the greater the risk of moral hazard.
C. deposit insurance limits do not impact moral hazard, they impact adverse selection.
D. increasing the deposit insurance limits above $100,000 would increase coverage for
over 50 percent of all depositors.
Answer:
Which of the following best expresses the present value of $500 that you have to wait
four years and three months to receive?
A. ($500/4.25) × (1 + i)
B. $500 × 4.25 × (1 + i)
C. $500/(1 + i)4.25
D. ($500/4) × (1 + i)3
Answer:
The present value and the interest rate have:
A. a direct relationship; as i increases, pv increases.
B. an inverse relationship; as i increases, pv decreases.
C. an unclear relationship; whether it is direct or inverse depends on the interest rate.
D. no relationship.
Answer:
If a positive inflation shock occurs and monetary policymakers do not change the
inflation target:
A. output will eventually return to potential output and inflation will equal the inflation
target.
B. output will eventually rise above potential output while inflation will equal the
inflation target.
C. output will eventually fall below potential output while inflation will equal the
inflation target.
D. output will eventually return to potential output but inflation will exceed the
inflation target.
Answer:
Vesting can make job changes costly because:
A. you may not be able to take your entire pension benefit from your previous job with
you.
B. once you leave one job fully vested the only other pension you can be eligible for is
Social Security.
C. you can only become fully vested in one company’s pension.
D. vested employees earn higher returns on their funds.
Answer:
The means for assuring accountability and transparency:
A. may differ across the central banks of different countries.
B. are the same for all successful central banks.
C. involve setting specific numerical targets so there is no confusion as to what the
goal is.
D. are opposite to each other; increasing one means decreasing the other.
Answer:
The Federal Reserve District that covers the largest geographic area is serviced by the
Bank located in:
A. Chicago.
B. Richmond.
C. Atlanta.
D. San Francisco.
Answer:
The Glass-Steagall Act of 1933:
A. required commercial banks to sell off their investment banking operations.
B. eliminated the FDIC.
C. required federally chartered banks to meet the branching restrictions of the states.
D. required all state banks to get federal charters.
Answer:
When a loan is amortized, it means the:
A. borrower is in default.
B. principal and interest are paid off by the borrower over the life of the loan.
C. interest is due entirely at the maturity date.
D. principal in never repaid, only interest.
Answer:
To be independent, a central bank must have:
A. its policies overturned only by the president.
B. control of its own budget.
C. the board members appointed for very short terms.
D. the chairperson serve as a member of the President’s cabinet.
Answer:
Emerging market economies, compared to industrialized economies, have financial
markets that:
A. differ in composition and size.
B. differ in composition but not in size.
C. are the same in composition but differ in size.
D. are similar in composition and size.
Answer:
An advantage of fixed exchange rates for a country that suffers from bouts of high
inflation is:
A. it makes imports less expensive.
B. it establishes a credible low inflation policy.
C. it unties policymakers’ hands so they can alter the reserves of the banking system as
needed.
D. policymakers will have increased control over domestic interest rates.
Answer:
The ultimate role of the financial system of a country is to:
A. provide a place for wealthy households to save.
B. be a low-cost source of funds for government.
C. facilitate production, employment, and consumption.
D. provide jobs in the financial sector.
Answer:
Identify which item is not one of the six parts of the financial system.
A. Financial markets
B. Central banks
C. Credit cards
D. Financial institutions
Answer:
When the currency loses value, causing people to spend it more quickly, this:
A. has the same effect on inflation as an increase in money growth.
B. has the same effect on inflation as a decrease in money growth.
C. causes higher inflation but not as much as an increase in money growth would.
D. causes even higher inflation than an increase in money growth would.
Answer:
The Bretton Woods System failed in 1971 due to:
A. high rates of inflation in the U.S.
B. greater mobility of capital across international borders.
C. the desire on the part of participating countries to have an independent monetary
policy.
D. all of the reasons given are correct.
Answer:
Up to what amount would a risk-neutral gambler pay to enter a game where on the flip
of a fair coin, if you call the correct outcome the payoff is $2,000?
A. More than $1000 but less than $2000.
B. Up to $2,000.
C. Up to $1,000.
D. More than $1,500.
Answer: