A bank lending depositors’ money to a local business and a pension fund investing
contributions in shares of a company are similar financial activities in that
A) both involve the use of financial markets.
B) both involve funds being channeled from savers to borrowers through financial
intermediaries.
C) both involve a reduction in the overall level of liquidity in the financial system.
D) both involve in an increase in the overall level of risk in the financial system.
Answer:
The counterparty of someone buying a futures contract on the Chicago Board of Trade
is::
A) Chicago Board of Trade
B) hedger
C) speculator
D) trader
Answer:
If oil prices fall at the same time that the federal government increases its purchases, in
the short run
A) aggregate output and the price level will both increase.
B) aggregate output will increase, but the price level will fall.
C) aggregate output and the price level will both fall.
D) aggregate output will increase, but the price level may either increase or decrease.
Answer:
Underwriting involves
A) insuring the life or health of individuals.
B) guaranteeing a price for new capital to the issuing firm.
C) selling stock more cheaply than conventional stockbrokers.
D) issuing stock and using the proceeds to buy bonds.
Answer:
A firm’s net worth is equal to the value of its
A) assets minus the value of its liabilities.
B) liabilities minus the value of its assets.
C) common stock minus the value of its outstanding bonds.
D) outstanding bonds minus the value of its common stock.
Answer:
The terms of futures contracts traded in the United States are
A) standardized as to amount or value, but not as to settlement dates.
B) standardized as to settlement dates, but not as to amount or value.
C) not standardized, but are determined entirely on the basis of the agreement entered
into by the buyer and seller.
D) standardized as to amount or value and as to settlement dates.
Answer:
the mix of stocks and bonds a firm uses to raise funds is called:
A) diversification
B) capital structure
C) market value
D) asset management
Answer:
The theory of purchasing power parity
A) extends the law of one price to a group of goods.
B) assumes that most changes in nominal exchange rates are the result of changes in
real exchange rates.
C) assumes that inflation rates are roughly the same in most countries.
D) was valid only under the gold standard.
Answer:
What was the approximate peak amount of borrowing from the Fed during the Financial
Crisis of 2007-2009?
A) $2 billion
B) $100 billion
C) $270 billion
D) $1 trillion
Answer:
Financial instruments with high information costs
A) will usually be more liquid than similar instruments with low information costs.
B) will have lower yields than U.S. Treasury securities.
C) may not be offered for sale in some states.
D) will have lower prices than similar instruments with low information costs.
Answer:
If the Fed purchases securities worth $10 million from a commercial bank, the banking
system’s balance sheet will show
A) an increase in securities held of $10 million and an increase in bank reserves of $10
million.
B) an increase in securities held of $10 million and a decrease in bank reserves of $10
million.
C) a decrease in securities held of $10 million and an increase in bank reserves of $10
million.
D) a decrease in securities held of $10 million and a decrease in bank reserves of $10
million.
Answer:
In a closed economy, the goods market is in equilibrium when
A) Y = S + I + G.
B) C + S = I + G.
C) C + I = S + G.
D) Y = C + I + G.
Answer:
Suppose Matt’s New Cars issues and sells a one-year discount bond for $9,259 and
repays $10,000 at maturity. The interest rate on this bond would be
A) 2.6%.
B) 7.41%.
C) 8%.
D) 10%.
Answer:
The risk that the party on the other side of a financial transaction fails to meet its
obligation is called
A) credit risk.
B) currency risk.
C) counterparty risk.
D) leverage.
Answer:
Sales finance companies
A) purchase accounts receivable of small firms at a discount.
B) sell commercial paper and buy long-term corporate bonds.
C) take in deposits from savers and buy corporate commercial paper.
D) are affiliated with companies which manufacture or sell goods.
Answer:
Why may a central bank intervene in the foreign exchange market when its currency is
depreciating?
A) concerns about the country’s exports becoming less competitive
B) concerns about inflation
C) concerns about deflation
D) to sterilize the effects on the domestic economy
Answer:
The capacity of a firm can best be described as:
A) when a firm are producing maximum output
B) a firm’s production when operating normal hours using a normal sized workforce
C) when a firm makes full use of all the space available in his factory or building
D) when all of the firm’s workers are producing at their maximum potential
Answer:
Which of the following is an operating target?
A) M1
B) M2
C) nonborrowed reserves
D) the inflation rate
Answer:
Which of the following is an investment institution?
A) The New York Stock Exchange
B) Greater Illinois Savings and Loan
C) Prudential Insurance Company
D) Fidelity Magellan Mutual Fund
Answer:
Which of the following is a fixed payment loan?
A) a home mortgage
B) a U.S. Treasury bill
C) a U.S. Treasury note
D) a zero-coupon bond
Answer:
A part of the Jumpstart Our Business Startups (JOBS) Act:
A) banks were required to provide special financing for start ups
B) differences between qualified and unaccredited investors were removed
C) the SEC is no longer is allowed to regulate funding of business start ups
D) Congress removed some of the restrictions on using crowd-funding to allow small
investors to buy equity in start-ups
Answer:
Most economists think changes in which type of unemployment affects inflation?
A) frictional unemployment
B) cyclical unemployment
C) structural unemployment
D) natural rate of unemployment
Answer:
The segmented markets theory
A) explains upward-sloping yield curves as resulting from the demand for long-term
bonds being high relative to the demand for short-term bonds.
B) explains upward-sloping yield curves as resulting from the demand for long-term
bonds being low relative to the demand for short-term bonds.
C) explains upward-sloping yield curves as resulting from the favorable tax treatment
of long-term bonds.
D) is unable to account for upward-sloping yield curves.
Answer:
Which of the following is the largest component of M1?
A) traveler’s checks
B) savings deposits
C) checking deposits
D) currency
Answer:
In an effort to increase government revenue, Congress and the president decide to
increase the corporate profits tax. The likely result will be
A) the supply curve for bonds shifts to the left.
B) the demand curve for bonds shifts to the left.
C) the equilibrium interest rate rises.
D) the equilibrium price of bonds falls.
Answer:
When prices rise, the purchasing power of money
A) rises.
B) falls.
C) is unaffected.
D) may rise, fall, or be unaffected depending upon circumstances.
Answer:
The demand curve for bonds would be shifted to the left by an
A) increase in wealth.
B) increase in expected returns on bonds.
C) increase in expected inflation.
D) increase in the liquidity of bonds relative to other assets.
Answer:
In comparing the yield to maturity on a Treasury bill with the yield on a discount basis
on the same bill, we can say that the yield to maturity
A) will always be greater than the yield on a discount basis.
B) will always be less than the yield on a discount basis.
C) will always be equal to the yield on a discount basis, provided the holding period is
the same as the number of years to maturity.
D) rises whenever the yield on a discount basis falls.
Answer:
The bid price for a bond is
A) the minimum price that you are allowed to bid for a bond that is being auctioned by
the government.
B) the maximum price that you are allowed to bid for a bond that is being auctioned by
the government.
C) the price that you will receive from a securities dealer if you sell the bond.
D) the price that you must pay a securities dealer to purchase a bond.
Answer:
Suppose that the banking system currency has no excess reserves and that a bank
receives a deposit into a checking account of $10,000 in currency. If the required
reserve ratio is 0.20, what is the maximum amount that the banking system can lend
out?
A) $8,000
B) $10,000
C) $40,000
D) $50,000
Answer:
A decrease in expected inflation
A) usually leads to falling nominal interest rates.
B) results in increased nominal capital gains on physical assets.
C) will shift the bond demand curve to the left.
D) will shift the supply curve for loanable funds to the left.
Answer:
According to the Phillips Curve, which of the following may have taken place if both
the unemployment rate and inflation have risen?
A) a negative supply shock
B) an increase in expected inflation
C) a severe recession
D) a negative demand shock
Answer:
If insurance is available on an activity:
A) more of that activity will occur
B) less of that activity will occur
C) investors will be less likely to hedge
D) it increases the risk of engaging in that activity
Answer:
Which of the following officially ended the cooperation between the Treasury and the
Fed that had taken place during World War 2?
A) Truman doctrine
B) Federal Reserve Act of 1951
C) Dodd-Frank Act
D) Treasury-Federal Reserve Accord
Answer: