Which of the following can be described as when a bank buying securities owned by a
business while agreeing to sell them back at a later date?
A) repurchase agreement
B) reverse repurchase agreement
C) federal funds
D) discount loans
Answer:
Under a system of barter
A) each individual trades output directly with another.
B) only agricultural goods may be traded.
C) goods may be traded for money, but money may not be traded for goods.
D) currency is accepted for purchases, but personal checks are not.
Answer:
The sale of foreign assets by a central bank accompanied by an open market purchase
of securities of the same size results in:
A) a reduction in the monetary base
B) an increase in the monetary base
C) a sterilized intervention
D) an unsterilized intervention
Answer:
All of the following are differences between hedge funds and mutual funds EXCEPT
A) hedge funds are largely unregulated.
B) hedge funds consist of a relatively number of wealthy investors.
C) hedge funds make risky investments that mutual funds cannot make.
D) hedge funds use money collected from savers to make investments.
Answer:
Banks are exposed to interest rate risk primarily because
A) interest rates are very difficult to forecast.
B) the maturities of banks’ assets and liabilities differ.
C) borrowers from banks are prone to default.
D) depositors are always searching for a slightly higher interest rate.
Answer:
Suppose that there is concern about the stability of the global financial system causing a
flight to the safety of U.S. government bonds. Which of the following is NOT a likely
consequence?
A) higher price of U.S. government bonds
B) lower interest rate on U.S. government bonds
C) increased demand for U.S. government bonds
D) reduced supply of U.S. government bonds
Answer:
Collateral is
A) the interest rate that banks charge high-quality borrowers.
B) assets pledged to the bank in the event the borrower defaults.
C) the difference between the value of a bank’s assets and the value of a bank’s
liabilities.
D) required reserves minus excess reserves.
Answer:
Defensive open market transactions
A) are aimed at achieving changes in monetary policy.
B) are used much less frequently than dynamic open market transactions.
C) are used to offset disturbances to the supply or demand for reserves.
D) make it easy to deduce the Fed’s intentions for monetary policy.
Answer:
Moody’s Investors Service is able to make a profit because
A) most investors are irrational.
B) of the existence of adverse selection problems.
C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge.
D) small investors like the mutual funds they sell.
Answer:
In banking, the spread refers to the difference between the
A) interest rate on long-term bonds and the interest rate on short-term bonds.
B) interest rate on car loans and the interest rate on home mortgages.
C) average interest rate earned on assets and the average interest rate paid on liabilities.
D) bid and asked prices on a bond.
Answer:
Purchasing power parity’s assumption that the real exchange is constant
A) is correct in nearly all instances.
B) would be correct were it not for the existence of trade barriers.
C) is not reasonable.
D) is correct for trade between the United States and Japan, but incorrect in most other
bilateral trading relations.
Answer:
In which of the following have pension funds invested the most?
A) corporate equities and mutual fund shares
B) government securities
C) corporate bonds
D) mortgages
Answer:
The LM curve is the combinations of
A) the output gap and the real interest rate for which the money market is in
equilibrium.
B) the inflation rate and nominal interest rate for which the money market is in
equilibrium.
C) the inflation rate and real interest rate for which the money market is in equilibrium.
D) the inflation rate and real interest rate for which the goods market is in equilibrium.
Answer:
Bank capital is
A) the current market value of the bank’s physical assets.
B) the historical or original value of the bank’s physical assets.
C) the capital contributed by the bank’s shareholders plus accumulated retained profits.
D) the sum of the value of the bank’s assets plus the value of the bank’s liabilities.
Answer:
Standby letters of credit
A) are a form of swaps.
B) are a promise by a bank to lend the borrower funds to pay off its maturing
commercial paper.
C) are a promise by a large depositor to provide additional funds to a bank should the
bank face an unexpectedly large deposit outflow.
D) represent the unused balance on a bank credit card.
Answer:
The Fed and Treasury took action to restore the flow of funds from savers to borrowers
in order to encourage all of the following EXCEPT:
A) increase the return to savers
B) enable households to purchase durable goods
C) increase the likelihood of purchases of houses
D) allow firms to finance purchases of structures and equipment
Answer:
An implication of the efficient markets hypothesis is that
A) only sophisticated investors will be able to earn above-normal profits from financial
investments.
B) above-normal profits are available only to major traders.
C) above-normal profits will be eliminated in the trading process.
D) unless he or she acts recklessly, the average investor should be able to make
above-normal profits.
Answer:
The issue of Fed independence is most often raised by
A) disagreement over the role the Fed should play in managing monetary policy.
B) the Fed’s refusal to carry out the wishes of the President.
C) the Fed’s refusal to carry out the wishes of Congress.
D) the public’s negative reaction to Fed policy.
Answer:
The fixed exchange rates of the Bretton Woods system were maintained
A) by central bank interventions in the foreign-exchange market.
B) by the requirement that short-term interest rates be equalized in all participating
countries.
C) by the requirement that long-term interest rates be equalized in all participating
countries.
D) through the automatic workings of the foreign-exchange market.
Answer:
About what percentage of U.S. output was exported to foreigners in 2012?
A) 1%
B) 14%
C) 18%
D) 25%
Answer:
By designating Federal Reserve currency as legal tender, the federal government
A) has ensured that Federal Reserve currency will serve as money.
B) has guaranteed that Federal Reserve currency may be exchanged for an equivalent
amount of gold or silver.
C) has mandated that Federal Reserve currency be accepted for payment of debts.
D) has mandated that Federal Reserve currency be accepted by citizens of foreign
countries in exchange for their countries’ currencies.
Answer:
Bond ratings
A) are published annually by the federal government and are based largely on
information contained in corporate tax returns.
B) are published annually by the federal government and are based on publicly
available information.
C) are published monthly by the federal government and are based on publicly available
information.
D) are published by private bond-rating agencies.
Answer:
Compared to CDs and money market funds, crowd funding
A) provides higher expected returns with increased safety
B) provides lower expected returns in exchange for increased safety
C) is likely to result in lower returns due to higher volatility
D) provides opportunities for higher returns but also significant losses
Answer:
Which of the following is NOT true of the interest rate channel?
A) Bank loans play no special role.
B) The Fed changes the real interest rate which affects the components of aggregate
expenditures.
C) Borrowers are indifferent as to how and from whom they raise funds.
D) Alternative sources of funds are not substitutes for each other.
Answer:
Which of the following will take place in the foreign exchange market if there is an
increase in the demand for products made in the United States?
A) The supply of dollars will decrease.
B) The demand for dollars will decrease.
C) The demand for dollars will increase.
D) The dollar will decrease in value.
Answer:
When a nation is said to be running a balance of payments surplus, this means its
A) official settlements balance is positive.
B) trade balance is positive.
C) net financial account balance is positive.
D) current account is positive.
Answer:
The difference between a savings deposit and a time deposit is
A) time deposits pay no interest.
B) savings deposits pay no interest.
C) time deposits have specified maturities.
D) savings deposits have specified maturities.
Answer:
Fixed exchange rate regimes
A) existed prior to the nineteenth century but were then superseded by the gold
standard.
B) lower the transactions costs of buying and selling goods and assets.
C) result in higher world interest rates.
D) were first established by the GATT in 1971.
Answer:
International reserves are
A) assets denominated in a foreign currency and used in international transactions.
B) reserves the Fed requires banks to hold against Eurodollar deposits.
C) reserves the International Monetary Fund requires banks to hold if they wish to
participate in the market for foreign exchange.
D) central bank holdings of gold.
Answer:
An argument in support of hysteresis is
A) companies may be reluctant to hire workers until AD increases.
B) prices are sticky in the short run.
C) the skills of unemployed workers may deteriorate making it more difficult to find a
job.
D) overlapping wage contracts.
Answer:
During World War II
A) the Board of Governors was temporarily disbanded.
B) the Fed was not allowed to make discount loans.
C) the Fed agreed to hold interest rates on short-term Treasury securities at low levels.
D) the Fed agreed not to buy Treasury securities.
Answer:
A chief criticism of adaptive expectations is that
A) it assumes people ignore information that would be useful in making forecasts
B) people have a hard time adapting
C) it doesn’t rely on technical analysis
D) it violates the efficient markets hypothesis
Answer:
Evidence indicates that there’s a strong relationship between money and inflation in:
A) both the short and long run
B) neither the short nor the long run
C) short run, but not the long run
D) long run, but not the short run
Answer:
Most foreign exchange is bought and sold
A) by governments.
B) by tourists.
C) in over-the-counter markets.
D) on the New York Stock Exchange.
Answer:
What is the most important contrast between the segmented markets theory and the
expectations theory?
A) The expectation theory states that investors view similar assets that differ only with
respect to maturity as perfect substitutes.
B) The segmented markets theory states that investors view similar assets that differ
only with respect to maturity as perfect substitutes.
C) The expectations theory does a better job of explaining why yield curves typically
are upward-sloping.
D) The segmented markets theory does a better job of explaining why yields on
instruments of different maturities tend to move together.
Answer: