1) Which of the following is not a source of borrowings for a bank?
A) Federal funds
B) Eurodollars
C) Transaction deposits
D) Discount loans
2) Loss aversion can explain why very little ________ actually takes place in the
securities market.
A) short selling
B) bargaining
C) bartering
D) negotiating
3) Mutual funds are primarily held by
A) financial institutions
B) households
C) nonfinancial businesses
D) the Social Security trust fund
4) The recognition lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy
C) the time it takes to pass legislation to implement a particular policy
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy
E) the time it takes for the policy actually to have an impact on the economy
5) Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets
include
A) failure of the Mexican oil monopoly
B) the ratification of the North American Free Trade Agreement
C) increased uncertainty from political shocks
D) decline in interest rates
6) The Depository Institutions Deregulation and Monetary Control Act of 1980
A) established higher reserve requirements for nonmember than for member banks
B) established higher reserve requirements for member than for nonmember banks
C) abolished reserve requirements
D) established uniform reserve requirements for all banks
7) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A) 8 percent
B) 10 percent
C) 12 percent
D) 14 percent
8) Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market mutual fund shares (retail)
9) Subtracting borrowed reserves from the monetary base obtains
A) reserves
B) high-powered money
C) the nonborrowed monetary base
D) the borrowed monetary base
10) Bank reserves include
A) deposits at the Fed and short-term treasury securities
B) vault cash and short-term Treasury securities
C) vault cash and deposits at the Fed
D) deposits at other banks and deposits at the Fed
11) If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of
2 years would experience a decrease in its net worth of
A) 0.9 percent of its assets
B) 0.9 percent of its liabilities
C) 1.8 percent of its liabilities
D) 1.8 percent of its assets
12) When the Fed extends a $100 discount loan to the First National Bank, reserves in
the banking system
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
13) The ________ the returns on two securities move together, the ________ benefit
there is from diversification.
A) less; more
B) less; less
C) more; more
D) more; greater
14) Which of the following is included in both M1 and M2?
A) Currency
B) Savings deposits
C) Small-denomination time deposits
D) Money market deposit accounts
15) An individual’s annual salary is her
A) money
B) income
C) wealth
D) liabilities
16) On January 25, 2009, one U.S. dollar traded on the foreign exchange market for
about 1.15 Swiss francs. Therefore, one Swiss franc would have purchased about
________ U.S. dollars.
A) 0.30
B) 0.87
C) 1.15
D) 3.10
17) The reduction of brokerage commissions for trading common stocks that occurred
in 1975 caused the demand for bonds to ________ and the demand curve to shift to the
________.
A) fall; right
B) fall, left
C) rise; right
D) rise; left
18) Municipal bonds have default risk, yet their interest rates are lower than the rates on
default-free Treasury bonds. This suggests that
A) the benefit from the tax-exempt status of municipal bonds is less than their default
risk
B) the benefit from the tax-exempt status of municipal bonds equals their default risk
C) the benefit from the tax-exempt status of municipal bonds exceeds their default risk
D) Treasury bonds are not default-free
19) All of the following might create problems from financial liberalization in emerging
countries except
A) ineffective screening of borrowers
B) limits on risk-taking
C) lax government supervision of banks
D) lenders failure to monitor borrowers
20) An increase in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
21) Under the Bretton Woods system, a country running a balance of payments
________ lost international reserves, and had to implement ________ monetary policy
to strengthen its currency.
A) surplus; expansionary
B) surplus; contractionary
C) deficit; expansionary
D) deficit; contractionary
22) Under a fixed exchange rate regime, if the domestic currency is initially ________,
that is, ________ par, the central bank must intervene to sell the domestic currency by
purchasing foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
23) Banks are required to file ________ usually quarterly that list information on the
bank’s assets and liabilities, income and dividends, and so forth.
A) call reports
B) balance reports
C) regulatory sheets
D) examiner updates
24) If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of
“unfair” trade practices, and Japanese demand for American exports increases at the
same time, then, in the long run ________, everything else held constant.
A) the Japanese yen will appreciate relative to the U.S. dollar
B) the Japanese yen will depreciate relative to the U.S. dollar
C) the Japanese yen will either appreciate, depreciate or remain constant against the
U.S. dollar
D) there will be no effect on the Japanese yen relative to the U.S. dollar
25) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and
the bank chooses not to make any loans but to hold excess reserves instead, then, in the
bank’s final balance sheet,
A) the assets at the bank increase by $1 million
B) the liabilities of the bank decrease by $1 million
C) reserves increase by $200,000
D) liabilities increase by $200,000
26) The development of money market mutual funds contributed to the growth of
________ since the money market mutual funds need to hold liquid, high-quality,
short-terms assets.
A) the commercial paper market
B) the municipal bond market
C) the corporate bond market
D) the junk bond market
27) Increasing the amount of information available to investors helps to reduce the
problems of ________ and ________ in the financial markets.
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
28) If the money supply is $2 trillion and velocity is 5, then nominal GDP is
A) $1 trillion
B) $2 trillion
C) $5 trillion
D) $10 trillion
29) To claim that a lottery winner who is to receive $1 million per year for twenty years
has won $20 million ignores the process of
A) face value
B) par value
C) deflation
D) discounting the future
30) A credit market instrument that requires the borrower to make the same payment
every period until the maturity date is known as a
A) simple loan
B) fixed-payment loan
C) coupon bond
D) discount bond
31) If aggregate output is below the natural rate level, nonactivists of policies would
recommend that the government
A) do nothing
B) try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right
C) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right
D) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left
32) The driving force behind the securitization of mortgages and automobile loans has
been
A) the rising regulatory constraints on substitute financial instruments
B) the desire of mortgage and auto lenders to exit this field of lending
C) the improvement in computer technology
D) the relaxation of regulatory restrictions on credit card operations
33) Holding large amounts of bank capital helps prevent bank failures because
A) it means that the bank has a higher income
B) it makes loans easier to sell
C) it can be used to absorb the losses resulting from bad loans
D) it makes it easier to call in loans
34) When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower
B) output will be at its potential
C) output will be unchanged
D) inflation will be unchanged
35) An increase in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to ________, everything else
held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
36) The majority of members of the Federal Open Market Committee are
A) Federal Reserve Bank presidents
B) members of the Federal Advisory Council
C) presidents of member banks
D) the seven Federal Reserve governors
37) The primary assets of a pension fund are
A) money market instruments
B) corporate bonds and stock
C) consumer and business loans
D) mortgages