1) Hong Kong chooses to have ________ and ________ and therefore, cannot have an
independent monetary policy at the same time.
A) capital control, a fixed exchange rate
B) free capital mobility, a fixed exchange rate
C) free capital mobility, a flexible exchange rate
D) capital control, a flexible exchange rate
2) Decisions by depositors to increase their holdings of ________, or of banks to hold
excess reserves will result in a ________ expansion of deposits than the simple model
predicts.
A) deposits; smaller
B) deposits; larger
C) currency; smaller
D) currency; larger
3) If, for a $1000 premium, you buy a $100,000 call option on bond futures with a
strike price of 114, and at the expiration date the price is 110, your ________ is
________.
A) profit; $1000
B) loss; $1000
C) profit; $3000
D) loss; $3000
4) The value of any investment is found by computing the
A) present value of all future sales
B) present value of all future liabilities
C) future value of all future expenses
D) present value of all future cash flows
5) Which of the following statements are true?
A) A bank’s assets are its sources of funds
B) A bank’s liabilities are its uses of funds
C) A bank’s balance sheet shows that total assets equal total liabilities plus equity
capital
D) A bank’s balance sheet indicates whether or not the bank is profitable
6) In order to reduce risk and increase the safety of financial institutions, commercial
banks and other depository institutions are prohibited from
A) owning municipal bonds
B) making real estate loans
C) making personal loans
D) owning common stock
7) Under a fixed exchange rate regime, if the domestic currency is initially ________,
that is, ________ par, the central bank must intervene to purchase the domestic
currency by selling foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
8) A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000
when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent,
the bank’s excess reserves will be
A) -$5,000
B) -$1,000
C) $1,000
D) $5,000
9) For which of the following is the change in reserves necessarily different from the
change in the monetary base?
A) Open market purchases from a bank
B) Open market purchases from an individual who deposits the check in a bank
C) Open market purchases from an individual who cashes the check
D) Open market sale to a bank
10) If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest
rates will reduce bank profits, while a ________ in interest rates will raise bank profits.
A) more; rise; decline
B) more; decline; rise
C) fewer; decline; decline
D) fewer; rise; rise
11) If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A) Eurobond
B) foreign bond
C) British bond
D) currency bond
12) If the current account balance shows a surplus, and the capital account also shows a
surplus, then the official reserve transactions balance
A) must be positive
B) must be negative
C) must be zero
D) can either be positive, negative, or zero
13) ________ markets transfer funds from people who have an excess of available
funds to people who have a shortage.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
14) The time-inconsistency problem in monetary policy can occur when the central
bank conducts policy
A) using a nominal anchor
B) using a strict and inflexible rule
C) on a discretionary, day-by-day basis
D) using a flexible, discretionary rule
15) On paper, the Bank of Canada has ________ instrument independence and
________ goal independence when compared to the Federal Reserve System.
A) less; less
B) less; more
C) more; less
D) more; more
16) When the Treasury acquires gold or SDRs, it issues certificates to the ________,
which are a claim on the gold or SDRs, and in turn is credited with deposit balances at
the ________.
A) Federal Reserve System; Fed
B) Federal Reserve System; IMF
C) International Monetary Fund; Fed
D) International Monetary Fund; IMF
17) Most U.S. financial crises have started during periods of ________ either after the
start of a recession or a stock market crash.
A) high uncertainty
B) low interest rates
C) low asset prices
D) high financial regulation
18) From the standpoint of ________, specialization in lending is surprising but makes
perfect sense when one considers the ________ problem.
A) moral hazard; diversification
B) diversification; moral hazard
C) adverse selection; diversification
D) diversification; adverse selection
19) Measuring the sensitivity of bank profits to changes in interest rates by multiplying
the gap times the change in the interest rate is called
A) basic duration analysis
B) basic gap analysis
C) interest-exposure analysis
D) gap-exposure analysis
20) If monetary policy can influence ________ prices and conditions in ________
markets, then it can affect spending through channels other than the traditional
interest-rate channel.
A) asset; labor
B) asset; credit
C) commodity; labor
D) commodity; credit
21) Higher government deficits ________ the supply of bonds and shift the supply
curve to the ________, everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
22) Money is
A) anything that is generally accepted in payment for goods and services or in the
repayment of debt
B) a flow of earnings per unit of time
C) the total collection of pieces of property that are a store of value
D) always based on a precious metal like gold or silver
23) A ________ in market interest rates relative to the discount rate will cause discount
borrowing to ________.
A) fall; increase
B) rise; decrease
C) rise; increase
D) fall; remain unchanged
24) The supply curve for bonds has the usual upward slope, indicating that as the price
________, ceteris paribus, the ________ increases.
A) falls; supply
B) falls; quantity supplied
C) rises; supply
D) rises; quantity supplied
25) ________ is the narrowest monetary aggregate that the Fed reports.
A) M0
B) M1
C) M2
D) M3
26) 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
27) The inaccurate ratings provided by credit-rating agencies
A) meant that investors did not have the information they needed to make informed
choices about their investments
B) were irrelevant since no one pays any attention to them anyway
C) meant that investors actually took on less risk
D) will not be a problem when determining capital requirements under Basel 2
28) When the Treasury bond market becomes less liquid, other things equal, the
demand curve for corporate bonds shifts to the ________ and the demand curve for
Treasury bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
29) A case for capital inflow controls can be made because capital inflows
A) can cause a lending boom and lead to excessive risk taking
B) never finance productive investments
C) always finance productive investments
D) are less likely to cause financial crises than regulation of banking activities
30) An international lender of last resort creates a serious moral hazard problem
because ________ and other ________ of banking institutions expect that they will be
protected if a crisis occurs.
A) depositors; debtors
B) depositors; creditors
C) borrowers; debtors
D) borrowers; creditors
31) The monetary base minus currency in circulation equals
A) reserves
B) the borrowed base
C) the nonborrowed base
D) discount loans