Which of the following is NOT a secondary market?
A. foreign exchange market
B. futures market
C. options market
D. IPO market
Answer:
The credit derivative that, for a fee, gives the purchaser the right to receive profits that
are tied either to the price of an underlying security or to an interest rate is called a
A. credit option.
B. credit swap.
C. credit-linked note.
D. credit default swap.
Answer:
The riskiness of an asset’s returns due to changes in interest rates is
A. exchange-rate risk.
B. price risk.
C. asset risk.
D. interest-rate risk.
Answer:
The IS curve shifts to the left when
A. taxes increase.
B. government spending increases.
C. the money supply increases.
D. autonomous planned investment spending increases.
Answer:
Which of the following has NOT resulted from more active liability management on the
part of banks?
A. increased bank holdings of cash items
B. aggressive targeting of goals for asset growth by banks
C. increased use of negotiable CDs to raise funds
D. an increased proportion of bank assets held in loans
Answer:
The spread between the interest rates on bonds with default risk and default-free bonds
is called the
A. risk premium.
B. junk margin.
C. bond margin.
D. default premium.
Answer:
Economists have focused more attention on the formation of expectations in recent
years. This increase in interest can probably best be explained by the recognition that
A. expectations influence the behavior of participants in the economy and thus have a
major impact on economic activity.
B. expectations influence only a few individuals, have little impact on the overall
economy, but can have important effects on a few markets.
C. expectations influence many individuals, have little impact on the overall economy,
but can have distributional effects.
D. models that ignore expectations have little predictive power, even in the short run.
Answer:
The decline in traditional banking internationally can be attributed to
A) increased regulation.
B) improved information technology.
C) increasing monopoly power of banks over depositors.
D) increased protection from competition.
Answer:
If the ________ curve is relatively more unstable than the ________ curve, an interest
rate target is preferred.
A. IS; IS
B. IS; LM
C. LM; IS
D. LM; LM
Answer:
During World War II, whenever interest rates would rise and the price of bonds would
begin to fall, the Fed would
A. lower reserve requirements.
B. raise reserve requirements.
C. make open market purchases of government securities.
D. make open market sales of government securities.
Answer:
Other things being equal, an increase in the default risk of corporate bonds shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds to the ________.
A. right; right
B. right; left
C. left; right
D. left; left
Answer:
When short-term interest rates are expected to fall sharply in the future, the yield curve
will
A. slope up.
B. be flat.
C. be inverted.
D. be an inverted U shape.
Answer:
A current account surplus indicates that America is ________ its claims on foreign
wealth, while a deficit indicates that this country is ________ its claims on foreign
wealth.
A) reducing; reducing
B) reducing; increasing
C) increasing; reducing
D) increasing; increasing
Answer:
If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it
can reduce interest rate risk with a swap that requires Second National to
A. pay fixed rate while receiving floating rate.
B. receive fixed rate while paying floating rate.
C. both receive and pay fixed rate.
D. both receive and pay floating rate.
Answer:
Hedging risk for a long position is accomplished by
A. taking another long position.
B. taking a short position.
C. taking additional long and short positions in equal amounts.
D. taking a neutral position.
Answer:
A nominal anchor promotes price stability by
A. outlawing inflation.
B. stabilizing interest rates.
C. keeping inflation expectations low.
D. keeping economic growth low.
Answer:
A bank with insufficient reserves can increase its reserves by
A. lending federal funds.
B. calling in loans.
C. buying short-term Treasury securities.
D. buying municipal bonds.
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the left and the domestic currency to ________, everything
else held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer:
In the ISLM framework, an expansionary fiscal policy causes aggregate output to
________ and the interest rate to ________, everything else held constant.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
If the possibility of a default increases because corporations begin to suffer losses, then
the default risk on corporate bonds will ________, and the bonds’ returns will become
________ uncertain, meaning that the expected return on these bonds will decrease,
everything else held constant.
A. increase; less
B. increase; more
C. decrease; less
D. decrease; more
Answer:
When we say that money is a stock variable, we mean that
A. the quantity of money is measured at a given point in time.
B. we must attach a time period to the measure.
C. it is sold in the equity market.
D. money never loses purchasing power.
Answer:
The contagion effect refers to the fact that
A. deposit insurance has eliminated the problem of bank failures.
B. bank runs involve only sound banks.
C. bank runs involve only insolvent banks.
D. the failure of one bank can hasten the failure of other banks.
Answer:
The primary assets of money market mutual funds are
A. stocks.
B. bonds.
C. money market instruments.
D. deposits.
Answer:
In the money market, a condition of excess demand for money can be eliminated by a
________ in aggregate output or a ________ in the interest rate, everything else held
constant.
A. rise; rise
B. rise; fall
C. fall; rise
D. fall; fall
Answer:
A decline in the money ________ shifts the LM curve to the ________, causing the
interest rate to rise and output to fall, everything else held constant.
A. demand; right
B. demand; left
C. supply; right
D. supply; left
Answer:
Low stock market prices might ________ consumers willingness to spend and might
________ businesses willingness to undertake investment projects.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
If the inflation rate in the United States is higher than that in Mexico and productivity is
growing at a slower rate in the United States than in Mexico, then, in the long run,
________, everything else held constant.
A. the Mexican peso will appreciate relative to the U.S. dollar
B. the Mexican peso will depreciate relative to the U.S. dollar
C. the Mexican peso will either appreciate, depreciate, or remain constant relative to the
U.S. dollar
D. there will be no effect on the Mexican peso relative to the U.S. dollar
Answer:
An asset’s interest rate risk ________ as the duration of the asset ________.
A. increases; decreases
B. decreases; decreases
C. decreases; increases
D. remains constant; increases
Answer:
Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to
supervise accounting firms is an example of
A. regulate for transparency.
B. supervisory oversight.
C. separation of functions.
D. socialization of information production.
Answer:
If Treasury deposits at the Fed are predicted to ________, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A. increase; defensive; inject
B. decrease; defensive; inject
C. increase; dynamic; inject
D. decrease; dynamic; drain
Answer:
________ in the foreign interest rate causes the demand for domestic assets to increase
and the domestic currency to ________, everything else held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer: