When Americans or foreigners expect the return on ________ assets to be high relative
to the return on ________ assets, there is a ________ demand for dollar assets,
everything else held constant.
A) dollar; foreign; constant
B) dollar; foreign; higher
C) foreign; dollar; higher
D) foreign; dollar; constant
Answer:
Financial intermediaries provide customers with liquidity services. Liquidity services
A) make it easier for customers to conduct transactions.
B) allow customers to have a cup of coffee while waiting in the lobby.
C) are a result of the asymmetric information problem.
D) are another term for asset transformation.
Answer:
An increase in U.S. Treasury deposits at the Fed reduces both ________ and the
________.
A) reserves; monetary base
B) Fed liabilities; money multiplier
C) Fed assets; monetary base
D) Fed assets; money multiplier
Answer:
In the money market, a condition of excess supply of 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:
Everything else held constant, an increase in the liquidity of bonds results in a
________ in demand for bonds and the demand curve shifts to the ________.
A) rise; right
B) rise; left
C) fall; right
D) fall; left
Answer:
Federal funds are
A) funds raised by the federal government in the bond market.
B) loans made by the Federal Reserve System to banks.
C) loans made by banks to the Federal Reserve System.
D) loans made by banks to each other.
Answer:
Keynes hypothesized that the transactions component of money demand was primarily
determined by the level of
A) interest rates.
B) velocity.
C) income.
D) stock market prices.
Answer:
One possible reason for slower growth in developing and transition countries is
A) capital may not be directed to its most productive use.
B) strict accounting standards are too stringent for the banks to meet.
C) the weak link between government and financial intermediaries.
D) the lack of adverse selection and moral hazard problems.
Answer:
________ flexible wages and prices imply that the short-run aggregate supply curve is
________.
A) More; flatter
B) Less; steeper
C) less; vertical
D) More; steeper
Answer:
Suppose, at a given federal funds rate, there is an excess demand for reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
Answer:
The originate-to-distribute business model has a serious ________ problem since the
mortgage broker has little incentive to make sure that the mortgagee is a good credit
risk.
A) principal-agent
B) debt deflation
C) democratization of credit
D) collateralized debt
Answer:
Financial intermediaries’ low transaction costs allow them to provide ________ services
that make it easier for customers to conduct transactions.
A) liquidity
B) conduction
C) transcendental
D) equitable
Answer:
Suppose the Bank of China permanently decreases its purchases of U.S. government
bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything
else held constant, a open market ________ would be the appropriate monetary policy
action for the Fed to take to offset the expected ________ in the monetary base in the
United States.
A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase
Answer:
________ in the foreign interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to depreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
Answer:
The M2 money multiplier is
A) negatively related to high-powered money.
B) positively related to the time deposit ratio.
C) positively related to the required reserve ratio.
D) positively related to the excess reserves ratio.
Answer:
A corporation acquires new funds only when its securities are sold in the
A) secondary market by an investment bank.
B) primary market by an investment bank.
C) secondary market by a stock exchange broker.
D) secondary market by a commercial bank.
Answer:
Which of the following can be described as involving direct finance?
A) A corporation takes out loans from a bank.
B) People buy shares in a mutual fund.
C) A corporation buys a short-term corporate security in a secondary market.
D) People buy shares of common stock in the primary markets.
Answer:
Collateralized debt is also know as
A) unsecured debt.
B) secured debt.
C) unrestricted debt.
D) promissory debt.
Answer:
In Keynes’s liquidity preference framework,
A) the demand for bonds must equal the supply of money.
B) the demand for money must equal the supply of bonds.
C) an excess demand of bonds implies an excess demand for money.
D) an excess supply of bonds implies an excess demand for money.
Answer:
Savings and loan associations are regulated by the
A) Federal Reserve System.
B) Securities and Exchange Commission.
C) Office of the Comptroller of the Currency.
D) Office of Thrift Supervision.
Answer:
Under a fixed exchange rate regime, if a central bank must intervene to purchase the
________ currency by selling ________ assets, then, like an open market sale, this
action reduces the monetary base and the money supply, causing the interest rate on
domestic assets to rise.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer:
Keynes’s liquidity preference theory indicates that the demand for money is
A) constant.
B) positively related to interest rates.
C) negatively related to interest rates.
D) negatively related to bond values.
Answer:
Although the National Bank Act of 1863 was designed to eliminate state-chartered
banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in
business by
A) issuing credit cards.
B) ignoring the regulations.
C) acquiring funds through deposits.
D) branching into other states.
Answer:
Although foreign exchange market trades are said to involve the buying and selling of
currencies, most trades involve the buying and selling of
A) bank deposits denominated in different currencies.
B) SDRs.
C) gold.
D) ECUs.
Answer:
The current structure of financial markets can be best understood as the result of
attempts by financial market participants to
A) adapt to continually changing government regulations.
B) deal with the great number of small firms in the United States.
C) reduce transaction costs.
D) cartelize the provision of financial services.
Answer:
Everything else held constant, a decrease in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
Answer:
In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period
of time because investors found it convenient to hold six-month bills as a store of value
because
A) of the high inflation rate.
B) these bills sold at a discount from face value.
C) the bills were denominated in small amounts and could be stored electronically.
D) the bills were denominated in large amounts and could be stored electronically.
Answer:
When the value of the British pound changes from $1.50 to $1.25, then the pound has
________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Answer:
Forty or so dealers establish a “market” in these securities by standing ready to buy and
sell them.
A) Secondary stocks
B) Surplus stocks
C) U.S. government bonds
D) Common stocks
Answer:
When a country forgoes its own currency and starts using another country’s currency as
its own, we say that this country has
A) created a currency board.
B) undergone dollarization.
C) adopted a managed exchange system.
D) adopted an exchange rate monetary system.
Answer:
Which of the following are bank assets?
A) the building owned by the bank
B) a discount loan
C) a negotiable CD
D) a customer’s checking account
Answer:
If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent,
and the 3-year term premium is 1 percent, than the 3-year bond rate will be
A) 1 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
Answer: