The chartering process is especially designed to deal with the ________ problem, and
regular bank examinations help to reduce the ________ problem.
A. adverse selection; adverse selection
B. adverse selection; moral hazard
C. moral hazard; adverse selection
D. moral hazard; moral hazard
Answer:
When Happy Feet Corporation announces that their fourth quarter earnings are up 10%,
their stock price falls. This is consistent with the efficient markets hypothesis
A. if earnings were not as high as expected.
B. if earnings were not as low as expected.
C. if a merger is anticipated.
D. the company just invented a new bunion product.
Answer:
Policymakers in a country with a balance of payments surplus may not want to see their
country’s currency appreciate because this would
A) hurt consumers in their country by making foreign goods more expensive.
B) hurt domestic businesses by making foreign goods cheaper in their country.
C) increase inflation in their country.
D) decrease the wealth of the country.
Answer:
The dollar amount of the yearly coupon payment expressed as a percentage of the face
value of the bond is called the bond’s
A. coupon rate.
B. maturity rate.
C. face value rate.
D. payment rate.
Answer:
The Federal Home Loan Bank Board and the FSLIC, both of which failed in their
regulatory tasks, were abolished by the
A. Competitive Equality Banking Act of 1987.
B. Financial Institutions Reform, Recovery and Enforcement Act of 1989.
C. Office of Thrift Supervision.
D. Office of the Comptroller of the Currency.
Answer:
If a market participant believes that a stock price is irrationally high, they may try to
borrow stock from brokers to sell in the market and then make a profit by buying the
stock back again after the stock falls in price. This practice is called
A. short selling.
B. double dealing.
C. undermining.
D. long marketing.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
1%, increasing the interest rate paid on excess reserves from 1% to 2%
A. lowers the federal funds rate.
B. raises the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect on the federal funds rate.
Answer:
Investment banks purchase new security issues in the hope of making a profit. This is
the act of
A. reinsuring.
B. factoring.
C. syndicating.
D. underwriting.
Answer:
Exchange rates are determined in
A) the money market.
B) the foreign exchange market.
C) the stock market.
D) the capital market.
Answer:
Keynes’s liquidity preference theory indicates that the demand for money
A. is purely a function of income, and interest rates have no effect on the demand for
money.
B. is purely a function of interest rates, and income has no effect on the demand for
money.
C. is a function of both income and interest rates.
D. is a function of both government spending and income.
Answer:
Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the German
central bank was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
Answer:
________ in the money supply creates excess ________ money, causing interest rates
to ________, everything else held constant.
A. A decrease; demand for; rise
B. An increase; demand for; fall
C. An increase; supply of; rise
D. A decrease; supply of; fall
Answer:
Two reasons for an industrialized country to adopt an exchange-rate targeting regime
are if the country ________ conduct successful monetary policy on its own, and if the
country wants to ________ integration of the domestic economy with its neighbors.
A) cannot; encourage
B) cannot; discourage
C) can; encourage
D) can; discourage
Answer:
The political business cycle refers to the phenomenon that just before elections,
politicians enact ________ policies. After the elections, the bad effects of these policies
(for example, ________ ) have to be counteracted with ________ policies.
A. expansionary; higher unemployment; contractionary
B. expansionary; a higher inflation rate; contractionary
C. contractionary; higher unemployment; expansionary
D. contractionary; a higher inflation rate; expansionary
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to appreciate, everything else
held constant.
A. An increase; increase
B. An increase; decrease
C. A decrease; increase
D. A decrease; decrease
Answer:
If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the
real depreciates from ________ per real to ________ per real.
A. $0.67; $0.50
B. $0.33; $0.50
C. $0.75; $0.50
D. $0.50; $0.67
E. $0.50; $0.75
Answer:
Three factors explain the risk structure of interest rates
A. liquidity, default risk, and the income tax treatment of a security.
B. maturity, default risk, and the income tax treatment of a security.
C. maturity, liquidity, and the income tax treatment of a security.
D. maturity, default risk, and the liquidity of a security.
Answer:
The discount rate is kept ________ the federal funds rate because the Fed prefers that
________.
A. below; banks borrow reserves from each other
B. below; banks borrow reserves from the Fed
C. above; banks borrow reserves from each other
D. above; banks borrow reserves from the Fed
Answer:
A mutual fund that is organized as a limited partnership with high minimum
investments is called a
A. hedge fund.
B. investment bank.
C. mutual savings bank.
D. money market mutual fund.
Answer:
The conversion of a barter economy to one that uses money
A. increases efficiency by reducing the need to exchange goods and services.
B. increases efficiency by reducing the need to specialize.
C. increases efficiency by reducing transactions costs.
D. does not increase economic efficiency.
Answer:
Credit risk management tools include
A. deductibles.
B. collateral.
C. interest rate swaps.
D. duration analysis.
Answer:
Money market mutual funds
A. function as interest-earning checking accounts.
B. are legally deposits.
C. are subject to reserve requirements.
D. have an interest-rate ceiling.
Answer:
The interest rate on seasonal credit equals
A. the federal funds rate.
B. the primary credit rate.
C. the secondary credit rate.
D. an average of the federal funds rate and rates on certificates of deposits.
Answer:
During the bank panics of the Great Depression the excess reserve ratio
A. increased sharply.
B. decreased sharply.
C. increased slightly.
D. decreased slightly.
Answer:
In the ISLM framework a contractionary 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:
When the economy slips into a recession, normally the demand for bonds ________,
the supply of bonds ________, and the interest rate ________, everything else held
constant.
A. increases; increases; rises
B. decreases; decreases; falls
C. increases; decreases; falls
D. decreases; increases; rises
Answer:
The too-big-to-fail policy
A. reduces moral hazard problems.
B. puts large banks at a competitive disadvantage in attracting large deposits.
C. treats large depositors of small banks inequitably when compared to depositors of
large banks.
D. allows small banks to take on more risk than large banks.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, an increase in the reserve requirement ________
the ________ for reserves and causes the federal funds interest rate to rise, everything
else held constant.
A. decreases; demand
B. increases; demand
C. increases; supply
D. decreases; supply
Answer:
If a bank has excess reserves greater than the amount of a deposit outflow, the outflow
will result in equal reductions in
A. deposits and reserves.
B. deposits and loans.
C. capital and reserves.
D. capital and loans.
Answer:
The price of a barrel of oil doubled between 2007 and the middle of To make matters
worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the
following is an appropriate description of the mechanism that would have ensued?
A. The increase in the price of oil would have immediately shifted the AS curve to the
right.
B. The financial crisis would have led to a sharp contraction in spending shifting the
AD curve to the right.
C. Shifts in both the AD and the AS curve would have ensued in the short-run but as
long as neither shock had an impact on potential output, ultimately unemployment will
have been unaffected in the long run.
D. All of the above.
E. None of the above.
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars.
A. 0.75
B. 1.00
C. 1.33
D. 1.75
Answer:
________ is the field of study that applies concepts from social sciences such as
psychology and sociology to help understand the behavior of securities prices.
A. Behavioral finance
B. Strategical finance
C. Methodical finance
D. Procedural finance
Answer:
The quantity theory of money is a theory of how
A. the money supply is determined.
B. interest rates are determined.
C. the nominal value of aggregate income is determined.
D. the real value of aggregate income is determined.
Answer:
Holding all other factors constant, the quantity demanded of an asset is
A. positively related to wealth.
B. negatively related to its expected return relative to alternative assets.
C. positively related to the risk of its returns relative to alternative assets.
D. negatively related to its liquidity relative to alternative assets.
Answer:
Bank capital is equal to ________ minus ________.
A. total assets; total liabilities
B. total liabilities; total assets
C. total assets; total reserves
D. total liabilities; total borrowings
Answer: