1) The agreement to provide a standardized commodity to a buyer on a specific date at a
specific future price is
A) a put option
B) a call option
C) a futures contract
D) a mortgage-backed security
2) If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real
GDP is $5 trillion, an increase in the money supply to $2 trillion
A) increases real GDP to $10 trillion
B) causes velocity to fall to 2.5
C) increases the price level to 2
D) increases the price level to 2 and velocity to 10
3) Of the remedies for conflicts of interest, which one is the most intrusive
A) Regulate for transparency
B) Separation of functions
C) Supervisory oversight
D) Socialization of information production
4) If a perpetuity has a price of $500 and an annual interest payment of $25, the interest
rate is
A) 2.5 percent
B) 5 percent
C) 7.5 percent
D) 10 percent
5) Duration is
A) an asset’s term to maturity
B) the time until the next interest payment for a coupon bond
C) the average lifetime of a debt security’s stream of payments
D) the time between interest payments for a coupon bond
6) A contractionary monetary policy raises the real interest rate, causing the domestic
currency to ________, thereby ________ net exports.
A) appreciate; raising
B) appreciate; lowering
C) depreciate; raising
D) depreciate; lowering
7) One of the problems in conducting a duration gap analysis is that the duration gap is
calculated assuming that interest rates for all maturities are the same. That means that
the yield curve is
A) flat
B) slightly upward sloping
C) steeply upward sloping
D) downward sloping
8) If the interest rate on a bond is above the equilibrium interest rate, there is an excess
________ for bonds and the bond price will ________.
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
9) According to the traditional interest-rate channel, expansionary monetary policy
lowers the real interest rate, thereby raising expenditure on
A) business fixed investment
B) government expenditure
C) consumer nondurables
D) net exports
10) According to the expectations theory of the term structure, the interest rate on a
long-term bond will equal the ________ of the short-term interest rates that people
expect to occur over the life of the long-term bond.
A) average
B) sum
C) difference
D) multiple
11) The problem created by asymmetric information before the transaction occurs is
called ________, while the problem created after the transaction occurs is called
________.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) costly state verification; free-riding
D) free-riding; costly state verification
12) An advantage to exchange-rate targeting is it helps keep inflation under control by
tying the inflation rate for ________ traded goods to what is found in the ________
country.
A) domestically; anchor
B) domestically, domestic
C) internationally; anchor
D) internationally; domestic
13) In the simple deposit expansion model, if the required reserve ratio is 20 percent
and the Fed increases reserves by $100, checkable deposits can potentially expand by
A) $100
B) $250
C) $500
D) $1,000
14) Discovery of new gold in Alaska will ________ the ________ of gold, ________
its price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) decrease; supply; increasing
D) increase; supply; decreasing
15) Everything else held constant, if a central bank makes an unsterilized sale of foreign
assets, then the domestic money supply will ________ and the domestic currency will
________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
16) That several hundred S&Ls were not even examined once in the period January
1984 through June 1986 can be explained by
A) Congress’s unwillingness to allocate the necessary funds to thrift regulators
B) regulators’ reluctance to find the specific problem thrifts that they knew existed
C) slower growth in lending meant that less regulation was needed
D) Congress’s unwillingness to listen to campaign contributors
17) The Depository Institutions Deregulation and Monetary Control Act of 1980
A) separated investment banks and commercial banks
B) restricted the use of ATS accounts
C) imposed restrictive usury ceilings on large agricultural loans
D) increased deposit insurance from $40,000 to $100,000
18) Under the Bretton Woods system, a country running a balance of payments surplus
________ international reserves, and had to implement ________ monetary policy to
weaken its currency.
A) lost; expansionary
B) lost; contractionary
C) gained; expansionary
D) gained; contractionary
19) An increase in the interest rate
A) increases the demand for money
B) increases the quantity of money demanded
C) decreases the demand for money
D) decreases the quantity of money demanded
20) If, in retaliation for “unfair” trade practices, Congress imposes a 30 percent tariff on
Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods
increases, then, in the long run, ________, everything else held constant
A) the Japanese yen should appreciate relative to the U.S. dollar
B) the Japanese yen should depreciate relative to the U.S. dollar
C) there is no effect on the Japanese yen relative to the U.S. dollar
D) the Japanese yen could appreciate, depreciate or remain constant relative to the U.S.
dollar
21) According to the efficient markets hypothesis, the current price of a financial
security
A) is the discounted net present value of future interest payments
B) is determined by the highest successful bidder
C) fully reflects all available relevant information
D) is a result of none of the above
22) Brokers, in contrast to security dealers,
A) hold inventories of securities
B) make their income through commissions
C) make their living on the spread between the bid price and the asked price
D) buy and sell securities at given prices
23) When the ________ interest rate is low, there are greater incentives to ________
and fewer incentives to ________.
A) nominal; lend; borrow
B) real; lend; borrow
C) real; borrow; lend
D) market; lend; borrow
24) If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5
percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent
25) Which of the following instruments are traded in a money market?
A) Bank commercial loans
B) Commercial paper
C) State and local government bonds
D) Residential mortgages
26) The principal-agent problem
A) occurs when managers have more incentive to maximize profits than the
stockholders-owners do
B) in financial markets helps to explain why equity is a relatively important source of
finance for American business
C) would not arise if the owners of the firm had complete information about the
activities of the managers
D) explains why direct finance is more important than indirect finance as a source of
business finance
27) China is trying to move its banking system from being strictly ________ owned by
having them issue shares overseas.
A) state
B) domestic investor
C) depositor
D) domestic corporate
28) The amount paid for an option is the
A) strike price
B) premium
C) discount
D) yield