Savings and loan regulators allowed S&Ls to include in their capital calculations a high
value for intangible capital called
A) goodwill.
B) salvation.
C) kindness.
D) retribution.
Answer:
When the Fed buys $100 worth of bonds from First National Bank, reserves in the
banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
Answer:
If in an efficient market all prices are correct and reflect market fundamentals, which of
the following is a false statement?
A) A stock that has done poorly in the past is more likely to do well in the future.
B) One investment is as good as any other because the securities’ prices are correct.
C) A security’s price reflects all available information about the intrinsic value of the
security.
D) Security prices can be used by managers to assess their cost of capital accurately.
Answer:
Factors likely to cause a financial crisis in emerging market countries include
A) severe fiscal imbalances.
B) decreases in foreign interest rates.
C) a foreign exchange crisis.
D) too strong oversight of the financial industry.
Answer:
Based on the Taylor Principle, a central bank’s endogenous response of raising interest
rates when inflation rises
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Answer:
All of the following are examples of off-balance sheet activities that generate fee
income for banks except
A) foreign exchange trades.
B) guaranteeing debt securities.
C) back-up lines of credit.
D) selling negotiable CDs.
Answer:
________ in the domestic 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:
Microprudential supervision does all of the following except
A) checking capital ratios of a bank.
B) checking a bank’s compliance with disclosure requirements.
C) assessing the riskiness of an individual bank’s activities.
D) focusing on financial system liquidity.
Answer:
Everything else held constant, if a central bank makes a sterilized purchase of foreign
assets, then the domestic currency will
A) appreciate.
B) depreciate.
C) either appreciate, depreciate, or remain constant.
D) not be affected.
Answer:
The Federal Open Market Committee’s “balance of risks” is an assessment of whether,
in the future, its primary concern will be
A) higher exchange rates or higher unemployment.
B) higher inflation or a stronger economy.
C) higher inflation or a weaker economy.
D) lower inflation or a stronger economy.
Answer:
Everything else held constant, a decrease in holdings of excess reserves will mean
A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.
Answer:
In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
Answer:
Having interest rate stability
A) allows for less uncertainty about future planning.
B) leads to demands to curtail the Fed’s power.
C) guarantees full employment.
D) leads to problems in financial markets.
Answer:
Which of the following statements concerning external sources of financing for
nonfinancial businesses in the United States are true?
A) Stocks are a far more important source of finance than are bonds.
B) Stocks and bonds, combined, supply less than one-half of the external funds.
C) Financial intermediaries are the least important source of external funds for
businesses.
D) Since 1970, more than half of the new issues of stock have been sold to American
households.
Answer:
Prior to 2008, bank managers looked on reserve requirements
A) as a tax on deposits.
B) as a subsidy on deposits.
C) as a subsidy on loans.
D) as a tax on loans.
Answer:
Comparing Tobin’s model of the speculative demand for money with Keynesian
speculative demand
A) both models imply that individuals hold only money or only bonds.
B) the Keynesian model implies individuals diversify their asset holdings, while the
Tobin model predicts that individuals hold only money or only bonds.
C) the Tobin model implies individuals diversify their asset holdings, while the
Keynesian model predicts that individuals hold only money or only bonds.
D) both models imply that individuals diversify their asset holdings.
Answer:
If the money supply is $600 and nominal income is $3,600, the velocity of money is
A) 1/60.
B) 1/6.
C) 6.
D) 60
Answer:
For a given return on assets, the lower is bank capital,
A) the lower is the return for the owners of the bank.
B) the higher is the return for the owners of the bank.
C) the lower is the credit risk for the owners of the bank.
D) the lower the possibility of bank failure.
Answer:
Tobin’s model of the speculative demand for money shows that people hold money as a
store of wealth as a way of
A) reducing risk.
B) reducing income.
C) avoiding taxes.
D) reducing transactions cost.
Answer:
Everything else held constant, an increase in the riskiness of bonds relative to
alternative assets causes the demand for bonds to ________ and the demand curve to
shift to the ________.
A) rise; right
B) rise; left
C) fall; right
D) fall; left
Answer:
The economy recovers quickly from most recessions, but the increase in adverse
selection and moral hazard problems in the credit markets caused by ________ led to
the severe economic contraction known as The Great Depression.
A) debt deflation
B) illiquidity
C) an improvement in banks’ balance sheets
D) increases in bond prices
Answer:
In the long run, a rise in a country’s price level (relative to the foreign price level)
causes its currency to ________, while a fall in the country’s relative price level causes
its currency to ________.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
Answer:
Studies of mutual fund performance indicate that mutual funds that outperformed the
market in one time period usually
A) beat the market in the next time period.
B) beat the market in the next two subsequent time periods.
C) beat the market in the next three subsequent time periods.
D) do not beat the market in the next time period.
Answer:
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
Answer:
If the economy is on the LM curve, but is to the right of the IS curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Answer:
Which of the following statements concerning bank regulation in the United States is
true?
A) The Office of the Comptroller of the Currency has the primary responsibility for
state banks that are members of the Federal Reserve System.
B) The Federal Reserve and the state banking authorities jointly have responsibility for
the 900 state banks that are members of the Federal Reserve System.
C) The Office of the Comptroller of the Currency has sole regulatory responsibility
over bank holding companies.
D) The state banking authorities have sole regulatory responsibility for all state banks.
Answer:
A disadvantage of ________made from precious metals is that it is very heavy and hard
to transport from one place to another.
A) commodity money
B) fiat money
C) electronic money
D) paper money
Answer:
Which of the following is not a disadvantage of exchange-rate targeting?
A) It relies on a stable money-inflation relationship.
B) The targeting country gives up an independent monetary policy.
C) The targeting country is left open for a speculative attack.
D) It can weaken the accountability of policymakers.
Answer:
U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S.
banks are called
A) Atlantic dollars.
B) Eurodollars.
C) foreign dollars.
D) outside dollars.
Answer:
During the Great Depression years 1930-1933 there was a very high rate of business
failures and defaults, we would expect the risk premium for ________ bonds to be very
high.
A) U.S. Treasury
B) corporate Aaa
C) municipal
D) corporate Baa
Answer:
Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender’s relative lack of information about the borrower’s potential returns and
risks of his investment activities.
B) the lender’s inability to legally require sufficient collateral to cover a 100% loss if
the borrower defaults.
C) the borrower’s lack of incentive to seek a loan for highly risky investments.
D) the borrower’s lack of good options for obtaining funds.
Answer: