Assuming the free flow of capital across borders, if country A wants to fix its exchange
rate with country B, then:
A. country A’s inflation rate will have to match country B’s.
B. country A’s monetary policy must be conducted so the inflation rate in country A
matches the inflation rate in country B.
C. country A’s monetary policy will not be able to be used to address domestic issues.
D. all of the answers given are correct.
Answer:
The 2008 and 2009 tax cuts and the increase in government spending that occurred at
the same time did not have the same inflationary impact as the similar policy in the
1960s because:
A. the fiscal stimulus came at a time when the economy was weakening due to other
factors.
B. monetary policymakers, having perceived the inflation risk, responded
appropriately.
C. aggregate demand was far below potential output.
D. all of the answers provided are correct.
Answer:
Insurance companies offer two basic type of insurance; these are:
A. life insurance and property and casualty insurance.
B. life insurance and mutual funds.
C. property and casualty companies.
D. whole life and term life insurance companies.
Answer:
The Lucas critique focuses specifically on:
A. the relationship between Fed policy and the money supply.
B. the role that economic policymaking has on people’s economic behavior.
C. the inability to measure economic performance accurately.
D. the moving away from fixed exchange rates to flexible exchange rates.
Answer:
Asymmetric information in financial markets is a potential problem usually resulting
from:
A. borrowers having more information than the lenders.
B. lenders having more information than borrowers.
C. the fact that people are basically dishonest.
D. the uncertainty about Federal Reserve monetary policy.
Answer:
If the annual interest rate is 5%(.05), the price of a one-year Treasury bill per $100 of
face value would be:
A. $95.00
B. $97.50
C. $95.24
D. $96.10
Answer:
Commercial paper refers to:
A. the financial publications read by the CEO’s of public corporations.
B. any debt security with a maturity exceeding one year.
C. short-term collateralized securities issued only by corporations.
D. unsecured short-term debt issued by corporations and governments.
Answer:
Bank holding companies developed:
A. to get around the limitations on bank branching.
B. so foreign banks could open branches in the U.S.
C. to circumvent the regulation by the Office of the Comptroller of the Currency.
D. so that unit banks could combine into larger banks.
Answer:
One key difference between swaps and option contracts is:
A. swaps are derivative agreements and options are not.
B. swaps do not involve any risk and options do.
C. options transfer risk, swaps create risk.
D. options trade on organized exchanges and swaps do not.
Answer:
Only two exchange rate regimes can be considered hard pegs. These are:
A. currency boards and dollarization.
B. dollarization and managed floating.
C. flexible exchange rates and currency boards.
D. the gold standard and inflation targeting.
Answer:
The relationship between interest rates and stock prices is referred to as:
A. the interest-rate mechanism of monetary policy.
B. the investment-spending mechanism of monetary policy.
C. the wealth-creating mechanism of monetary policy.
D. the asset-price channel of monetary policy.
Answer:
Hedging is possible only when investments have:
A. opposite payoff patterns.
B. the same payoff patterns.
C. payoffs that are independent of each other.
D. the same risk premiums.
Answer:
Over very long periods, U.S. real economic growth averaged around:
A. 3 percent per year.
B. 1 percent per year.
C. 5 percent per year.
D. 7 percent per year.
Answer:
Suppose a particular bank is very large in terms of assets, and makes consumer and
residential loans as well as commercial and industrial loan. The bank is probably a:
A. regional or super-regional bank.
B. money center bank.
C. community bank.
D. savings bank.
Answer:
Once the FOMC announces the result of its meeting the attendees:
A. it must brief the financial news immediately after and answer questions posed to
them.
B. observe a twenty-four hour blackout period following the meeting during which
they do not speak publicly about the economic outlook or current monetary policy.
C. observe a blackout period that lasts for a week following the meeting during which
they do not speak publicly about the economic outlook or current monetary policy.
D. never discuss the policy issues addressed in the meetings.
Answer:
The presence of a term spread that is usually positive indicates that:
A. the yield curve always slopes upward.
B. bonds of similar risk but with different maturities are not perfect substitutes.
C. we should expect the yield curve to usually be flat.
D. we should expect the yield curve to usually slope downward.
Answer:
Evidence points out that since the mid-1950’s just about every recession was preceded
by rising interest rates. This suggests that the recessions were:
A. caused in part by the actions of the Federal Reserve.
B. the result of changes in consumer confidence.
C. due to increases in oil prices and other production costs.
D. caused by simultaneous shifts in aggregate demand and aggregate supply.
Answer:
In 2003, ratings agencies downgraded bonds issued by the State of California several
times. How will this affect the market for these bonds?
A. Yields on these bonds will decrease and the yield on Treasury bonds will increase.
B. The yield on these bonds will not change, nor will the yield on Treasury bonds.
C. The yield on these bonds and on Treasury bonds will both decrease.
D. Yields on these bonds will increase.
Answer:
The key difference between a forward and a futures contract is:
A. a forward contract is customized where a futures contract is not.
B. a forward contract is bought and sold on organized exchanges.
C. only the forward contracts have settlement dates.
D. the amount of time involved.
Answer:
The impact of monetary policy on the exchange rate and net exports is best described
as:
A. the strongest of all the parts of the transmission mechanism.
B. powerful, but lagging.
C. difficult to forecast.
D. nonexistent.
Answer:
The theory of purchasing power parity says:
A. the real exchange rate is always greater than one.
B. a dollar should buy the same goods no matter where in the world you go.
C. the dollar price of a basket of goods in the U.S. should equal the yen price of a
basket of goods in Japan.
D. the real exchange rate is always less than one.
Answer:
Considering a bank’s balance sheet, which of the following statements is true?
A. Total Bank Assets = Total Bank Capital – Total Bank Liabilities
B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital
C. Total Bank Assets + Total Bank Capital = Total Bank Liabilities
D. Total Bank Assets + Total Bank Liabilities = Total Bank Capital
Answer:
Convert each of the following basis points amounts to percents:
a) 412.5
b) 10
c) 125.7
d) 1075
e) 1
Answer:
If the annual interest rate is 5%(.05), the price of a three-month Treasury bill would be:
A. $98.79
B. $95.00
C. $98.75
D. $97.59
Answer:
All of the following are true about the risk spread except it should:
A. be higher for highly speculative bonds than investment grade bonds.
B. have a direct relationship with the bond’s yield.
C. have an inverse relationship with the bond’s price.
D. have a direct relationship with the bond’s price.
Answer:
A typical automobile insurance policy is an example of:
A. liability insurance only.
B. property and casualty insurance.
C. property insurance only.
D. casualty insurance only.
Answer:
In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast
inflation rates for the next decade in the United States were:
A. 0%.
B. 2%.
C. 4%.
D. 7%.
Answer:
An automobile insurance company on average charges a premium that:
A. equals the expected loss from each driver.
B. is less than the expected loss from each driver.
C. is greater than the expected loss from each driver.
D. equals 1/(expected loss) of each driver.
Answer:
If a positive inflation shock occurs and monetary policymakers do not change the
inflation target:
A. output will eventually return to potential output and inflation will equal the inflation
target.
B. output will eventually rise above potential output while inflation will equal the
inflation target.
C. output will eventually fall below potential output while inflation will equal the
inflation target.
D. output will eventually return to potential output but inflation will exceed the
inflation target.
Answer:
An open market purchase of securities by the central bank from banks usually will:
A. increase the banks’ revenue even if the bank does nothing with the reserves.
B. induce the banks to make more loans since their revenue will decrease if they do
nothing.
C. decrease the amount of deposits in the banking system.
D. decrease the banks’ willingness and ability to make loans.
Answer:
In the early years of the Great Depression, 1929-1933:
A. over one half of all U.S. banks failed.
B. two-thirds of U.S. banks failed.
C. more than a third of all U.S. banks failed.
D. a little less than one-quarter of U.S. banks failed.
Answer: