Under the current managed float exchange rate regime; countries with surpluses in their
balance of payments frequently do not want to see their currencies appreciate because it
makes their goods ________ expensive abroad and foreign goods ________ in their
countries.
A) more; cheaper
B) more; costlier
C) less; cheaper
D) less; costlier
Answer:
If bad credit risks are the ones who most actively seek loans then financial
intermediaries face the problem of
A. moral hazard.
B. adverse selection.
C. free-riding.
D. costly state verification.
Answer:
The interest rate on a consol equals the
A. price times the coupon payment.
B. price divided by the coupon payment.
C. coupon payment plus the price.
D. coupon payment divided by the price.
Answer:
Before 1863
A. federally-chartered banks had regulatory advantages not granted to state-chartered
banks.
B. the number of federally-chartered banks grew at a much faster rate than at any other
time since the end of the Civil War.
C. banks acquired funds by issuing banknotes.
D. banks were required to maintain 100% of their deposits as reserves.
Answer:
The most common type of discount lending that the Fed extends to banks is called
A. seasonal credit.
B. secondary credit.
C. primary credit.
D. installment credit.
Answer:
What country is given credit for the birth of the Eurodollar market?
A) the United States
B) England
C) the Soviet Union
D) Japan
Answer:
The opportunity cost of holding excess reserves is the federal funds rate
A. minus the discount rate.
B. plus the discount rate.
C. plus the interest rate paid on excess reserves.
D. minus the interest rate paid on excess reserves.
Answer:
If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has actual reserves of
A. $16,000.
B. $20,000.
C. $26,000.
D. $36,000.
Answer:
Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy. Which of the following is NOT
one of these lessons?
A. Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy.
B. Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero.
C. Avoiding unanticipated fluctuations in the price level is an important objective of
monetary policy, thus providing a rationale for price stability as the primary long-run
goal for monetary policy.
D. Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are important
elements in various monetary policy transmission mechanisms.
Answer:
Factors that led to worsening financial market conditions in East Asia in 1997-1998
include
A. weak supervision by bank regulators.
B. a rise in interest rates abroad.
C. unanticipated increases in the price level.
D. increased uncertainty from political shocks.
Answer:
After Ben Bernanke became chair of the Fed in 2006, he
A. increased Fed transparency.
B. abandoned inflation targeting.
C. used “just do it” policy.
D. increased the opacity of the policymaking.
Answer:
If the United States has a current account deficit with England of $1 million, and the
Bank of England sells $1 million worth of pounds in the foreign exchange market, then
England ________ $1 million of international reserves and its monetary base ________
by $1 million.
A) gains; rises
B) gains; falls
C) loses; rises
D) loses; falls
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves. Given this information, we can say First National
Bank faces a required reserve ratio of ________ percent.
A. ten
B. twenty
C. eighty
D. ninety
Answer:
In financial markets, when a firm issues stock for the first time it is called an
A. investment portfolio option.
B. initial public offering.
C. initial portfolio offering.
D. investment portfolio offering.
Answer:
In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, the bank can now increase its loans by
A. $10.
B. $100.
C. $100 times the reciprocal of the required reserve ratio.
D. $100 times the required reserve ratio.
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:
Equity holders are a corporation’s ________. That means the corporation must pay all
of its debt holders before it pays its equity holders.
A. debtors
B. brokers
C. residual claimants
D. underwriters
Answer:
Suppose it takes roughly two years for monetary policy to have a significant impact on
inflation. If inflation is currently low but policymakers believe inflation will rise over
the next two years with an unchanged stance of monetary policy, when should they
tighten monetary policy to prevent the inflationary surge?
A. now
B. wait until overt signs of inflation appear
C. next year
D. two years later
Answer:
Because banks engage in regulatory arbitrage, the Basel Accord on risk-based capital
requirements may result in
A. reduced risk taking by banks.
B. reduced supervision of banks by regulators.
C. increased fraudulent behavior by banks.
D. increased risk taking by banks.
Answer:
Factors causing an increase in currency holdings include
a. an increase in the interest rates paid on checkable deposits.
b. an increase in the cost of acquiring currency.
c. a decrease in bank panics.
d. an increase in illegal activity.
Answer:
The price specified on an option at which the holder can buy or sell the underlying asset
is called the
A. premium.
B. call.
C. strike price.
D. put.
Answer:
The principal-agent problem that exists for bank trading activities can be reduced
through
A. creation of internal controls that combine trading activities with bookkeeping.
B. creation of internal controls that separate trading activities from bookkeeping.
C. elimination of regulation of banking.
D. elimination of internal controls.
Answer:
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A. Eurobond.
B. foreign bond.
C. British bond.
D. currency bond.
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:
Monetarists contend that the channels of monetary influence in Keynesian structural
models are too ________ defined, ________ the importance of monetary policy.
A. broadly; exaggerating
B. broadly; understating
C. narrowly; understating
D. narrowly; exaggerating
Answer:
Since they require less monitoring of firms, ________ contracts are used more
frequently than ________ contracts to raise capital.
A) debt; equity
B) equity; debt
C) debt; loan
D) equity; stock
Answer:
The decline in stock prices from 2000 through 2002
A. increased individuals’ willingness to spend.
B. had no effect on individual spending.
C. reduced individuals’ willingness to spend.
D. increased individual wealth.
Answer:
Professional athletes often have contract clauses prohibiting risky activities such as
skiing and motorcycle riding. These clauses are
A) limited-liability clauses.
B) risk insurance.
C) restrictive covenants.
D) illegal.
Answer:
If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest rates
will reduce bank profits, while a ________ in interest rates will raise bank profits.
A. more; rise; decline
B. more; decline; rise
C. fewer; decline; decline
D. fewer; rise; rise
Answer:
A fall in the level of prices
A. does not affect the value of money.
B. has an uncertain effect on the value of money.
C. increases the value of money.
D. reduces the value of money.
Answer:
When the economy suffers a temporary negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A. aggregate output drops in the short run.
B. output will return to potential output over time.
C. aggregate output is stabilized.
D. all of the above.
E. both A and B.
Answer: