Tests used to rate the performance of rules developed in technical analysis conclude that
technical analysis
A) outperforms the overall market.
B) far outperforms the overall market, suggesting that stockbrokers provide valuable
services.
C) does not outperform the overall market.
D) does not outperform the overall market, suggesting that stockbrokers do not provide
services of any value.
Which bank regulatory agency has the sole regulatory authority over bank holding
companies?
A) the FDIC
B) the Comptroller of the Currency
C) the FHLBS
D) the Federal Reserve System
The recent Enron and Tyco scandals are an example of
A) the free-rider problem.
B) the adverse selection problem.
C) the principal-agent problem.
D) the “lemons problem.”
If the consumption function is expressed as C = a + mpc × YD, then “mpc” represents
A) autonomous consumer expenditure.
B) the marginal propensity to consume.
C) the expenditure multiplier.
D) disposable income.
The Basel Committee ruled that regulators in other countries can ________ the
operations of a foreign bank if they believe that it lacks effective oversight.
A) restrict
B) encourage
C) renegotiate
D) enhance
If a contractionary monetary policy lowers the price level by more than expected, it
raises the real value of consumer debt. This reduces consumer expenditure through
A) the bank lending channel.
B) Tobin’s q.
C) the traditional interest-rate channel.
D) the household liquidity effect.
In September 2008, the Reserve Primary Fund, a money market mutual fund, found
itself in the situation know as “breaking the buck.” This means that
A) they could no longer afford to redeem shares at the par value of $1.
B) they required shareholders to contribute a dollar more in fees each month.
C) shareholders were able to redeem shares for more than a $1.
D) shares earned more than a dollar in interest.
When the expected inflation rate increases, the real cost of borrowing ________ and
bond supply ________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Because ________ are less liquid for the depositor than ________, they earn higher
interest rates.
A) money market deposit accounts; time deposits
B) checkable deposits; savings accounts
C) savings accounts; checkable deposits
D) savings accounts; time deposits
All other things held constant, premiums on call options will increase when the
A) exercise price falls.
B) volatility of the underlying asset falls.
C) term to maturity decreases.
D) futures price increases.
If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has total reserves of
A) $11,000.
B) $21,000.
C) $31,000.
D) $41,000.
Evidence suggests that credit-rating agencies ________ exploited conflicts of interest
because ________.
A) have not; it would cause their ratings to lose credibility and thus have a lower value
in the marketplace
B) have not; they would have an increase in profits in the long-run
C) have; it would cause their ratings to lose credibility and thus have a lower value in
the marketplace
D) have; they would have an increase in profits in the long-run
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement decreases
the demand for reserves, ________ the federal funds interest rate, everything else held
constant.
A) rise; lowering
B) decline; raising
C) decline; lowering
D) rise; raising
Which of the following bonds are considered to be default-risk free?
A) municipal bonds
B) investment-grade bonds
C) U.S. Treasury bonds
D) junk bonds
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.
Which of the following items are NOT counted in U.S. GDP?
A) your purchase of a new Ford Mustang
B) your purchase of new tires for your old car
C) GM’s purchase of tires for new cars
D) a foreign consumer’s purchase of a new Ford Mustang
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
A debt instrument sold by a bank to its depositors that pays annual interest of a given
amount and at maturity pays back the original purchase price is called
A) commercial paper.
B) a certificate of deposit.
C) a municipal bond.
D) federal funds.
In the generalized dividend model, if the expected sales price is in the distant future
A) it does not affect the current stock price.
B) it is more important than dividends in determining the current stock price.
C) it is equally important with dividends in determining the current stock price.
D) it is less important than dividends but still affects the current stock price.
Approaches to establishing central bank credibility include
A) continued success at keeping inflation under control.
B) central bank independence.
C) appointment of a more conservative central banker.
D) all of the above.
Everything else held constant, in the market for reserves, when the federal funds rate
equals the discount rate, lowering the discount rate
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect of the federal funds rate.
Everything else held constant, Americans who love French wine benefit most from
A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a ban on imports from Europe.
A sharp depreciation of the domestic currency after a currency crisis leads to
A) higher inflation.
B) lower import prices.
C) lower interest rates.
D) decrease in the value of foreign currency-denominated liabilities.
The large number of banks in the United States is an indication of
A) vigorous competition within the banking industry.
B) lack of competition within the banking industry.
C) only efficient banks operating within the United States.
D) consumer preference for local banks.
Everything else held constant, when the federal funds rate is ________ the interest rate
paid on reserves, the quantity of reserves demanded rises when the federal funds rate
________.
A) above, rises
B) above, falls
C) below, rises
D) below, falls
An important financial institution that assists in the initial sale of securities in the
primary market is the
A) investment bank.
B) commercial bank.
C) stock exchange.
D) brokerage house.
Bonds with no default risk are called
A) flower bonds.
B) no-risk bonds.
C) default-free bonds.
D) zero-risk bonds.
Banks have attempted to maintain adequate profit levels by
A) making fewer riskier loans, such as commercial real estate loans.
B) pursuing new off-balance-sheet activities.
C) increasing reserve deposits at the Fed.
D) decreasing capital accounts.
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.
Everything else held constant, a decrease in the value of the dollar relative to all foreign
currencies means that the price of foreign goods purchased by Americans
A) increases
B) decreases.
C) remains unchanged.
D) either increases, decreases, or remains unchanged.
If the yield curve is flat for short maturities and then slopes downward for longer
maturities, the liquidity premium theory (assuming a mild preference for shorter-term
bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and a decline further out in the
future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
In the market for reserves, when the federal funds rate is above the interest rate paid on
excess reserves, the demand curve for reserves is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
Critics of the current system of Fed independence contend that
A) the current system is undemocratic.
B) voters have too much say about monetary policy.
C) the president has too much control over monetary policy on a day-to-day basis.
D) the Board of Governors is held responsible for policy missteps.