The mound-shaped yield curve in the figure above indicates that the inflation rate is
expected to
A) remain constant in the near-term and fall later on.
B) fall moderately in the near-term and rise later on.
C) rise moderately in the near-term and fall later on.
D) remain unchanged in the near-term and rise later on.
An instrument developed to help investors and institutions hedge interest-rate risk is
A) a debit card.
B) a credit card.
C) a financial derivative.
D) a junk bond.
The spread between the interest rates on bonds with default risk and default-free bonds
is called the
A) risk premium.
B) junk margin.
C) bond margin.
D) default premium.
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
3.33 Romanian new lei. Therefore, one Romanian new lei would have purchased about
________ U.S. dollars.
A) 0.30
B) 1.86
C) 2.86
D) 3.33
Suppose Ford Motor Company issues a 5% bond with a stipulation that if a national
index of SUV sales drops by 10%, then Ford can decrease the coupon rate to 3%. This
security is called a
A) credit option.
B) credit swap.
C) credit-linked note.
D) credit default swap.
The Fed’s open market operations normally involve only the purchase of government
securities, particularly those that are short-term. However, during the crisis, the Fed
started new programs to purchase
A) mortgage-backed securities and long-term Treasuries.
B) mortgage-backed securities and Treasury bills.
C) commercial papers and short-term Treasuries.
D) Treasury bills and Treasury notes.
A discount bond is also called a ________ because the owner does not receive periodic
payments.
A) zero-coupon bond
B) municipal bond
C) corporate bond
D) consol
When the Treasury bond market becomes less liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
First National Bank
Assuming that the average duration of its assets is four years, while the average
duration of its liabilities is three years, then a 5 percentage point increase in interest
rates will cause the net worth of First National to ________ by ________ of the total
original asset value.
A) decline; 5 percent
B) decline; 10 percent
C) decline; 15 percent
D) increase; 20 percent
Which of the followings does NOT describe the money market in the ISLM model?
A) money demand function
B) investment function
C) money market equilibrium condition
D) money supply
Solutions to the moral hazard in equity contracts include all of the following EXCEPT
A) government regulations to increase information.
B) the use of financial intermediaries.
C) the use of debt contracts.
D) government ownership of resources.
First National Bank
If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured
using gap analysis) will
A) decline by $0.5 million.
B) decline by $1.5 million.
C) decline by $2.5 million.
D) increase by $1.5 million.
If reserves in the banking system increase by $100, then checkable deposits will
increase by $667 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.05.
C) 0.15.
D) 0.20.
Conflicts of interest is a type of ________ problem that occurs when a person or
institution has multiple objectives that are in conflict with each other.
A) moral hazard
B) adverse selection
C) risk sharing
D) spinning
________ examines whether one variable affects another by using data to build a model
that explains the channels through which this variable affects the other.
A) Indirect-model evidence
B) Organizational-model evidence
C) Reduced-form evidence
D) Structural-model evidence
The General Motors Acceptance Company (GMAC) is a
A) sales finance company.
B) consumer finance company.
C) business finance company.
D) public finance company.
If you bought a long contract on financial futures you hope that interest rates
A) rise.
B) fall.
C) are stable.
D) fluctuate.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created an
Office of Credit Ratings at the SEC with its own staff and the authority to fine
credit-rating agencies and to deregister an agency if it produces bad ratings. This is an
example of which remedy of conflicts of interest?
A) regulate for transparency
B) supervisory oversight
C) leave it to the market
D) socialization of information production