Junk bonds, bonds with a low bond rating, are also known as
A) high-yield bonds.
B) investment grade bonds.
C) high quality bonds.
D) zero-coupon bonds.
If you purchase a $100,000 interest-rate futures contract for 105, and the price of the
Treasury securities on the expiration date is 108, your ________ is ________.
A) profit; $3000
B) loss; $3000
C) profit; $8000
D) loss; $8000
If reserves in the banking system increase by $100, then checkable deposits will
increase by $500 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20
The preferred habitat theory of the term structure is closely related to the
A) expectations theory of the term structure.
B) segmented markets theory of the term structure.
C) liquidity premium theory of the term structure.
D) the inverted yield curve theory of the term structure.
Potential weaknesses of nominal GDP targeting include
A) it requires accurate estimates of potential GDP growth, which are not easy to
achieve.
B) real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
C) it is more complicated to explain to the public than inflation targeting and thus the
public might be confused about the objectives of the central bank.
D) both A and C.
If firms and households form their expectations about inflation by looking at past
inflation, this form of expectations formation is known as ________ expectations.
A) adaptive
B) forward-looking
C) rational
D) perfect
The expectations theory and the segmented markets theory do not explain the facts very
well, but they provide the groundwork for the most widely accepted theory of the term
structure of interest rates
A) the Keynesian theory.
B) the separable markets theory.
C) the liquidity premium theory.
D) the asset market approach.
The Fed’s policy actions of reacting to higher inflation by raising the real interest rate
during 2004-2006 were
A) upward movements along the monetary policy curve.
B) downward movement along the monetary policy curve.
C) upward shifts of the monetary policy curve.
D) downward shifts of the monetary policy curve.
If a bank has more rate-sensitive assets than rate-sensitive liabilities
A) it reduces interest rate risk by swapping rate-sensitive income for fixed rate income.
B) it reduces interest rate risk by swapping fixed rate income for rate-sensitive income.
C) it increases interest rate risk by swapping rate-sensitive income for fixed rate
income.
D) it neutralizes interest rate risk by receiving and paying fixed-rate streams.
A decrease in default risk on corporate bonds ________ the demand for these bonds,
and ________ the demand for default-free bonds, everything else held constant.
A) increases; lowers
B) lowers; increases
C) does not change; greatly increases
D) moderately lowers; does not change