Who has regulatory responsibility when a bank operates branches in many countries?
A) It is not always clear.
B) the WTO
C) the U.S. Federal Reserve System
D) the first country to submit an application
Approaches to establishing central bank credibility include
A) inflation targeting.
B) nominal GDP targeting.
C) central bank independence.
D) appointment of a more conservative central banker.
E) all of the above.
All of the following are examples of off-balance sheet activities that generate fee
income for banks EXCEPT
A) foreign exchange trades.
B) guaranteeing debt securities.
C) back-up lines of credit.
D) selling negotiable CDs.
The starting point for understanding how exchange rates are determined is a simple idea
called ________, which states: if two countries produce an identical good, the price of
the good should be the same throughout the world no matter which country produces it.
A) Gresham’s law
B) the law of one price
C) purchasing power parity
D) arbitrage
An option that can only be exercised at maturity is called
A) a swap.
B) a stock option.
C) an European option.
D) an American option.
In the ISLM framework a contractionary fiscal policy causes aggregate output to
________ and the interest rate to ________, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
If the Federal Reserve conducts open market sales, the money supply ________,
shifting the LM curve to the ________, everything else held constant.
A) decreases; right
B) decreases; left
C) increases; right
D) increases; left
According to the expectations theory of the term structure
A) when the yield curve is steeply upward sloping, short-term interest rates are
expected to remain relatively stable in the future.
B) when the yield curve is downward sloping, short-term interest rates are expected to
remain relatively stable in the future.
C) investors have strong preferences for short-term relative to long-term bonds,
explaining why yield curves typically slope upward.
D) yield curves should be equally likely to slope downward as slope upward.
Velocity is defined as
A) P + M + Y.
B) (P × M)/Y.
C) (Y × M)/P.
D) (P × Y)/M.
Because of the “lemons problem” the price a buyer of a used car pays is
A) equal to the price of a lemon.
B) less than the price of a lemon.
C) equal to the price of a peach.
D) between the price of a lemon and a peach.
The most important source of the changes in supply conditions that stimulate financial
innovation has been the
A) deregulation of financial institutions.
B) dramatic increase in the volatility of interest rates.
C) improvement in information technology.
D) dramatic increase in competition from foreign banks.
The strengthening of the dollar between 1980 and 1985 contributed to a ________ in
American competitiveness, putting pressure on the Fed to pursue a more ________
monetary policy.
A) decrease; contractionary
B) increase; expansionary
C) increase; contractionary
D) decrease; expansionary
The difference between money and income is that
A) money is a flow and income is a stock.
B) money is a stock and income is a flow.
C) there is no difference—money and income are both stocks.
D) there is no difference—money and income are both flows.
The World Bank is an international organization that
A) promotes the growth of trade by setting rules for how tariffs and quotas are set by
countries.
B) makes loans to countries to finance projects such as dams and roads.
C) makes loans to countries with balance of payment difficulties.
D) helps developing countries that have been having difficulties in repaying their loans
to come to terms with lenders in the West.
The upward trend in the currency-deposit ratio during 1994-2007 can be explained by
A) the increased holdings of U.S. currency by foreigners.
B) bank panics.
C) a drop in the rate of interest paid on checking deposits.
D) high taxes and illegal activities.
If a bank needs to raise the amount of capital relative to assets, a bank manager might
choose to
A) buy back bank stock.
B) pay higher dividends.
C) shrink the size of the bank.
D) sell securities the bank owns and put the funds into the reserve account.
The Fed’s mistakes of the early 1930s were compounded by its decision to
A) raise reserve requirements in 1936-1937.
B) lower reserve requirements in 1936-1937.
C) raise the monetary base in 1936-1937.
D) lower the monetary base in 1936-1937.
When the value of the British pound changes from $1.25 to $1.50, the pound has
________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Open market sales ________ reserves and the monetary base thereby ________ the
money supply.
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising
An asset’s interest rate risk ________ as the duration of the asset ________.
A) increases; decreases
B) decreases; decreases
C) decreases; increases
D) remains constant; increases
Everything else held constant, an increase in expected inflation, lowers the expected
return on ________ compared to ________ assets.
A) bonds; financial
B) bonds; real
C) real estate; financial
D) real estate; real
Which of the following is not an advantage of inflation targeting?
A) reduction of the time-inconsistency problem
B) increased monetary policy transparency
C) There is an immediate signal on the achievement of the target.
D) consistency with democratic principles
Which of the following statements about financial markets and securities is TRUE?
A) A bond is a long-term security that promises to make periodic payments called
dividends to the firm’s residual claimants.
B) A debt instrument is intermediate term if its maturity is less than one year.
C) A debt instrument is intermediate term if its maturity is ten years or longer.
D) The maturity of a debt instrument is the number of years (term) to that instrument’s
expiration date.
An important feature of money market mutual fund shares is
A) deposit insurance.
B) the ability to write checks against shareholdings.
C) the ability to borrow against shareholdings.
D) claims on shares of corporate stock.
The Bretton Woods agreement created the ________, which was given the task of
promoting the growth of world trade by setting rules for the maintenance of fixed
exchange rates and by making loans to countries that were experiencing balance of
payments difficulties.
A) IMF
B) World Bank
C) Central Settlements Bank
D) Bank of International Settlements
In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of
return; thus
A) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall.
B) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise.
C) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall.
D) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise.
Between 1950 and 1980 in the U.S., interest rates trended upward. During this same
time period
A) the rate of money growth declined.
B) the rate of money growth increased.
C) the government budget deficit (expressed as a percentage of GNP) trended
downward.
D) the aggregate price level declined quite dramatically.
The nominal interest rate minus the expected rate of inflation
A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow and lend than is the nominal
interest rate.
C) is a less accurate indicator of the tightness of credit market conditions than is the
nominal interest rate.
D) defines the discount rate.
A restriction on bank activities that was repealed in 1999 was
A) the prohibition of the payment of interest on checking deposits.
B) restrictions on credit terms.
C) minimum down payments on loans to purchase securities.
D) separation of commercial banking from the securities industries.
Everything else held constant, a balanced budget increase in government spending (that
is, an increase in government spending that is matched by an identical increase in net
taxes) will
A) increase aggregate demand, but not by as much as if just government spending
increases.
B) increase aggregate demand by more than if just government spending increases.
C) not affect aggregate demand.
D) decrease aggregate demand.
________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to depreciate,
everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left