If you buy a call option on Treasury futures at 115, and at expiration the market price is
110, the ________ will ________ exercised.
A) call; be
B) put; be
C) call; not be
D) put; not be
Risk premiums on corporate bonds tend to ________ during business cycle expansions
and ________ during recessions, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Potential weaknesses of nominal GDP targeting include
A) 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.
B) it implies that the central bank will respond to slowdowns in the real economy even
if inflation is not falling.
C) real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
D) it focuses not only on controlling inflation but also explicitly on stabilizing real
GDP.
An increase in the riskiness of corporate bonds will ________ the yield on corporate
bonds and ________ the yield on Treasury securities, everything else held constant.
A) increase; increase
B) reduce; reduce
C) increase; reduce
D) reduce; increase
Assume a closed economy with no government. Suppose that autonomous consumption
equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information contained in Situation 20-1, if autonomous consumption
increases by $100, then equilibrium aggregate output will change by
A) -$1,000.
B) -$100.
C) $100.
D) $1,000.
Elimination of minimum brokerage commission rates occurred because of
A) competition from banks.
B) demands of institution investors.
C) competition from foreign brokerage firms.
D) an action of the Securities and Exchange Commission.
An option that gives the owner the right to buy a financial instrument at the exercise
price within a specified period of time is a
A) call option.
B) put option.
C) American option.
D) European option.
Which of the following statements are TRUE?
A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but
increases the demand for default-free bonds.
B) The expected return on corporate bonds decreases as default risk increases.
C) A corporate bond’s return becomes less uncertain as default risk increases.
D) As their relative riskiness increases, the expected return on corporate bonds
increases relative to the expected return on default-free bonds.
Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in
Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace
the walls of the conference room. Suppose further that, at a public auction, the bank
sells the painting for $19.95. This sale will cause ________ in the monetary base,
everything else held constant.
A) an increase of $19.95
B) an increase of more than $19.95
C) a decrease of $19.95
D) a decrease of more than $19.95
The agency that restricts insider trading is the
A) Federal Reserve System.
B) Securities and Exchange Commission.
C) Office of the Comptroller of the Currency.
D) Federal Deposit Insurance Corporation.
A deductible reduces ________ in exactly the same way as ________.
A) moral hazard; coinsurance
B) adverse selection; restrictive provisions
C) moral hazard; cancellation of insurance
D) adverse selection; limits on the amount of insurance
When interest rates fall, a bank that perfectly hedges its portfolio of Treasury securities
in the futures market
A) suffers a loss.
B) experiences a gain.
C) has no change in its income.
D) may either gain, lose or see no change in its income.
Assume you are holding Treasury securities and have sold futures to hedge against
interest-rate risk. If interest rates rise
A) the increase in the value of the securities equals the decrease in the value of the
futures contracts.
B) the decrease in the value of the securities equals the increase in the value of the
futures contracts.
C) both the securities and the futures contracts decrease in value.
D) both the securities and the futures contracts increase in value.
Of the three agencies that have been created to promote residential housing, the only
one that is an entity of the U.S. government is
A) Fannie Mae.
B) Ginnie Mae.
C) Freddie Mac.
D) Sallie Mae.
An inverted yield curve
A) slopes up.
B) is flat.
C) slopes down.
D) has a U shape.