1) A managed float regime is when countries intervene in foreign exchange markets in
an attempt to influence their exchange rates by buying and selling foreign assets.
2) Holding everything else constant, as the dollar weakens vacations abroad become
less attractive.
3) Credit unions are owned by stockholders.
4) Adverse selection occurs when those most likely to get insurance payoffs are the
ones who want to purchase the insurance the most.
5) Open interest allows investors to change the interest rate on futures contracts.
6) If a country’s central bank eventually runs out of international reserves, it cannot
keep its currency from depreciating and a devaluation must occur.
7) Savings and loans are not as heavily concentrated in mortgages and have had more
flexibility in their investing practices than mutual savings banks.
8) Increasing duration implies that interest-rate risk has increased.
9) Money market mutual funds originated when the brokerage firm Merrill Lynch
offered its customers an account from which funds could be taken to purchase securities
and into which funds could be deposited when securities were sold.
10) Many institutions that make mortgage loans do not want to hold large portfolios of
long-term securities, because it would subject them to unacceptably high interest-rate
risk.
11) The difference between rate-sensitive liabilities and rate-sensitive assets is known
as the duration gap.
12) A deferred-load mutual fund charges a commission
A) when shares are purchased
B) when shares are sold
C) both when shares are purchased and when they are sold
D) when shares are redeemed
13) Of the following sources of external finance for American nonfinancial businesses,
the most important is
A) loans from banks
B) stocks
C) bonds and commercial paper
D) nonbank loans
14) If the optimal forecast of the return on a security exceeds the equilibrium return,
then
A) the market is inefficient
B) an unexploited profit opportunity exists
C) the market is in equilibrium
D) only A and B of the above are true
E) only B and C of the above are true
15) The advantage of forward contracts over futures contracts is that forward contracts
A) are standardized
B) have lower default risk
C) are more flexible
D) both A and B are true
16) To say that stock prices follow a “random walk” is to argue that
A) stock prices rise, then fall
B) stock prices rise, then fall in a predictable fashion
C) stock prices tend to follow trends
D) stock prices are, for all practical purposes, unpredictable
17) The pecking order hypothesis predicts that the ________ a corporation is, the more
likely it will be to ________.
A) smaller and less well known; issue securities
B) larger and more well known; borrow from financial intermediaries
C) larger and more well known; issue securities
D) smaller and less well known; need external financing
18) Which of the following is a lender of last resort for credit unions?
A) National Credit Union Administration
B) U.S. Central Credit Union
C) state central credit unions
D) the Central Liquidity Facility
19) Examples of off-balance-sheet activities include
A) loan sales
B) extending loans to depositors
C) borrowing from other banks
D) all of the above
20) The ________ of the Board of Governors is the spokesperson for the Fed.
A) chairman
B) president
C) either of the above can be the spokesperson
D) neither of the above
21) Under usual circumstances, an increase in the discount rate causes
A) the federal funds rate to fall
B) the federal funds rate to rise
C) no change in the federal funds rate
D) the supply of reserves to increase
E) the supply of reserves to decrease
22) The interest rate that is adjusted for actual changes in the price level is called the
A) ex post real interest rate
B) expected interest rate
C) ex ante real interest rate
D) none of the above
23) A current account ________ indicates that the United States is ________ its claims
on foreign wealth.
A) surplus; increasing
B) surplus; decreasing
C) deficit; increasing
D) balance; decreasing
24) Banks, savings and loan associations, mutual savings banks, and credit unions
A) are no longer important players in financial intermediation
B) have been providing services only to small depositors since deregulation
C) have been adept at innovating in response to changes in the regulatory environment
D) all of the above
E) only A and C of the above
25) Which of the following are true statements about the Bretton Woods system?
A) The Bretton Woods system was a fixed exchange rate regime, in which central banks
bought and sold their own currencies to keep their exchange rates fixed
B) To maintain fixed exchange rates when countries had balance of payments deficits
and were losing international reserves, the IMF would loan deficit countries
international reserves contributed by other members
C) The German mark was called a reserve currency because it was used to denominate
the securities central banks held as international reserves
D) All of the above are true
E) Only A and B of the above are true
26) Stage Two of a financial crisis in an emerging market economy usually involves a
________ crisis.
A) currency
B) stock market
C) banking
D) commodities
27) An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of
A) 5 percent
B) 8 percent
C) 10 percent
D) 40 percent
28) Which of the following statements concerning bank regulation in the United States
is true?
A) The Office of the Comptroller of the Currency has the primary responsibility for
national banks
B) The Federal Reserve and the state banking authorities jointly have responsibility for
state banks that are members of the Federal Reserve System
C) The Fed has sole regulatory responsibility over bank holding companies
D) All of the above are true
E) Only A and B of the above are true
29) Which of the following statements about the money markets are true?
A) Not all commercial banks deal for their customers in the secondary market
B) Money markets are used extensively by businesses both to warehouse surplus funds
and to raise short-term funds
C) The single most influential participant in the U.S. money market is the U.S. Treasury
Department.
D) All of the above are true
E) Only A and B of the above are true
30) In Keynes’s liquidity preference framework, individuals are assumed to hold their
wealth in two forms:
A) real assets and financial assets
B) stocks and bonds
C) money and bonds
D) money and gold
31) If the Fed uses nonborrowed reserves, a reserve aggregate, as a target, an increase in
the demand for reserves will result in a(n) ________ in ________.
A) increase; nonborrowed reserves
B) decrease; nonborrowed reserves
C) increase; the federal funds interest rate
D) decrease; the federal funds interest rate
32) The futures markets have grown rapidly in recent years because
A) interest rate volatility has increased
B) financial managers are more risk averse
C) of both A and B
D) of neither A nor B
33) Commercial paper is an important source of funding for finance companies. As
presented in the Consolidated Finance Company Balance Sheet, commercial paper
represents about ________ of their liabilities.
A) 3.9%
B) 5.8%
C) 12.5%
D) 20.0%
34) Net profit after taxes per dollar of assets is a basic measure of bank profitability
called
A) return on assets
B) return on capital
C) return on equity
D) return after taxes
35) Another way to state the efficient market condition is that in an efficient market,
A) unexploited profit opportunities will be quickly eliminated
B) unexploited profit opportunities will never exist
C) arbitrageurs guarantee that unexploited profit opportunities never exist
D) both A and C of the above occur
36) The Federal Reserve entity that determines monetary policy strategy is the
A) Board of Governors
B) Federal Open Market Committee
C) Chairman of the Board of Governors
D) Shadow Open Market Committee
37) Private placements
A) do not require the services of investment bankers
B) need not be registered with the SEC
C) are more common in the sale of stocks than for bonds
D) all of the above
E) are only A and B of the above
38) Which of the following is not expected to result from bank consolidation in the
U.S.?
A) The disappearance of small community banks
B) The acceleration of the decline in the number of banks
C) Banks will be more efficient
D) Banks will be less likely to fail
39) Debt contracts
A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic
intervals
B) have an advantage over equity contracts in that they have a lower cost of state
verification
C) are used much more frequently to raise capital than equity contracts
D) all of the above
E) only A and B of the above
40) Factors that lead to worsening conditions in financial markets include
A) declining interest rates
B) anticipated increases in the price level
C) bank panics
D) only A and C of the above
E) only B and C of the above