Bank capital is equal to
A) the value of the capital originally invested in the bank by its owners.
B) the value of everything the bank owns.
C) the difference between the value of the bank’s assets and the value of its liabilities.
D) the value of the buildings and other physical assets the bank owns.
Answer:
An open market sale
A) decreases the price of Treasury securities and also decreases their yield.
B) increases the price of Treasury securities and decreases their yield.
C) increases the price of Treasury securities and also increases their yield.
D) decreases the price of Treasury securities and increases their yield.
Answer:
When a country’s nominal exchange rate depreciates, the price of
A) that country’s goods abroad increases.
B) that country’s goods abroad decreases.
C) foreign goods sold in the country decreases.
D) that country’s goods produced and sold at home decreases.
Answer:
Which type of offering typically has the lowest fees?
A) initial public offering of stocks
B) secondary offering
C) offering of investment-grade bonds
D) offering of non-investment-grade bonds
Answer:
Which of the following represents the equation that would be used to determine the
yield to maturity of a corporate bond with a face value of $1000, price of $1100,
coupon rate of 5%, and maturity in three years?
A) $1100 = $1500/(1 + i)3
B) $1100 = $500/(1 + i) + $500/(1 + i)2 + 1000/(1 + i)3
C) $1100 = $500/(1 + i) + $500/(1 + i)2 + 500/(1 + i)3
D) $1100 = $500/(1 + i) + $500/(1 + i)2 + 1500/(1 + i)3
Answer:
Spot transactions
A) involve immediate settlement.
B) may only take place in face-to-face trading.
C) take place on-the-spot, rather than on an organized exchange.
D) are relatively unimportant in financial markets.
Answer:
If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much
will you have in the account at the end of three years?
A) $8,396
B) $11,800
C) $11,910
D) $10,600
Answer:
Which of the following financial futures contracts are traded in the United States?
A) Interest rates
B) Stock indexes
C) Currencies
D) All of the above
Answer:
A futures contract is
A) an agreement that specifies the delivery of a commodity or financial instrument at an
agreed-upon future date at a currently agreed-upon price.
B) an agreement that specifies the delivery of a commodity or financial instrument at an
agreed-upon future date, with the price to be negotiated at the time of delivery.
C) an agreement that specifies the delivery of a commodity or financial instrument at a
currently agreed-upon price, with date of delivery to be negotiated subsequently.
D) an agreement that specifies the delivery of a commodity or financial instrument,
with the price and date of delivery to be negotiated subsequently.
Answer:
Why do CDs have lower rates of return than stocks?
A) CDs are much riskier investments than stocks.
B) CDs are less risky than stocks.
C) CDs are not taxed while stock s returns are taxable.
D) CDs are not as liquid as stocks.
Answer:
Under the liquidity premium theory, a flat yield curve indicates that investors expect
future short-term rates to
A) fall.
B) rise.
C) remain constant.
D) either fall or remain constant.
Answer:
Suppose that Google announces that its profits for the third quarter of 2013 were $1.6
billion. As a result of this announcement the price of Google’s stock declines. The best
explanation of this is
A) market participants expected Google’s profits to be greater than $1.6 billion for the
third quarter.
B) market participants expected Google’s profits to be less than $1.6 billion for the third
quarter.
C) the stock market is not an efficient market.
D) market participants have adaptive expectations.
Answer:
What was the goal of Operation Twist?
A) to reduce long-term interest rates and increase short-term interest rates
B) to reduce short-term interest rates and increase long-term interest rates
C) to reduce both short-term and long-term interest rates
D) to increase both short-term and long-term interest rates
Answer:
Which of the following is NOT true of moral hazard?
A) It would not exist in a world of perfect information.
B) It arises because borrowers typically know more than lenders.
C) It describes a lender’s problem of distinguishing the good-risk applicants from the
bad-risk applicants.
D) It describes a lender’s problem in verifying borrowers are using their funds as
intended.
Answer:
Which of the following will NOT shift the aggregate demand curve to the right?
A) a decline in the price level
B) an increase in government expenditures
C) an increase in investment
D) an increase in the money supply
Answer:
The current account balance plus the financial account balance
A) equals the trade balance.
B) equals the net outflow of currency from the domestic economy.
C) will be negative during economic expansions and positive during economic
contractions.
D) equals zero.
Answer:
The Open Market Trading Desk is
A) another name for the Federal Open Market Committee.
B) an organization of private traders in government securities.
C) the area on the floor of the New York Stock Exchange set aside for bond trading.
D) a group of private securities traders that the Fed has selected to participate in open
market operations.
Answer:
The very low interest rates following the financial crisis of 2007-2009 resulted in:
A) many people moving their funds from CDs and money market accounts to checking
accounts in order to have more liquidity without sacrificing much interest
B) funds being transferred from checking accounts to time deposits
C) further declines in checking accounts that began in the early 1970s
D) people switching their funds from checking deposits to CDs in the pursuit of higher
interest rates
Answer:
The law of large numbers allows insurance companies to
A) hold capital market instruments as assets without fearing overly large numbers of
defaults.
B) hold money market instruments as assets without fearing overly large numbers of
defaults.
C) predict the average number of occurrences of insurable events in a large population
of policyholders.
D) charge higher premiums than necessary, knowing that large numbers of individuals
will pay them.
Answer:
Which of the following is NOT considered a payment in the balance of payments?
A) capital outflows
B) U.S. foreign aid to other countries
C) imports of goods
D) exports of services
Answer:
Which of the following statements about the supply of dollars in the foreign exchange
market is true?
A) It is equal to the money supply.
B) It represents the demand for U.S. goods and financial assets by firms and households
outside the United States.
C) It represents the supply of U.S. goods and financial assets by firms and households
within the United States.
D) It is determined by the willingness of households and firms that own dollars to
exchange them for foreign currency.
Answer:
To deal with difficulties in administering pension funds, Congress in 1974 passed the
A) Corrupt Pension Fund Reform Act.
B) Securities and Exchange Act.
C) Employee Retirement Income Security Act.
D) Social Security Act.
Answer:
If the government were to simultaneously cut the personal income tax and the corporate
profits tax, the equilibrium interest rate
A) would fall.
B) would rise.
C) would be unaffected.
D) might either rise or fall.
Answer:
Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the
velocity of money?
A) 0.143
B) 7
C) 12
D) 28
Answer:
The January effect
A) largely disappeared after receiving attention in the 1980s.
B) refers to the gap between futures prices and the prices of the underlying securities
that occurs each January.
C) was stronger during the 1980s than during previous decades.
D) is the observation that stocks tend to be sold off in January.
Answer:
Forward transactions originated in the market for
A) common stock.
B) corporate bonds.
C) government bonds.
D) agricultural and other commodities.
Answer:
Why may a central bank intervene in the foreign exchange market when its currency is
depreciating?
A) concerns about the country’s exports becoming less competitive
B) concerns about inflation
C) concerns about deflation
D) to sterilize the effects on the domestic economy
Answer:
The use of collateral
A) allows banks to charge higher interest rates on loans.
B) makes it more costly for borrowers to take advantage of their asymmetric
information.
C) makes it more costly for lenders to take advantage of their asymmetric information.
D) has important tax implications for both borrowers and lenders.
Answer:
Banks with which type of loans were most likely to fail during the early 1930s?
A) mortgage loans
B) agricultural loans
C) commercial real estate loans
D) international loans
Answer:
Given that most investors tend to be risk averse,
A) no one buys risky assets.
B) there’s a trade-off between risk and return.
C) low risk assets provide the best return.
D) it must be a superior strategy compared to one that is risk loving.
Answer:
The usual response of the banking system to new government regulations is
A) evasion through whatever means are necessary.
B) strict compliance.
C) an attempt to circumvent the regulations through financial innovation.
D) bankruptcy.
Answer: