A contract that requires the investor to sell securities on a future date is called a
A) short contract.
B) long contract.
C) hedge.
D) micro hedge.
Which of the followings is NOT a current duty of the Board of Governors of the
Federal Reserve System?
A) setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B) setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C) approving the discount rate “established” by the Federal Reserve banks
D) voting on the conduct of open market operations
A plot of the interest rates on default-free government bonds with different terms to
maturity is called
A) a risk-structure curve.
B) a default-free curve.
C) a yield curve.
D) an interest-rate curve.
If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike
price of 114, and at the expiration date the price is 110, your ________ is ________.
A) profit; $4000
B) loss; $4000
C) profit; $3000
D) loss; $3000
Bonds with relatively high risk of default are called
A) Brady bonds.
B) junk bonds.
C) zero coupon bonds.
D) investment grade bonds.
If reserves in the banking system increase by $100, then checkable deposits will
increase by $400 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.10.
C) 0.20.
D) 0.25.
Most mutual funds are
A) no-load funds.
B) load funds.
C) large-load funds.
D) small-load funds.
The basic concepts used in the analytic framework of this text include all of the
following EXCEPT
A) the not-for-profit nature of most financial institutions.
B) a basic supply and demand analysis to explain the behavior of financial markets.
C) an approach to financial structure based on transaction costs and asymmetric
information.
D) the concept of equilibrium.
Which policy measure increased the SEC budget to supervise securities markets?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
An increase in default risk on corporate bonds ________ the demand for these bonds,
but ________ 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
Using the one-period valuation model, assuming a year-end dividend of $0.11, an
expected sales price of $110, and a required rate of return of 10%, the current price of
the stock would be
A) $110.11.
B) $121.12.
C) $100.10.
D) $100.11
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an increase in the required reserve ratio to 15%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.55 to 2.8
B) decrease from 2.8 to 2.55
C) increase from 1.82 to 2
D) decrease from 2 to 1.82
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 planned investment decreases by
$100, the equilibrium aggregate output will change by
A) -$1,000.
B) $-100.
C) $100.
D) $1,000.
Economists’ attempts to explain the term structure of interest rates
A) illustrate how economists modify theories to improve them when they are
inconsistent with the empirical evidence.
B) illustrate how economists continue to accept theories that fail to explain observed
behavior of interest rate movements.
C) prove that the real world is a special case that tends to get short shrift in theoretical
models.
D) have proved entirely unsatisfactory to date.
With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7
percent over the coming year, the expected return on dollar deposits in terms of the
foreign currency is
A) 3 percent.
B) 10 percent.
C) 13.5 percent.
D) 17 percent.
If the yield curve is flat for short maturities and then slopes downward for longer
maturities, the liquidity premium theory (assuming a mild preference for shorter-term
bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and a decline further out in the
future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
When yield curves are steeply upward sloping
A) long-term interest rates are above short-term interest rates.
B) short-term interest rates are above long-term interest rates.
C) short-term interest rates are about the same as long-term interest rates.
D) medium-term interest rates are above both short-term and long-term interest rates.
Futures differ from forwards because they are
A) used to hedge portfolios.
B) used to hedge individual securities.
C) used in both financial and foreign exchange markets.
D) a standardized contract.
Not surprisingly, when financial institutions have consolidated more services under one
roof, the amount of conflicts of interest has ________, which has led to ________ in
unethical behavior.
A) increased; an increase
B) increased; a decrease
C) decreased; an increase
D) decreased; a decrease
Keough plans and IRAs are
A) individual pension plans.
B) government pension plans.
C) corporate pension plans.
D) public pension plans.