Forward contracts
(a) are highly liquid.
(b) entail small information costs.
(c) provide little risk sharing.
(d) are subject to default risk.
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:
The risk premium
(a) is slightly higher on U.S. Treasury securities than on the bonds of large corporations.
(b) is not subject to federal income tax.
(c) compensates savers both for default risk and for illiquidity of assets.
(d) falls whenever illiquidity rises.
Answer:
All of the following are part of Euronext (an integrated European stock exchange)
except
(a) Paris Bourne.
(b) London Exchange.
(c) Amsterdam Exchange.
(d) Brussels Exchange.
Answer:
The financial system accounts for about what fraction of the U.S. economy’s value
added (GDP)?
(a) 2%
(b) 22%
(c) 42%
(d) 72%
Answer:
In which of the following financial assets did U.S. households have the most invested in
2003?
(a) U.S. government securities
(b) Corporate bonds
(c) Corporate equities
(d) State and local government securities
Answer:
A matched sale-purchase transaction is also known as a
(a) reverse repo.
(b) discount loan.
(c) put option.
(d) federal funds loan.
Answer:
During the early 1980s regulators kept many insolvent or nearly insolvent thrifts from
being closed by
(a) underestimating the value of goodwill that thrifts carried on their books as an asset.
(b) allowing many assets to be carried on the books at face value rather than market
value.
(c) reducing the face value of many mortgages to current market value.
(d) allowing them to pay interest rates to depositors that were below the going market
rates.
Answer:
If Pe is the expectation of an asset’s price forecast and Pf is the optimal forecast of the
asset’s price, then if market participants have rational expectations
(a) Pe > Pf.
(b) Pe < Pf.
(c) Pe= Pf.
(d) There is no necessary relationship between Pe and Pf.
Answer:
Which of the following is a likely causative factor in the movement of M1 velocity
during the 1980s?
(a) Movements in interest rates
(b) Exchange rate fluctuations
(c) Changes in marginal tax rates
(d) Political instability in Eastern Europe
Answer:
When economists refer to the role of money as a unit of account, they mean that
(a) most accounting systems reflect that goods are purchased with currency.
(b) most accounting systems reflect that goods are purchased with checks.
(c) money gives traders a way of measuring value in the economy.
(d) money makes it possible for specialization to take place.
Answer:
Members of the ERM
(a) agreed to buy and sell gold at a fixed rate.
(b) promised to maintain the values of their currencies within a fixed range.
(c) attempted to maintain a fixed exchange rate against the dollar.
(d) all agreed to charge the same interest rate on central bank loans.
Answer:
The key to present value calculations is that they
(a) allow easy comparison of taxable and non-taxable investments.
(b) provide a common unit for measuring funds at different times.
(c) provide accurate answers only in a low-inflation environment.
(d) provide accurate answers only in a high-inflation environment.
Answer:
When output is below its full-employment level, the short-run aggregate supply will
shift down and to the right because
(a) the expected price level will be below the actual price level.
(b) workers’ wages will decline.
(c) prices of nonlabor inputs will rise.
(d) workers’ wages will rise.
Answer:
Who were the chief foes of the attempt to establish a national banking system in the
early nineteenth century?
(a) Manufacturers located in big cities
(b) Shipping companies located in big cities
(c) Financial interest located in big cities
(d) Agricultural and rural interests
Answer:
The effect of evolving financial market regulation has been to
(a) make financial institutions in various countries significantly different.
(b) make financial institutions in various countries more similar.
(c) increase interest rate differentials across countries.
(d) make international capital flows more difficult.
Answer:
Under a barter system
(a) each good has many prices.
(b) each good has a single price.
(c) no prices for goods exist.
(d) prices for goods are very stable.
Answer:
Which of the following is NOT a significant cost that a barter system imposes on an
economy?
(a) Many prices must be maintained for each good.
(b) Only agricultural goods may be traded.
(c) Specialization of labor is hindered.
(d) The costs arising from the problem of finding two people who each want what the
other produces.
Answer:
The activities of a U.S. bank holding company that owns a controlling interest in a
foreign financial services company are governed by
(a) the Securities and Exchange Commission.
(b) the Office of the Comptroller of the Currency.
(c) Federal Reserve Regulation K.
(d) Federal Reserve Regulation Q.
Answer:
The first stage in the regulatory process is
(a) a banking crisis.
(b) response by the financial system.
(c) regulation.
(d) regulatory response.
Answer:
The law of one price does not hold for
(a) agricultural goods.
(b) tradeable goods.
(c) differentiated goods.
(d) goods whose production causes pollution.
Answer:
Forward transactions would be useful to
(a) a government wanting to know the size of its future debt.
(b) a household wanting to reduce its future tax liability.
(c) a business wanting to know the cost of its funds on future loans.
(d) a business wanting to expand its operations in overseas markets.
Answer:
The futures price
(a) reflects traders’ expectations of the spot price on the day of delivery.
(b) is always above the spot price on the day of delivery.
(c) is always below the spot price on the day of delivery.
(d) is always equal to the spot price at every point in time.
Answer:
What is the international transaction currency?
(a) During any period, the currency of choice in settling international transactions
(b) Currently, a weighted combination of the dollar, pound, yen, and euro
(c) The gold coins of any country
(d) A special currency issued by the International Monetary Fund for use in settling
international transactions
Answer:
If Americans develop a taste for Canadian maple syrup, the likely result is
(a) the value of the Canadian dollar will rise relative to the value of the U.S. dollar.
(b) the value of the Canadian dollar will fall relative to the value of the U.S. dollar.
(c) the price of Canadian maple syrup will fall when measured in Canadian dollars.
(d) neither the price of Canadian maple syrup nor the value of the Canadian dollar will
be affected.
Answer:
The intrinsic value of an option
(a) is equal to the option premium.
(b) is the amount the option actually is worth if it is immediately exercised.
(c) is the amount the option is expected to be worth on its expiration date.
(d) is impossible to determine in the absence of information on the future prices of the
underlying asset.
Answer:
If the returns on two assets are perfectly positively correlated, adding the second asset
to your portfolio when you already own the first
(a) reduces the risk in the portfolio.
(b) increases the risk in the portfolio.
(c) has no effect on the risk in the portfolio.
(d) reduces the risk in the portfolio only if you are risk averse.
Answer:
In the early 1980s, when a recession raised concern about corporations’ ability to repay
debt there was a dramatic increase in
(a) the yield on medium-quality corporate bonds relative to the yield on long-term
Treasury securities.
(b) the yield on long-term Treasury securities relative to the yield on medium-quality
corporate bonds.
(c) the yield on 6-month T-Bills relative to the yield on long-term Treasury securities.
(d) the yield on interest-earning checking deposits in commercial banks relative to the
yield on
6-month T-Bills.
Answer:
At an interest rate of 5%, what is the present value of $5000 to be received five years
from now?
(a) $3918
(b) $4762
(c) $5000
(d) $12,763
Answer:
The growth in self-directed retirement accounts (such as IRAs and 401(k) plans)
(a) caused a decline in the total assets of mutual funds.
(b) helped increase the growth in mutual funds.
(c) led to a decline in stock prices relative to bond prices.
(d) went almost entirely unregulated by the federal government.
Answer:
The distinguishing feature of a well-functioning financial market is the
(a) continual increase in the liquidity of most assets.
(b) continual reduction in the riskiness of most assets.
(c) increased ease of converting common stocks into bonds.
(d) incorporation of available information into asset prices.
Answer:
Which of the following statements about checkable deposits is correct?
(a) Checkable deposits are a larger fraction of banks’ funds today than in
(b) Checkable deposits are a smaller fraction of banks’ funds today than in
(c) All checkable deposits pay interest.
(d) No checkable deposits pay interest.
Answer:
Whom did President Jimmy Carter appoint chair of the Board of Governors of the Fed
in order to convince the public about his anti-inflation resolve?
(a) Alan Greenspan
(b) Milton Friedman
(c) Paul Volcker
(d) Arthur Burns
Answer:
In the long run, one-time increases or decreases in the nominal money supply affect
(a) real output, but not the price level.
(b) the price level, but not real output.
(c) both real output and the price level.
(d) neither real output nor the price level.
Answer: