Reserves equal
A) deposits with the Fed plus holdings of U.S. government securities.
B) currency in circulation plus vault cash.
C) deposits with the Fed plus vault cash.
D) currency outstanding plus currency in circulation.
Answer:
The buyer of a futures contract
A) assumes the short position.
B) has the obligation to deliver the underlying financial instrument at the specified date.
C) has the obligation to receive the underlying financial instrument at the specified
future date.
D) may, at his or her option, deliver or receive the underlying financial instrument at the
specified date.
Answer:
The Federal Reserve System was created in response to
A) the stock market crash of 1929.
B) the ending of the Civil War.
C) the banking panic of 1907.
D) difficulties of the free-banking era.
Answer:
Which of the following things do banks do with the funds they acquire from savers?
A) invest in corporate stock
B) invest in corporate bonds
C) make loans to individuals
D) all of the above
Answer:
In what way is a stronger yen/weaker dollar a burden for Japanese exporters?
A) They received dollars when they sell goods but most of their costs of production are
in yen.
B) They receive yen when they sell goods but most of their costs of production are in
dollars.
C) The price of their exports will decline, resulting in lower profits.
D) The stronger yen is likely to increase Japanese inflation, resulting in lower profits.
Answer:
Suppose $100 buys less in the year 2013 than in 2000. Then we can say that
A) money’s store of value has decreased.
B) money’s store of value has increased.
C) the economy must have been growing rapidly between 2000 and 2013.
D) the economy must have been growing slowly between 2000 and 2013.
Answer:
If the Fed wants to reduce the value of the dollar, it will
A) sell foreign assets and buy dollars.
B) sell dollars and buy foreign assets.
C) buy foreign assets and also buy dollars.
D) sell foreign assets and also sell dollars.
Answer:
The original intent of the Federal Reserve Act of 1913 was to provide the Fed with what
role?
A) regulator of the banking system
B) lender of last resort
C) manage the exchange rate
D) maintain a balanced budget
Answer:
Private information-collection firms fail to eliminate the adverse selection problem
because
A) the law does not allow them to disclose private information about the
creditworthiness of firms.
B) they do not monitor borrowers after loans have been made.
C) some investors who do not pay for their services will still profit from them.
D) most companies refuse to provide them with any information.
Answer:
When bank loan officers screen loan applicants to eliminate potentially bad risks, they
are attempting to mitigate the problem of
A) adverse selection.
B) moral hazard.
C) interest rate risk.
D) illiquidity.
Answer:
In managing its liabilities to deal with liquidity problems, banks trade off
A) credit risk against interest rate risk.
B) adverse selection against moral hazard.
C) the need for available funds to meet deposit outflows against the desire for greater
profit.
D) present tax liabilities against future tax liabilities.
Answer:
Generally, when there is asymmetric information
A) a lender will only lend to the government.
B) a lender will only lend to well-known borrowers.
C) practical solutions are devised to allow lending to take place.
D) a lender will cease all lending activities.
Answer:
In 2011, the net financial account balance was approximately
A) $790 billion.
B) -$790 billion.
C) $394 billion.
D) -$394 billion.
Answer:
If you have a checking account at First National Bank, the account is
A) an asset to both you and First National.
B) a liability to both you and First National.
C) an asset to First National and a liability to you.
D) an asset to you and a liability to First National.
Answer:
Which of the following is NOT a characteristic of competitive markets?
A) standardized product
B) purchases and sales of individual traders are small relative to the total volume traded
C) prices adjust quickly
D) there are relatively few sellers
Answer:
According to the Gordon-Growth model, what is the value of a stock with a dividend of
$2, required return on equity of 8% and expected growth rate of dividends of 4%?
A) $25
B) $26
C) $50
D) $52
Answer:
When output exceeds its full-employment level,
A) the short-run aggregate supply function shifts up.
B) wages fall.
C) the short-run aggregate supply function shifts down.
D) aggregate supply exceeds aggregate demand.
Answer:
Rational expectations involve the assumption that
A) market participants make use only of information on the past performance of an
asset in determining what they believe its price should be.
B) market participants rarely change their minds about the correct price of an asset.
C) financial markets are good at increasing liquidity, but poor at transmitting
information.
D) market participants makes use of all available information.
Answer:
Research by Reinhart and Rogoff indicate that most of the increase in national debt as a
result of a financial crisis is due to
A) government bail outs of financial institutions.
B) increase spending on social welfare programs.
C) government stimulus programs.
D) sharp declines in tax revenues.
Answer:
In July 2010, what was the total value of U.S. currency in circulation?
A) $500 million
B) $150 billion
C) $1080 billion
D) $6 trillion
Answer:
If the forward exchange rate of the yen in terms of dollars is greater than the spot
exchange rate,
A) Japanese interest rates must be higher than U.S. interest rates.
B) U.S. interest rates must be higher than Japanese interest rates.
C) market participants must be expecting the dollar to appreciate against the yen.
D) market participants must be expecting the dollar to depreciate against the yen.
Answer:
In what year did the United States go off the gold standard?
A) 1933
B) 1945
C) 1981
D) 2001
Answer:
Which of the following represents the equation that would be used to determine the
yield to maturity of a three-year fixed payment loan of $1400 which has payments of
$500 per year?
A) $1400 = $500/(1+i) + $500/(1+i)2 + $500/(1+i)3
B) $1400 = $500/(1+i)3
C) i = (1400-500)/1400
D) $1400 = $500/(1+i) + $500/(1+i)2 + $500(1+i)3 + 1400/(1+i)3
Answer:
Owners of small firms in countries with weak banking systems have to rely on funds
from all of the following EXCEPT:
A) their own savings
B) local lenders who charge high interest rates
C) global investors
D) the savings of relatives and friends
Answer:
Crowd funding can best be described as:
A) raising funds in a very large market
B) raising small amounts of money from large numbers of people
C) many firms competing for the same source of funds
D) making funds available for a large number of business start ups
Answer:
When the Fed allows the monetary base to respond to the purchase or sale of domestic
currency in the foreign exchange market, the process is called
A) open market operations.
B) hedging.
C) sterilized intervention.
D) unsterilized intervention.
Answer:
Under the liquidity premium theory the shape of the yield curve depends on
A) the relative return of investments in common stocks versus investments in corporate
bonds.
B) the size of the federal government’s budget deficit.
C) government tax treatment of long-term versus short-term bonds.
D) the expected pattern of future short-term rates and the size of the term premium at
each maturity.
Answer:
Options traded on exchanges are known as:
A) listed options
B) exchange traded options
C) call options
D) put options
Answer:
If the U.S. current account balance is negative,
A) its financial account is likely to be positive.
B) its financial account is likely to be negative
C) it must use official settlements to balance its payments.
D) its balance of payments cannot be zero
Answer:
The use of deductibles and coinsurance are examples of attempts by insurance
companies to deal with the problem of
A) moral hazard.
B) adverse selection.
C) failure of policyholders to keep paying their premiums.
D) excessive government regulation.
Answer:
Which of the following does NOT represent a way in which financial intermediaries
take advantage of economies of scale?
A) paying lower brokerage fees per dollar invested
B) paying lower legal fees per dollar invested
C) purchasing sophisticated computer systems
D) paying lower taxes per dollar invested
Answer:
Which of the following assets had both the lowest average annual return and lowest risk
between 1926 and 2011?
A) small company stocks
B) large company stocks
C) long-term corporate bonds
D) U.S. Treasury bills
Answer:
Banks face liquidity risk because
A) they can have difficulty meeting their depositor’s demands to withdraw money.
B) they are unable to borrow from the Federal Reserve.
C) households and businesses may seek to borrow a large amount of funds in a short
period of time.
D) governments tend to run high budget deficits.
Answer:
What are the roles of Federal Reserve district banks?
Answer:
What are three reasons that employees may prefer to save through pensions provided by
employers rather than through savings accounts?
Answer:
How does a sterilized intervention by the Fed in foreign exchange market differ from an
unsterilized intervention?
Answer:
Suppose 3M pays a dividend of $2 per share which the investor is expected to receive
immediately. The dividend is expected to grow by 5% per year and the investor has a
required rate of return of 8%. What should be the current price of the stock according to
the Gordon-Growth model?
Answer:
Why is the short-term nominal interest rate the opportunity cost of holding money?
Answer:
Make use of the quantity equation to answer the following problem. If the Fed increases
the money supply by 6%, economic growth is 2%, and inflation is 2%, what is
happening to the velocity of money? Be specific.
Answer:
Throughout most of the post-World War II period, the use of capital controls by
governments around the world was declining. But in the late 1990s, a number of
governments expressed renewed interest in capital controls. What accounts for this
renewed interest?
Answer:
Why does the payments system continue to change over time?
Answer:
A corporation issues a three year bond with a coupon of $50 and a face value of $1000.
Immediately after being issued, market interest rates decline to 4%. What is the price of
the bond? Report your answer to the nearest dollar.
Answer:
What steps can a bank take to deal with a significant outflow of deposits?
Answer:
How does moral hazard contribute to high bank leverage?
Answer:
Explain what happens to the short-run aggregate supply curve when output exceeds its
potential.
Answer:
How are the operations of the Federal Reserve financed?
Answer:
In 2010, fears were growing that the dollar would experience a significant decline in
value. What are the likely implications for the euro-dollar exchange rate?
Answer:
Suppose you are risk loving and you are deciding between two investments. One has a
guaranteed return of 5% while the second has a 50% chance of a 10% return and a 50%
chance of a 0% return. Which investment would you choose? Why?
Answer: