1) ________ bonds combine stocks into one fund.
A) Hybrid
B) Money market
C) Municipal
D) Equity
2) Members of the Board of Governors are
A) chosen by the Federal Reserve Bank presidents
B) appointed by the newly elected president of the United States, as are cabinet
positions
C) appointed by the president of the United States and confirmed by the Senate as
members resign
D) never allowed to serve more than seven-year terms
3) The primary difference between the “payoff” and the “purchase and assumption”
methods of handling failed banks is that the FDIC
A) guarantees all deposits, not just those under the $250,000 limit, when it uses the
“payoff” method
B) guarantees all deposits, not just those under the $250,000 limit, when it uses the
“purchase and assumption” method
C) is more likely to use the “payoff” method when the bank is large and it fears that
depositor losses may spur business bankruptcies and other bank failures
D) does both A and B of the above
E) does both B and C of the above
4) Factors that can cause the supply curve for bonds to shift to the left include
A) an expansion in overall economic activity
B) a decrease in expected inflation
C) an increase in government deficits
D) only A and C of the above
5) When the domestic nominal interest rate rises because of an increase in expected
inflation, the expected appreciation of the dollar declines, ________ shifts out more
than ________, and the exchange rate declines.
A) RF; RD
B) RF; RF
C) RD; RD
D) RD; RF
6) ________ companies get a tax advantage; most new insurance companies organize as
________ companies.
A) Mutual insurance; mutual insurance
B) Mutual insurance; stock
C) Stock; stock
D) Stock; mutual insurance
7) According to the market segmentation theory of the term structure,
A) the interest rate for bonds of one maturity is determined by the supply and demand
for bonds of that maturity
B) bonds of one maturity are not substitutes for bonds of other maturities; therefore,
interest rates on bonds of different maturities do not move together over time
C) investors’ strong preference for short-term relative to long-term bonds explains why
yield curves typically slope upward
D) all of the above
E) none of the above
8) Savings banks
A) were first established in Scotland and England
B) were established to encourage saving by the poor
C) were very conservative with their funds, placing most of them in commercial banks
D) are all of the above
E) are only A and B of the above
9) Which of the following are important ways in which mortgage markets differ from
stock and bond markets?
A) The usual borrowers in capital markets are government entities, whereas the usual
borrowers in mortgage markets are small businesses
B) The usual borrowers in capital markets are government entities and large businesses,
whereas the usual borrowers in mortgage markets are small businesses
C) The usual borrowers in capital markets are government entities and large businesses,
whereas the usual borrowers in mortgage markets are small businesses and individuals
D) The usual borrowers in capital markets are businesses and government entities,
whereas the usual borrowers in mortgage markets are individuals
10) Privatization of Social Security
A) would transform the program from an unfunded pay-as-you-go system to a fully
funded pension plan
B) would mean that workers’ current contributions to Social Security would no longer
be available to pay benefits to current retirees
C) receives less public support when the stock market declines
D) all of the above
E) none of the above
11) The largest full-service broker is ________.
A) Bank of America Merrill Lynch
B) Charles Schwab Corp.
C) Ameritrade
D) Smith Barney
12) The subprime financial crisis led to one of the worst bear markets in the last 50
years. Stock prices likely fell due to
A) an increase in required returns on equity investments
B) a decline in growth prospects for U.S. companies
C) Both A and B are likely reasons
D) None of the above are correct
13) Financial crises
A) are major disruptions in financial markets that are characterized by sharp declines in
asset prices and the failures of many financial and nonfinancial firms
B) occur when adverse selection and moral hazard problems in financial markets
become more significant
C) frequently lead to sharp contractions in economic activity
D) are all of the above
E) are only A and B of the above
14) Which of the following is a contractual savings institution?
A) A life insurance company
B) A credit union
C) A savings and loan association
D) A mutual fund