Special Drawing Rights
A) are granted by the Fed to banks which want to trade in the foreign exchange
markets.
B) were eliminated when the Bretton Woods system broke down.
C) are created by the IMF in its role as lender of last resort.
D) were created by the Nixon administration on August 15, 1971.
Answer:
If a central bank wishes to raise the foreign-exchange value of its currency, it will
A) buy domestic currency and sell foreign assets.
B) sell domestic currency and buy foreign assets.
C) attempt to reduce domestic interest rates.
D) attempt to raise the domestic price level relative to foreign price levels.
Answer:
The term structure of interest rates
A) represents the relationship among the interest rates on bonds that are otherwise
similar but that have different maturities.
B) reflects differing tax treatment received by different instruments.
C) always results in an upward-sloping yield curve.
D) usually results in a downward-sloping yield curve.
Answer:
The role of the Commodity Futures Trading Commission is to
A) set the prices of futures contracts.
B) operate the Chicago Mercantile Exchange.
C) operate the Chicago Board of Trade.
D) monitor potential price manipulation in futures trading.
Answer:
How does the use of adjustable-rate mortgages affect interest-rate risk?
A) It reduces the interest-rate risk of lenders.
B) It reduces the interest-rte risk of borrowers.
C) It reduces the interest-rate risk of both lenders and borrowers.
D) It increases the interest-rate risk of both lenders and borrowers.
Answer:
Which of the following countries had an unemployment rate in excess of 20% as of late
2012?
A) Ireland
B) Spain
C) Portugal
D) Italy
Answer:
Which of the following is the most likely explanation of Japan’s very low market
interest rates in the early 2000s?
A) expected deflation
B) an increasing budget deficit
C) an increasing trade surplus
D) an increase in corporate profits
Answer:
A sale of foreign assets by a central bank has the same effect on the monetary base as
A) a decrease in the discount rate.
B) a decrease in the required reserve ratio.
C) an open market sale of government bonds.
D) an open market purchase of government bonds.
Answer:
Which of the following is when an investment bank purchases securities outright in
case it misjudged the state of the market and it may have to sell the securities at a lower
price than what was guaranteed?
A) credit risk
B) liquidity risk
C) principal risk
D) default risk
Answer:
A rise in the real interest rate will cause which of the components of aggregate demand
to decline?
A) Only C
B) Only C and I
C) Only C, I, and NX
D) C, I, G, and NX
Answer:
When economists say consumers, firms, or investors are behaving rationally, they
mean:
A) they recognize that it is not worthwhile to invest in risky stocks
B) they are taking actions to reach their goals, given the available information
C) they have significant investment expertise
D) they are consistently able to avoid poor performing stocks
Answer:
The presence of transactions costs and information costs
A) lowers the cost of funds to borrowers.
B) raises the expected return to lenders.
C) lowers the expected return to lenders.
D) increases the efficiency of the financial system.
Answer:
Sovereign debt refers to
A) debt owned by the government.
B) bonds issued by the government.
C) debt owed to the government.
D) debt only issued by nations with kings or queens.
Answer:
If the value of bank’s loans declines, what is the corresponding reduction in a liability
entry that the bank makes?
A) Deposits are reduced by the amount of the decline in the value of the loan.
B) Borrowings are reduced by the amount of the decline in the value of the loan.
C) Net worth is reduced by the amount of the decline in the value of the loan.
D) Cash items in the process of collection are reduced by the amount of the decline in
the value of the loan.
Answer:
Which of the following statements about junk bonds is false?
A) Given the likelihood of default, it is never profitable to purchase junk bonds.
B) They pay higher interest rates than investment grade bonds due to higher perceived
risk.
C) Prior to the 1970s, corporations were unable to issue junk bonds.
D) A popular measure of junk bond yields reached a record low in 2012.
Answer:
The creation of a lender of last resort in the United States
A) occurred in response to banking panics.
B) was mandated in the U.S. Constitution.
C) occurred in response to the S&L crisis of the 1980s.
D) has been recommended by the Treasury in its report of late 1992.
Answer:
All of the following help make the Fed independent of the political process EXCEPT
A) financial independence.
B) chair of Fed receives a lifetime appointment.
C) Board members receive a long, nonrenewable appointment.
D) Board members’ terms expire at different times, reducing the possible number of
appointees by any one president.
Answer:
According to the efficient markets hypothesis, who is most likely to benefit from
frequently moving funds from one asset to another?
A) your broker
B) small investors
C) big investors
D) only those who consistently beat the market
Answer:
How many Federal Reserve districts are there?
A) 1
B) 2
C) 12
D) 50
Answer:
The benchmark default-free interest rate of the financial system is generally considered
to be:
A) the federal funds rate
B) the interest rate on the 10-year Treasury note
C) the discount rate
D) the 30-year fixed rate mortgage
Answer:
Suppose that your marginal federal income tax rate is 30%, the sum of your marginal
state and local tax rates is 5%, and the yield on thirty-year U.S. Treasury bonds is 10%.
You would be indifferent between buying a thirty-year Treasury bond and buying a
thirty-year municipal bond issued within your state (ignoring differences in liquidity,
risk, and costs of information) if the municipal bond has a yield of
A) 5%.
B) 0%.
C) 5%.
D) 0%.
Answer:
Which of the following statements is correct?
A) Dynamic open market operations are carried out to offset fluctuations in the
monetary base.
B) Defensive open market operations are carried out to change monetary policy.
C) The volume of defensive open market operations is much greater than the volume of
dynamic open market operations.
D) Defensive open market operations are usually carried out through outright purchases
or sales.
Answer:
Federal funds are
A) the tax revenues of the Federal government.
B) loans by the Federal Reserve to banks.
C) loans by banks to the Federal Reserve.
D) short-term loans between banks.
Answer:
A substantial appreciation of the U.S. dollar will likely result in, all else equal,
A) lower demand for U.S. products and layoffs of U.S. workers.
B) increased demand for U.S. products and increased employment of U.S. workers.
C) lower foreign currency prices of U.S. products in foreign countries.
D) higher U.S. dollar prices of foreign products in the United States.
Answer:
Which of the following is most likely to have an impact on the growth of productivity?
A) a decrease in the price level
B) a decrease in real money balances
C) an increase in the labor supply
D) improvements in worker training
Answer:
If the Fed sterilizes the purchase of foreign assets,
A) the monetary base is left unchanged.
B) the monetary base rises by the amount of the purchase.
C) the monetary base falls by the amount of the purchase.
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of
domestic interest rates to the purchase.
Answer:
The supply curve for loanable funds would decline due to
A) an increase in wealth.
B) an increase in the expected return on bonds.
C) an increase in expected inflation.
D) a decrease in the riskiness of bonds relative to other assets.
Answer:
Why didn’t the surge in the monetary base between 2008-2012 lead to a similar surge in
the money supply?
A) The currency-deposit ratio rose significantly, resulting in a much smaller money
multiplier.
B) The excess reserve-deposit ratio rose significantly, resulting in a much smaller
money multiplier.
C) The Fed increase the required reserve ratio, resulting in a much smaller money
multiplier.
D) Nonborrowed reserves declined, offsetting the increase in the monetary base.
Answer:
If market participants have rational expectations, then the best forecast of the price of a
stock in the next period is
A) equal to an average of the prices of the stock in previous periods.
B) equal to the price of the stock in the current period.
C) dependent upon all information available in the current period, including, but not
limited to, the price of the stock in the current period.
D) dependent on information available in the previous period.
Answer:
AIG almost went bankrupt in 2008 because
A) the value of the securities underlying its credit default swaps declined significantly.
B) it lacked the collateral required by buyers of its credit default swaps.
C) prices of securities underlying their credit default swaps were hard to determine
since they were no longer actively traded.
D) all of the above.
Answer:
The theory of purchasing power parity assumes that
A) movements in nominal exchange rates are the result of movements in relative price
levels.
B) real exchange rates are volatile.
C) movements in nominal exchange rates are the result of movements in real exchange
rates.
D) inflation rates are roughly the same in most countries.
Answer:
Using statistical models to estimate the maximum losses a portfolio’s value is likely to
sustain over a particular time period is called:
A) gap analysis
B) duration analysis
C) value-at-risk approach
D) credit-risk analysis
Answer: