Most often after a merger, bank profits
a. rise.
b. remain constant.
c. drop slightly.
d. fall to zero.
Answer:
If the exchange rate equals the ratio of price indexes in two countries, there is said to be
a. one price fits all.
b. absolute purchasing-power parity.
c. relative purchasing-power parity.
d. interest-rate parity.
Answer:
Which of the following statements is true?
a. The ATM model of money is a generalequilibrium model.
b. The opportunity cost of holding money in the ATM model increases when the
nominal interest rate declines.
c. In a general-equilibrium model, most of the key macroeconomic variables are
exogenous.
d. Normally, results from a general equilibrium model can be applied to a wider range
of problems than the results from a partial-equilibrium model.
Answer:
In the liquidity-preference model, an increase in prices causes
a. both the nominal interest rate and the equilibrium quantity of money to decrease.
b. the nominal interest rate to increase and the equilibrium quantity of money to remain
unchanged.
c. the nominal interest rate to decrease and the equilibrium quantity of money to remain
unchanged.
d. both the nominal interest rate and the equilibrium quantity of money to increase.
Answer:
Which of the following is a possible outcome of a fall in the demand for a security?
a. It will lead to an increase in the price and the yield to maturity of the security.
b. It will lead to an increase in the price of the security and a fall in its yield to maturity.
c. It will lead to a fall in the price of the security and a fall in its yield to maturity.
d. It will lead to a fall in the price of the security and an increase in its yield to maturity.
Answer:
What does a downward-sloping yield curve imply, according to the expectations theory
of the term structure of interest rates?
a. Investors expect long-term interest rates to rise in the future.
b. Investors expect future short-term interest rates to be lower than the current
short-term interest rate.
c. Investors expect future short-term interest rates to be the same as the current
short-term interest rate.
d. Investors expect future short-term interest rates to be higher than the current
short-term interest rate.
Answer:
In the CAPM, the only source of systematic risk is
a. changes in government policy.
b. changes in inflation rates.
c. fluctuations in the foreign exchange rate.
d. overall movement of the stock model.
Answer:
The Fed’s loss function is another name for the Fed’s
a. expense ratio.
b. objective function.
c. inflation gap.
d. output gap.
Answer:
One-hundredth of a percentage point is called a(n)____ point.
a. stock
b. basic
c. basis
d. federal interest
Answer:
The growth rate of output and employment in a country started declining after rising
sharply for three years. In which stage of the business cycle is the country currently
operating?
a. Peak
b. Trough
c. Expansion
d. Depression
Answer:
The cost that firms incur to change prices is referred to as
a. menu costs.
b. inflation tax.
c. pseudo costs.
d. transaction costs.
Answer:
In the United States, the biggest issuers of equity securities are
a. households.
b. business firms.
c. governments.
d. financial intermediaries.
Answer:
Which of the following monetary assets is likely to be least liquid?
a. Coins and currency
b. Travelers checks
c. Funds held in checking accounts
d. Funds held as certificate of deposits
Answer:
If a bank has assets with the same time to maturity as its liabilities, then
a. the interest rate on assets changes faster than the interest rate on liabilities.
b. the interest rate on liabilities changes faster than the interest rate on assets.
c. changes in interest rates will not affect the bank’s overall portfolio.
d. changes in interest rates puts the bank at a high risk of default.
Answer:
If output grew 5.5 percent and labor productivity grew 2 percent during a decade, the
number of hours worked grew by over the year.
a. 3.50 percent.
b. 2.25 percent.
c. 7.50 percent.
d. 1.0 percent.
Answer:
Consider a two-year bond that can be purchased for $550. What is the yield to maturity
on the bond if it promises a payment of $890 in two years?
a. 27.2 percent
b. 20 percent
c. 6 percent
d. 18.1 percent
Answer:
Andy keeps his savings in a certificate of deposit at a bank, Ben keeps his savings
invested in U.S. savings bonds, Beth keeps her savings in the form of liquid cash in her
vault, and Charlie uses his to buy stock on the New York Stock Exchange. Given this
information, who among the following individuals is using indirect finance?
a. Andy
b. Ben
c. Charlie
d. Beth
Answer:
If the ratio of currency to transaction accounts is 2, the ratio of nontransaction accounts
to transaction accounts is 5, the ratio of retail money-market funds to transaction
accounts is 1, the ratio of required reserves to transaction accounts is 0.08, and the ratio
of excess reserves to transaction accounts is 0.02, the M2 multiplier is about
a. 1.43.
b. 2.12.
c. 2.83.
d. 4.25.
Answer:
Which of the following is true of a certificate of deposit?
a. It is sold by large corporations to raise short-term funds.
b. A fall in its demand will lead to an increase in the price of the security and a fall in its
yield to maturity.
c. Higher the term to maturity of a certificate of deposit, higher the yield to maturity.
d. It is not a liquid security and cannot be transferred from one party to another.
Answer:
Money that is created in the private sector, such as checking accounts at banks, is
referred to as:
a. representative money.
b. commodity money.
c. outside money.
d. inside money.
Answer:
Suppose a bank earned $173 million in interest on its assets of $2,153 million, it paid
out $81 million in interest on its liabilities (excluding capital) of $2,007 million, and it
paid its workers $71 million in total compensation. The bank’s spread is approximately
a. 2 percent.
b. 3 percent.
c. 4 percent.
d. 5 percent.
Answer:
When the existence of a contract changes the behavior of a party to the contract, the
problem is called
a. irrational expectations.
b. adverse selection.
c. opportunity cost.
d. moral hazard.
Answer:
Suppose the quantity demanded for a security is
BD= 150 − 1b,
and the quantity supplied of the security is
BS= 50 + 1b,
where bis the price of the security in dollars. Suppose that the supply curve shifts to
BS= 75 + 1b.
The equilibrium quantity of the security
a. rises by 12.5.
b. rises by 2.5.
c. falls by 2.5.
d. falls by 12.5.
Answer:
The directors of a Federal Reserve Bank include
a. three class A directors, who are bankers and are chosen by member banks; three class
B directors, who are business leaders and are also chosen by member banks; and three
class C directors, who are public-interest directors and are chosen by the Board of
Governors.
b. three class A directors, who are bankers and are chosen by member banks; three class
B directors, who are politicians and are also chosen by member banks; and three class C
directors, who are public-interest directors and are chosen by the Board of Governors.
c. three class A directors, who are bankers and are chosen by public voting; three class
B directors, who are politicians and are also chosen by member banks; and three class C
directors, who are public-interest directors and are chosen by the Board of Governors.
d. three class A directors, who are bankers and are chosen by member banks and three
class B directors, who are business leaders and are also chosen by public voting.
Answer:
A security can be sold to an___________ investor.
a. marketable
b. idiosyncratic
c. nonmarketable
d. systematic
Answer:
The Fed undertakes dynamic open-market operations
a. when it wants to change monetary policy.
b. because of seasonal effects.
c. when it wants to change fiscal policy.
d. to offset a temporary change in money demand.
Answer:
The risk that market interest rates may change, affecting the value of a bank’s assets and
liabilities, is known as
a. withdrawal risk.
b. default risk.
c. interest-rate risk.
d. foreign-exchange risk.
Answer:
In the CAPM, if a stock has a beta coefficient near one, then
a. the stock’s return is less volatile than the market’s average return.
b. the stock’s return is about as volatile as the market’s average return.
c. the stock’s return is more volatile than the market’s average return.
d. the stock’s risk is greater than its expected return.
Answer:
The market in which a security is sold from one investor to another is known as
a. the closed market.
b. the primary market.
c. the secondary market.
d. the open market.
Answer:
A stock which was bought for $1,000 pays annual dividends of $250. The first quarter
dividend yield of the stock can be calculated at
a. 1.75 percent.
b. 3 percent.
c. 5.25 percent.
d. 6.25 percent.
Answer:
Consider a coupon bond that pays $100 every year and repays its principal amount of
$1,000 at the end of four years. If the annual rate of discount is 8 percent, the present
value of the bond is
a. $671.01.
b. $1,066.24
c. $1,134.20.
d. $1,250.00.
Answer:
A theory that investors use all the information available to them about companies future
prospects in determining their buying and selling decisions is called _____expectations.
a. rational
b. irrational
c. adaptive
d. realized
Answer: