In a put options contract, the
A) seller has the obligation to receive the instrument at a specified time.
B) buyer has the obligation to deliver the instrument at a specified time.
C) buyer has the obligation to receive the instrument at a specified time.
D) seller has the obligation to deliver the instrument at a specified time.
Answer:
Forward transactions
A) allow savers and borrowers to conduct a transaction now and settle in the future.
B) allow savers and borrowers to postpone a transaction from now to the future.
C) always involve increased risk compared with spot transactions.
D) may not be conducted on organized exchanges.
Answer:
An investor will generally find that hiring an investment firm to actively manage his or
her portfolio will
A) result in a higher return than would be received from an index mutual fund.
B) be less expensive than simply placing money in an index mutual fund.
C) result in a higher return, but will be more expensive than placing money in an index
mutual fund.
D) result in about the same return, but be more expensive than placing money in an
index mutual fund.
Answer:
The process by which simultaneous withdrawals by a particular bank’s depositors
results in the bank closing is known as a
A) contagion.
B) bank run.
C) financial crisis.
D) bank panic.
Answer:
Which of the following appears to be evidence against the public interest view of the
Fed’s motivation?
A) The conflict with the Treasury over interest rate fixing during World War II.
B) The failure of the Fed to emphasize the goal of price stability.
C) The unwillingness of the Fed to turn over its excess profits to the Treasury.
D) The independence of Fed chairmen from the authority of the President.
Answer:
What action did many Japanese car manufacturers take in response to the stronger yen
following the 2007-2009 financial crisis?
A) They only accepted payments in the form of yen.
B) They chose to target China as the primary market for exports.
C) They abandoned the market in the United States.
D) They moved their production to the United States.
Answer:
Which of the following is NOT a financial asset?
A) a bond issued by Google
B) Wells Fargo Bank
C) a home mortgage loan
D) a certificate of deposit
Answer:
If banks hold no excess reserves, checkable deposits total $1.5 billion, currency totals
$400 million, and the required reserve ratio is 10%, then the monetary base equals
A) $550 million.
B) $1.54 billion.
C) $1.9 billion
D) $15 billion.
Answer:
Evidence indicates that there’s a strong relationship between money and inflation in:
A) both the short and long run
B) neither the short nor the long run
C) short run, but not the long run
D) long run, but not the short run
Answer:
The term structure is usually defined with yields on which securities?
A) corporate bonds
B) commercial paper
C) U.S. Treasury securities
D) municipal bonds
Answer:
Finance companies
A) issue stock and use the proceeds to purchase bonds.
B) raise funds in financial markets to lend to households and firms.
C) raise funds from banks to lend to households and firms.
D) issue bonds and use the proceeds to purchase stock.
Answer:
Disintermediation refers to the
A) failure of financial intermediaries due to moral hazard problems.
B) failure of financial intermediaries due to adverse selection problems.
C) movement of savers and borrowers from banks to financial markets.
D) removal of government regulations of financial intermediaries.
Answer:
According to the theory of purchasing power parity, whenever a country’s price level is
expected to fall relative to another country’s price level,
A) its currency’s real exchange rate relative to the other country’s currency should rise.
B) its currency should depreciate relative to the other country’s currency.
C) its currency should appreciate relative to the other country’s currency.
D) its nominal interest rate should rise relative to the other country’s nominal interest
rate.
Answer:
If the government increases taxes while holding expenditures constant,
A) the bond supply curve will shift to the left and the equilibrium interest rate will fall.
B) the bond supply curve will shift to the right and the real interest rate will fall.
C) government borrowing will be increased.
D) the government’s deficit will increase.
Answer:
What does it mean for an investment bank conducts a “road show”?
A) It involves an investment bank marketing its services to firms considering new
issues.
B) It is when an investment bank goes to the SEC to seek approval for a new issue.
C) It is when firms seeking an underwriter consider alternative investment banks.
D) It involves visits to institutional investors who might want to buy the security issue.
Answer:
During the early 1930s, the Fed was reluctant to rescue nonsolvent banks out of fear of
encouraging:
A) moral hazard
B) adverse selection
C) bank run
D) sovereign debt crisis
Answer:
Charging drivers with good records lower premiums than drivers with bad records is an
example of an attempt by insurance companies to deal with the problem of
A) moral hazard.
B) adverse selection.
C) drunk driving.
D) failure of policyholders to keep paying their premiums.
Answer:
Many savers are willing to accept a lower interest rate on municipal bonds than on
comparable instruments because
A) the after-tax yield on municipal bonds is greater.
B) municipal bonds invariably have lower default risk.
C) municipal bonds are more liquid than most other instruments.
D) the yield on municipal bonds is considered inflation proof.
Answer:
Banks have a maturity mismatch since
A) they borrow long term, but lend short term.
B) they borrow short term, but lend long term.
C) some of their loans are short term while others are long term.
D) some of their borrowings are short term while others are long term.
Answer:
Which of the following is NOT included in aggregate demand?
A) Demand for goods and services for consumption
B) Investment in business plant and equipment
C) Net exports
D) Investment in Treasury bonds
Answer:
During the financial crisis of 2007-2009,
A) mortgage-backed securities became more liquid.
B) information costs of mortgage-backed securities rose.
C) information costs of mortgage-backed securities declined.
D) the tax treatment of mortgage-backed securities was changed.
Answer:
By reducing transactions and information costs, financial intermediaries can
A) offer savers higher interest rates.
B) offer borrowers lower interest rates.
C) earn a profit.
D) all of the above.
Answer:
A bank panic occurs when
A) a bank is worried that its loans will not be repaid.
B) an individual bank cannot meet its reserve requirements.
C) a bank lacks sufficient funds with which to make loans.
D) the situation in which many banks experience a bank run simultaneously.
Answer:
Monetary policy can have substantial effects on the economy even when nominal
interest rates are very low
A) since real rates are what affects borrowing and spending decisions.
B) by improving borrower and bank balance sheets.
C) by reducing transactions costs.
D) only when the policy is substantial.
Answer:
Nominal interest rates are higher than real interest rates as long as
A) expected inflation is positive.
B) the government taxes interest income.
C) inflation is expected to decline in the future.
D) long-term interest rates are higher than short-term interest rates.
Answer:
A bond that is generally agreed to have higher default risk will experience all of the
following EXCEPT:
A) declining demand
B) declining supply
C) higher yield
D) lower price
Answer:
Which of the following would NOT cause a shift in the IS curve?
A) an increase in the domestic real interest rate
B) an increase in consumer confidence
C) a decrease in the expected future profitability of capital
D) a decrease in government purchases
Answer:
If the expected path of interest rates on one-year bonds over the next five years is 2%,
4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest
interest rate today is the one with a maturity of
A) one year.
B) two years.
C) three years.
D) five years.
Answer:
A tariff is a
A) limit on the volume of foreign goods that can be brought into the country.
B) tax on goods purchased from other countries.
C) tax on goods exported to other countries.
D) subsidy by governments to firms that produce goods for export to other countries.
Answer:
Stabilization policy refers to attempts to
A) shift the AD curve to smooth short-run fluctuations in output.
B) shift the SRAS curve to smooth short-run fluctuations in output.
C) shift the AD curve to keep the price level as low as possible.
D) shift the SRAS curve to keep the nominal interest rate as low as possible.
Answer:
Modern hedge funds typically make investments that involve
A) hedging.
B) speculating.
C) acquiring safe, short-term assets.
D) focus on stocks instead of bonds.
Answer: