Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or
0.10, then the current stock price is
A) $20.
B) $50.
C) $100.
D) $150.
________ within the U.S. can make loans to foreigners but cannot make loans to
domestic residents.
A) Edge Act corporations
B) International Banking Facilities
C) Universal banks
D) Euro banks
If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has total reserves of
A) $16,000.
B) $20,000.
C) $26,000.
D) $36,000.
If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured
using gap analysis) will
A) decline by $0.5 million.
B) decline by $1.5 million.
C) decline by $2.5 million.
D) increase by $1.5 million.
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S.
dollars.
A) 0.02
B) 1.20
C) 7.00
D) 49.0
The process of transforming otherwise illiquid financial assets into marketable capital
market instruments is known as
A) securitization.
B) internationalization.
C) arbitrage.
D) program trading.
Banks that actively manage liabilities will most likely meet a reserve shortfall by
A) calling in loans.
B) borrowing federal funds.
C) selling municipal bonds.
D) seeking new deposits.
When the Federal Reserve purchases a government bond from a primary dealer,
reserves in the banking system ________ and the monetary base ________, everything
else held constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Suppose that the Bank of Japan buys U.S. dollar assets with yen-denominated assets.
Everything else held constant, this transaction will cause ________ in the foreign assets
held by the Federal Reserve and ________ in the U.S. monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Assuming the same coupon rate and maturity length, when the interest rate on a
Treasury Inflation Indexed Security is 3 percent, and the yield on a nonindexed
Treasury bond is 8 percent, the expected rate of inflation is
A) 3 percent.
B) 5 percent.
C) 8 percent.
D) 11 percent.
Compared to checks, paper currency and coins have the major drawbacks that they
A) are easily stolen.
B) are hard to counterfeit.
C) are not the most liquid assets.
D) must be backed by gold.
The regulatory system that has evolved in the United States whereby banks are
regulated at the state level, the national level, or both, is known as a
A) bilateral regulatory system.
B) tiered regulatory system.
C) two-tiered regulatory system.
D) dual banking system.
Everything else held constant, if the sum of the required reserve ratio and the excess
reserve ratio is less than one, a decrease in the currency-deposit ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
Starting in 1974, the conventional M1 money demand function began to
A) severely underpredict the demand for money.
B) severely overpredict the demand for money.
C) predict more precisely the demand for money.
D) do none of the above.
According to the interest parity condition, if the domestic interest rate is 12 percent and
the foreign interest rate is 10 percent, then the expected ________ of the foreign
currency must be ________ percent.
A) appreciation; 4
B) appreciation; 2
C) depreciation; 2
D) depreciation; 4
The principal lender-savers are
A) governments.
B) businesses.
C) households.
D) foreigners.
An increase in interest rates
A) increases the value of the dollar, net exports, and equilibrium output.
B) increases the value of the dollar, reducing net exports and equilibrium output.
C) reduces the value of the dollar, net exports, and equilibrium output.
D) reduces the value of the dollar, increasing net exports and equilibrium output.
A $5 million deposit outflow from a bank has the immediate effect of
A) reducing deposits and reserves by $5 million.
B) reducing deposits and loans by $5 million.
C) reducing deposits and securities by $5 million.
D) reducing deposits and capital by $5 million.
If an individual redeems a U.S. savings bond for currency
A) M1 stays the same and M2 decreases.
B) M1 increases and M2 increases.
C) M1 increases and M2 stays the same.
D) M1 stays the same and M2 stays the same.
U.S. Treasury bills are considered the safest of all money market instruments because
there is a low probability of
A) defeat.
B) default.
C) desertion.
D) demarcation.
Because Treasury bills pay a higher return than money and have no risk
A) the transactions demand for money may be zero.
B) the precautionary demand for money may be zero.
C) the speculative demand for money may be zero.
D) all three of the above motives for holding money will be zero.
A temporary supply shock that raises prices
A) will cause the real interest rate to rise in the long run.
B) has no long-run impact on inflation and output.
C) causes output to fall in the long run.
D) causes inflation to rise in the long run.
The ________ problem of discretionary policy arises because economic behavior is
influenced by what firms and people expect the monetary authorities to do in the future.
A) moral hazard
B) time-inconsistency
C) nominal-anchor
D) rational-expectation
Everything else held constant, an increase in planned investment expenditure ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Reserves are equal to the sum of
A) required reserves and excess reserves.
B) required reserves and vault cash reserves.
C) excess reserves and vault cash reserves.
D) vault cash reserves and total reserves.
If expectations of the future inflation rate are formed solely on the basis of a weighted
average of past inflation rates, then economists would say that expectation formation is
A) irrational.
B) rational.
C) adaptive.
D) reasonable.
Everything else held constant, if a central bank makes an unsterilized purchase of
foreign assets, then the domestic money supply will ________ and the domestic
currency will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar
to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar
has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Coinsurance reduces moral hazard in exactly the same way as
A) limits on insurance.
B) risk-based premiums.
C) deductibles.
D) restrictive provisions.
Which of the following is a TRUE statement?
A) Money and income are flow variables.
B) Money is a flow variable.
C) Income is a flow variable.
D) Money and income are stock variables.
________ are the only depository institutions that are tax-exempt.
A) Commercial banks
B) Savings and loans
C) Mutual savings banks
D) Credit unions