What makes the Federal Reserve so unique compared to other central banks around the
world is its
A) centralized structure.
B) decentralized structure.
C) regulatory functions.
D) monetary policy functions.
Aggregate output and the interest rate are ________ related to government spending
and are ________ related to taxes.
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively
Members of Congress are able to influence monetary policy, albeit indirectly, through
their ability to
A) withhold appropriations from the Board of Governors.
B) withhold appropriations from the Federal Open Market Committee.
C) propose legislation that would force the Fed to submit budget requests to Congress,
as must other government agencies.
D) instruct the General Accounting Office to audit the foreign exchange market
functions of the Federal Reserve.
In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent
and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________
percent.
A) 5; 15
B) 4; 11.5
C) 4; 18
D) 5; 10
As a source of funds for nonfinancial businesses, stocks are relatively more important
in
A) the United States.
B) Germany.
C) Japan.
D) Canada.
Of the following, which would be the last choice for a bank facing a reserve deficiency?
A) Call in loans.
B) Borrow from the Fed.
C) Sell securities.
D) Borrow from other banks.
Which of the following would NOT be a way to increase the return on equity?
A) Buy back bank stock.
B) Pay higher dividends.
C) Acquire new funds by selling negotiable CDs and increase assets with them.
D) Sell more bank stock.
During the years 1979 to 1982, the Federal Reserve’s announced policy was monetary
targeting. During this time period the Federal Reserve
A) hit all of their monetary targets.
B) did not hit any of their monetary targets because it is believed that controlling the
money supply was not the intent of the Federal Reserve.
C) did not hit any of their monetary targets because they were unrealistic.
D) hit about half of their monetary targets.
Banks will be examined at least once a year and given a CAMELS rating by examiners.
The L stands for
A) liabilities.
B) liquidity.
C) loans.
D) leverage.
To calculate the growth rate of a variable, you will
A) calculate the percentage change from one time period to the next.
B) calculate the difference between the two variables.
C) add the ending value to the beginning value.
D) divide the increase by the number of time periods.
The dollar amount of the yearly coupon payment expressed as a percentage of the face
value of the bond is called the bond’s
A) coupon rate.
B) maturity rate.
C) face value rate.
D) payment rate.
With the policy rate set at zero, the rise in expected inflation will lead to a ________ in
the real interest
rate, which will cause investment spending and aggregate output to ________.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
Like the dual banking system for commercial banks, thrifts can have either ________ or
________ charters.
A) state; federal
B) state; local
C) local; federal
D) municipal; federal
Every financial market has the following characteristic.
A) It determines the level of interest rates.
B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.
The ________ is below the coupon rate when the bond price is ________ its par value.
A) yield to maturity; above
B) yield to maturity; below
C) discount rate; above
D) discount rate; below
If the consumption function is C = 20 + 0.5YD, then an increase in disposable income
by $100 will result in an increase in consumer expenditure by
A) $25.
B) $70.
C) $50.
D) $100.
At the time of the South Korean financial crisis, the government allowed many chaebol
owned finance companies to convert to merchant banks. Finance companies ________
allowed to borrow abroad and merchant banks ________.
A) were not; could borrow abroad
B) were not; could not borrow abroad
C) were; could borrow abroad
D) were; could not borrow abroad
Although restrictive covenants can potentially reduce moral hazard, a problem with
restrictive covenants is that
A) borrowers may find loopholes that make the covenants ineffective.
B) they are inexpensive to monitor and enforce.
C) too many resources may be devoted to monitoring and enforcing them, as
debtholders duplicate others’ monitoring and enforcement efforts.
D) they reduce the value of the debt contract.
Which of the following is NOT an advantage of private equity funds?
A) Private companies are not subject to the same regulations as a publicly traded
company.
B) Managers of private firms are not under the same level of pressure to produce high
returns compared to the managers of publicly traded firms.
C) Private equity firms can do a better job in controlling the problems created by moral
hazard.
D) Private equity funds give managers of the companies higher stakes compared to
managers in publicly traded companies.
FDICIA ________ incentives for banks to hold capital and ________ incentives to take
on excessive risk.
A) increased; decreased
B) increased; increased
C) decreased; decreased
D) decreased; increased
In the Gordon growth model, a decrease in the required rate of return on equity
A) increases the current stock price.
B) increases the future stock price.
C) reduces the future stock price.
D) reduces the current stock price.
An equal increase in all bond interest rates
A) increases the return to all bond maturities by an equal amount.
B) decreases the return to all bond maturities by an equal amount.
C) has no effect on the returns to bonds.
D) decreases long-term bond returns more than short-term bond returns.
The U-shaped yield curve in the figure above indicates that short-term interest rates are
expected to
A) rise in the near-term and fall later on.
B) fall sharply in the near-term and rise later on.
C) fall moderately in the near-term and rise later on.
D) remain unchanged in the near-term and rise later on.
In recent years, bank regulatory authorities have
A) encouraged banks to enter the insurance field.
B) discouraged banks from entering the insurance field.
C) asked Congress to write new legislation that would make it illegal for banks to enter
the insurance field.
D) asked Congress to write new legislation that would make it legal for banks to enter
the insurance field.
Which of the following long-term bonds has the highest interest rate?
A) corporate Baa bonds
B) U.S. Treasury bonds
C) corporate Aaa bonds
D) municipal bonds
A major difference between the United States and Japanese banking systems is that
A) American banks are allowed to hold substantial equity stakes in commercial firms,
whereas Japanese banks cannot.
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms,
whereas American banks cannot.
C) bank holding companies are illegal in the United States.
D) Japanese banks are usually organized as bank holding companies.
When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar
to 10 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
The relationship between borrowed reserves (BR), the nonborrowed monetary base
(MBn), and the monetary base (MB) is
A) MB = MBn – BR.
B) BR = MBn – MB.
C) BR = MB – MBn.
D) MB = BR – MBn.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion,
checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the
M1 money multiplier is
A) 2.5.
B) 1.7.
C) 7.3.
D) 0.73.
Which of the following accurately summarize the empirical evidence about technical
analysis?
A) Technical analysts fare no better than other financial analysis—on average they do
not outperform the market.
B) Technical analysts tend to outperform other financial analysis, but on average they
nevertheless under-perform the market.
C) Technical analysts fare no better than other financial analysis, and like other
financial analysts they outperform the market.
D) Technical analysts fare no better than other financial analysis, and like other
financial analysts they under-perform the market.
Collateral is ________ the lender receives if the borrower does not pay back the loan.
A) a liability
B) an asset
C) a present
D) an offering
According to aggregate demand and supply analysis, the rising oil prices coupled with
the global financial crisis in 2007-2008 caused the unemployment rate to ________ and
the level of real aggregate output to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
In actual practice, short-term interest rates and long-term interest rates usually move
together; this is the major shortcoming of the
A) segmented markets theory.
B) expectations theory.
C) liquidity premium theory.
D) separable markets theory.
Keynes’s liquidity preference theory indicates that the demand for money is
A) constant.
B) positively related to interest rates.
C) negatively related to interest rates.
D) negatively related to bond values.
In the early 1970s, the U.S. ran large balance of payments ________, causing an
________ dollar and an ________ German mark.
A) deficits; undervalued; overvalued
B) deficits; overvalued; undervalued
C) surpluses; undervalued; overvalued
D) surpluses; overvalued; undervalued