Which of the following policy measures authorized investors to bring lawsuits against
credit-rating agencies for a reckless failure to get the facts when providing a credit
rating?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
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.
A temporary supply shock that raises prices will cause the real interest rate to
A) rise in both the short and long runs.
B) rise in the short run but not in the long run.
C) fall in both the short and long runs.
D) fall in the short run but not in the long run.
Municipal bonds have default risk, yet their interest rates are lower than the rates on
default-free Treasury bonds. This suggests that
A) the benefit from the tax-exempt status of municipal bonds is less than their default
risk.
B) the benefit from the tax-exempt status of municipal bonds equals their default risk.
C) the benefit from the tax-exempt status of municipal bonds exceeds their default risk.
D) Treasury bonds are not default-free.
Reinsurance allows ________ to reduce the risks of exposure by allocating a portion of
the risk to ________ in exchange for a portion of the premium.
A) insurance companies; another insurance company
B) insurance companies; the insured
C) the insured; the insurance company
D) the insured; a bank
If the yield curve has a mild upward slope, the liquidity premium theory (assuming a
mild preference for shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
A) 2.54.
B) 2.67.
C) 2.35.
D) 0.551.
A defined-benefit pension
A) determines benefits by contributions and their earnings.
B) fixes benefits in advance.
C) links benefits to investment performance.
D) fixes benefits paid out for a limited number of years.
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the M1 money
multiplier is
A) 2.5.
B) 2.8.
C) 2.0.
D) 0.67.
Charging risk-based insurance premiums is a time-honored principle of insurance
management to reduce
A) moral hazard.
B) adverse selection.
C) free riding.
D) principal-agent problems.
The key factor causing life insurance companies to move into the management of
pension funds was
A) the investment expertise of insurance companies.
B) a request for this change by managers of pension funds.
C) a change in state laws.
D) a change in federal legislation in 1974 to encourage pension funds to turn fund
management over to life insurance companies.
Under Alan Greenspan and Ben Bernanke, the Federal Reserve was successful in
pursuing a ________ policy.
A) preemptive
B) inflation targeting
C) exchange rate targeting
D) monetary targeting
The FOMC finally moved to ________ on January 25, 2012, when it issued its
“Statement on Long-Run
Goals and Monetary Policy Strategy.”
A) inflation targeting
B) zero inflation policy
C) “just do it” policy
D) monetary targeting
Vesting refers to
A) the length of time an insurance company has been in business.
B) the length of time that a person must be enrolled in a pension plan before being
entitled to receive benefits.
C) the length of time until a CD matures.
D) the premium required under term insurance.