A central bank that does NOT follow the Taylor principle will fail to raise nominal
interest rates by more than the increase in expected inflation. As a result, the monetary
policy curve is ________ sloping and the aggregate demand curve is ________ sloping.
A) upward; downward
B) downward; downward
C) upward; upward
D) downward; upward
If you buy a put option on Treasury futures at 115, and at expiration the market price is
110, the ________ will ________ exercised.
A) call; be
B) put; be
C) call; not be
D) put; not be
When those most likely to produce the outcome insured against are the ones who
purchase insurance, insurance companies are said to face the problem of
A) fraudulent claims.
B) moral hazard.
C) adverse selection.
D) pecuniary purchases.
Which of the following statements are TRUE?
A) An increase in tax rates will increase the demand for Treasury bonds, lowering their
interest rates.
B) Because the tax-exempt status of municipal bonds was of little benefit to bond
holders when tax rates were low, they had higher interest rates than U.S. government
bonds before World War II.
C) Interest rates on municipal bonds will be higher than comparable bonds without the
tax exemption.
D) Because coupon payments on municipal bonds are exempt from federal income tax,
the expected after-tax return on them will be higher for individuals in lower income tax
brackets.
By hedging a portfolio, a bank manager
A) reduces interest-rate risk.
B) increases reinvestment risk.
C) increases exchange-rate risk.
D) increases the probability of gains.
Movements of ________ interest rates indicate that, contrary to the early Keynesians’
beliefs, monetary policy was ________ during the Great Depression.
A) nominal; tight
B) nominal; easy
C) real; tight
D) real; easy
By taking the long position on a futures contract of $100,000 at a price of 96 you are
agreeing to ________ a ________ face value security for ________.
A) sell; $100,000; $96,000.
B) sell; $96,000; $100,000.
C) buy; $100,000; $96,000.
D) buy; $96,000; $100,000.
As a result of recent empirical research, there has been a convergence of Keynesian and
monetarist opinion to the view that
A) money is all that matters.
B) money does matter.
C) money does not matter.
D) fiscal policy is all that matters.
Which of the following securities has the lowest interest rate?
A) junk bonds
B) U.S. Treasury bonds
C) investment-grade bonds
D) corporate Baa bonds
If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it
can reduce interest rate risk with a swap that requires Second National to
A) pay fixed rate while receiving floating rate.
B) receive fixed rate while paying floating rate.
C) both receive and pay fixed rate.
D) both receive and pay floating rate.