Options are contracts that give the purchasers the
A) option to buy or sell an underlying asset.
B) obligation to buy or sell an underlying asset.
C) right to hold an underlying asset.
D) right to switch payment streams.
A call option gives the seller the
A) right to sell the underlying security.
B) obligation to sell the underlying security.
C) right to buy the underlying security.
D) obligation to buy the underlying security.
Reputational rents refer to
A) the profit earned by a firm when it captures economies of scope.
B) the costs associated with building credibility of a firm.
C) the profit earned solely based on the credibility of a firm.
D) the costs associated with the firm’s achievement of economies of scale.
The ________ of the term structure of interest rates states that the interest rate on a
long-term bond will equal the average of short-term interest rates that individuals
expect to occur over the life of the long-term bond, and investors have no preference for
short-term bonds relative to long-term bonds.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
Which policy measure requires investment banks to make public their analysts’
recommendations?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
If the possibility of a default increases because corporations begin to suffer losses, then
the default risk on corporate bonds will ________, and the bonds’ returns will become
________ uncertain, meaning that the expected return on these bonds will decrease,
everything else held constant.
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 5.0.
B) 2.5.
C) 4.0.
D) 10.0.
Everything else held constant, if consumption expenditure increases by 65 for a 100
increase in disposable income, the mpc is
A) 0.
B) 0.5.
C) 0.65.
D) 1.
Fraudulent practices and other abuses of private pension funds led Congress to enact the
A) FDIC Act.
B) Federal Reserve Act.
C) FHLBS.
D) Employee Retirement Income Security Act.
Which of the followings does NOT describe the goods market in the ISLM model?
A) consumption function
B) investment function
C) government spending and tax
D) money demand function
When output is below potential and the policy rate has hit the floor of zero, if
policymakers do nothing, output will ________ and inflation will ________.
A) rise; fall
B) fall; fall
C) fall; rise
D) rise; rise
A swap that involves the exchange of a set of payments in one currency for a set of
payments in another currency is
A) an interest-rate swap.
B) a currency swap.
C) a swaption.
D) an international swap.
A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate
risk by
A) buying stock options.
B) selling puts on financial futures.
C) using a foreign exchange swap.
D) buying swaptions.
A continuing increase in the growth of the money supply is likely followed by
A) a recession.
B) a depression.
C) an increase in the price level.
D) no change in the economy.
A type of ________ problem that occurs when a person or institution has multiple
objectives that conflict with each other is called ________.
A) moral hazard; conflicts of interest
B) adverse selection; conflicts of interest
C) moral hazard; spinning
D) adverse selection; spinning
Everything else held constant, a decrease in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for
U.S. government bonds.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing