The existence of a “bought deal” in public offerings of bonds came about as a result of
A) shelf registration.
B) a narrow underwriting spread.
C) the need of investment banks to form syndicates before underwriting an issue.
D) the need by underwriters to avoid as much risk as possible.
The St. Louis Federal Reserve Bank econometric model indicates that crowding out
A) is only partial.
B) never occurs.
C) occurs only in highly unusual circumstances.
D) is complete.
Supporters of Federal Reserve independence contend that independence from the rest of
the federal government leads to lower
A) inflation rates.
B) interest rates.
C) reserve requirements.
D) rates of unemployment.
A 100-year, $1,000 loan that pays a 6 percent simple annual interest rate pays a total
amount of interest of
A) $60.
B) $600.
C) $6,000.
D) $60,000.
All issuers of publicly-traded securities must file an annual report on its financial
condition with the SEC, called a __________ report.
A) 1040A
B) C311
C) 10K
D) G-109
If asset returns are less than perfectly correlated, portfolio diversification
A) reduces systematic risk.
B) reduces nonsystematic risk.
C) increases systematic yields.
D) reduces systematic yields.
Keynesian models involve considerable efforts to explain the determinants of
A) the money supply.
B) aggregate supply.
C) liquidity preference.
D) the demand deposit multiplier.
The rate at which banks will lend Eurodollars is
A) the prime rate.
B) LIBOR.
C) the discount rate.
D) LIBID.
The Dow Jones Industrial Average is computed based on
A) thirty blue-chip stocks.
B) five hundred blue-chip stocks.
C) all stocks sold on the NYSE.
D) all stocks sold on all organized exchanges in the United States
Monetary policy has no effect on the equilibrium interest rate if
A) the inflation rate is zero.
B) the economy is in the liquidity trap.
C) velocity is constant.
D) the economy is at full employment.
A municipal bond selling for $1,000 pays the holder $80 per year. If the bondholder
pays a 25 percent income tax rate, the after-tax yield is
A) 8 percent.
B) 7 percent.
C) 6 percent.
D) 5 percent.
An individual who continuously bids for securities that investors want to sell and offers
securities that investors want to buy is known as a(n)
A) dealer.
B) auctioneer.
C) broker.
D) underwriter.
The IS curve has a positive slope because a(n) __________ in the interest rate leads to
a(n) __________ in desired investment and this leads to an increase in GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Under the PCA guidelines, the FDIC must start closure proceedings on a bank once its
leverage ratio falls below __________ percent.
A) 0
B) 2
C) 5
D) 10
The total amount of cash inflows a lender would receive on a $600 two-year loan with a
simple annual interest rate of 8 percent is equal to
A) $48.
B) $96.
C) $648.
D) $696.
Which of the following is the correct formula for calculating simple interest?
A) Interest = Principal × Rate ÷ Time
B) Interest = Principal × Rate × Time
C) Interest = Principal × (Time + Rate)
D) Interest = Principal × (1 + Rate)
A sound policy to combat a temporary liquidity surplus in the banking system would be
A) a reduction in the discount rate.
B) a decrease in the discount rate.
C) the purchase of government securities by the Fed under a repurchase agreement.
D) the sale of government securities by the Fed under a repurchase agreement.
An increase in autonomous spending is sure to reduce the real money supply when
A) the economy is in the liquidity trap.
B) the IS curve is vertical.
C) the economy is at full employment.
D) velocity is constant.
Conflict resolution of the stockholder-lender conflict in larger banking-oriented firms is
most effectively accomplished by
A) financial intermediation (monitoring).
B) financial intermediation (ownership consolidation).
C) corporate governance.
D) None of the above.
In a world of certainty, the key decisions influenced by the riskless interest rate are
A) risk premiums demanded by investors.
B) portfolio decisions.
C) diversification decisions.
D) consumption versus saving decisions.
The Federal Reserve’s primary monetary policy-making body is the
A) Federal Open Market Committee.
B) Council of Economic Advisors.
C) Federal Advisory Council.
D) Federal Deposit Insurance Corporation.
A bank is fully loaned up when it has no
A) capital.
B) reserves.
C) excess reserves.
D) vault cash.