If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
A) 2.5.
B) 1.67.
C) 2.3.
D) 0.651.
If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
A) 0.2.
B) 5.
C) 10.
D) 20.
Assume a bank has $200 million of assets with a duration of 2.5, and $190 million of
liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent,
the net worth of the bank falls by
A) $1 million.
B) $2.4 million.
C) $3.6 million.
D) $4.8 million.
Which of the following statements about financial markets and securities is TRUE?
A) Many common stocks are traded over-the-counter, although the largest corporations
usually have their shares traded at organized stock exchanges such as the New York
Stock Exchange.
B) As a corporation gets a share of the broker’s commission, a corporation acquires new
funds whenever its securities are sold.
C) Capital market securities are usually more widely traded than shorter-term securities
and so tend to be more liquid.
D) Prices of capital market securities are usually more stable than prices of money
market securities, and so are often used to hold temporary surplus funds of
corporations.
If you sold a short contract on financial futures you hope interest rates
A) rise.
B) fall.
C) are stable.
D) fluctuate.
Which of the following bonds would have the highest default risk?
A) municipal bonds
B) investment-grade bonds
C) U.S. Treasury bonds
D) junk bonds
The additional incentive that the purchaser of a Treasury security requires to buy a
long-term security rather than a short-term security is called the
A) risk premium.
B) term premium.
C) tax premium.
D) market premium.
Which policy measure increases the punishment for white-collar crime and obstruction
of official investigations?
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
Which of the following is an example of a bank realizing economies of scope?
A) The bank develops a standard mortgage loan application to make the process of
loaning out mortgages easier.
B) The bank reduces costs of credit checking for the loan process by outsourcing the
process to a specialist.
C) By using the information collected from a corporation, the bank can decide how easy
it would be to sell bonds issued by the corporation to the public.
D) A bank in a rural area specializes in providing agricultural loans.
A ________ makes investment in established businesses which are publicly traded and
takes them private.
A) sovereign wealth fund
B) capital buyout fund
C) hedge fund
D) venture capital fund
By taking the long position on a futures contract of $100,000 at a price of 115 you are
agreeing to ________ a ________ face value security for ________.
A) sell; $100,000; $115,000.
B) sell; $115,000; $100,000.
C) buy; $100,000; $115,000.
D) buy; $115,000; $100,000.
If the required reserve ratio is 10 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) 2.5.
B) 2.8.
C) 2.0.
D) 0.7.
Privatization of Social Security involves
A) tax reductions.
B) benefit reductions.
C) increasing the retirement age.
D) investing portions of the trust fund in corporate securities.
A decrease in the riskiness of corporate bonds will ________ the yield on corporate
bonds and ________ the yield on Treasury securities, everything else held constant.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Evidence suggests that the market ________ take into account the credibility of
analyst’s recommendations of IPOs that were underwritten at the analyst’s investment
bank because the performance of these recommendations was about 50% ________
compared to recommendations made by other analysts at different investment banks.
A) does; better
B) does; worse
C) does not; better
D) does not; worse
A contract that requires the investor to buy securities on a future date is called a
A) short contract.
B) long contract.
C) hedge.
D) cross.
The specialty of Lloyd’s of London is
A) annuities.
B) hedge funds.
C) mutual funds.
D) reinsurance.
A key assumption in the segmented markets theory is that bonds of different maturities
A) are not substitutes at all.
B) are perfect substitutes.
C) are substitutes only if the investor is given a premium incentive.
D) are substitutes but not perfect substitutes.
The risk that interest payments will not be made, or that the face value of a bond is not
repaid when a bond matures is
A) interest rate risk.
B) inflation risk.
C) liquidity risk.
D) default risk.
Under the Global Legal Settlement of 2002, the provision that requires investment
banking firms to sever the link between underwriting and research is an example of
A) regulate for transparency.
B) supervisory oversight.
C) separation of functions.
D) socialization of information production.