If a pension fund has insufficient contributions and earnings to pay benefits, it is said it
be
A) underfunded.
B) at par.
C) fully funded.
D) under par.
If 1-year interest rates for the next three years are expected to be 1, 1, and 1 percent,
and the 3-year term premium is 1 percent, than the 3-year bond rate will be
A) 1 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
Hedging by buying an option
A) limits gains.
B) limits losses.
C) limits gains and losses.
D) has no limit on option premiums.
In response to banks entering into the insurance business, insurance companies have
started to supply ________ insurance.
A) debt
B) credit
C) equity
D) currency
According to the liquidity premium theory of the term structure, a downward sloping
yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
The ________ of the term structure states the following: the interest rate on a long-term
bond will equal an average of short-term interest rates expected to occur over the life of
the long-term bond plus a term premium that responds to supply and demand conditions
for that bond.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a
percentage point in June 2004, and by exactly the same amount at every subsequent
FOMC meeting through June of 2006. Theses actions
A) caused an upward movement along the monetary policy curve.
B) caused a downward movement along the monetary policy curve.
C) shifted the monetary policy curve upward.
D) shifted the monetary policy curve downward.
When the SEC requires companies to publicly release financial statements, which of the
following remedies of conflicts of interest does this fall under?
A) leave it to the market
B) regulate for transparency
C) supervisory oversight
D) separation of functions
Forward contracts are of limited usefulness to financial institutions because
A) of default risk.
B) it is impossible to hedge risk.
C) they are relatively inflexible.
D) of interest-rate risk.
Early Keynesians felt that ________ policy was ________, so they stressed the
importance of ________ policy.
A) fiscal; ineffective; monetary
B) monetary; ineffective; fiscal
C) monetary; potent; monetary
D) fiscal; too potent; monetary
Which of the following is not a conflict of interest in accounting firms?
A) The firm provides consulting as well as rating creditworthiness.
B) Auditors may be pressured to skew their opinions so the client will stay with the
firm.
C) Auditors may be reluctant to criticize advice put into place by nonaudit personnel of
the firm.
D) Auditors release an overly favorable audit in order to solicit business.
Bonds with relatively low risk of default are called ________ securities and have a
rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a
higher default risk and are called ________.
A) investment grade; lower grade
B) investment grade; junk bonds
C) high quality; lower grade
D) high quality; junk bonds
If the required reserve ratio is 25 percent, the simple deposit multiplier is
A) 5.0.
B) 2.5.
C) 4.0.
D) 10.0.