Hedging risk for a long position is accomplished by
A) taking another long position.
B) taking a short position.
C) taking additional long and short positions in equal amounts.
D) taking a neutral position.
With the followings is NOT one of the reasons why quantitative easing in and of itself
will not necessarily be stimulative?
A) Most of the resulting increase in the monetary base just flows into holdings of
excess reserves.
B) Banks just add to their holdings of excess reserves instead of making loans.
C) The asset purchase program involves only the purchase of short-term government
securities.
D) The asset purchase program involves only the purchase of long-term government
securities.
Which of the following statements is TRUE?
A) A liquid asset is one that can be quickly and cheaply converted into cash.
B) The demand for a bond declines when it becomes less liquid, decreasing the interest
rate spread between it and relatively more liquid bonds.
C) The differences in bond interest rates reflect differences in default risk only.
D) The corporate bond market is the most liquid bond market.
All ________ are required to be members of the Fed.
A) state chartered banks
B) national banks chartered by the Office of the Comptroller of the Currency
C) banks with assets less than $100 million
D) banks with assets less than $500 million
Assume that autonomous consumption equals $200 and disposable income equals
$1000. If total consumption equal $800, then the mpc equals
A) 0.2.
B) 0.6.
C) 0.8.
D) 1.0.
A mutual fund that is organized as a limited partnership with high minimum
investments is called a
A) hedge fund.
B) investment bank.
C) mutual savings bank.
D) money market mutual fund.
Privatization of the Social Security system is being considered due to
A) the desire to reduce taxes.
B) demands to reduce the retirement age.
C) reduced life expectancy.
D) underfunding of the system.
The price specified on an option at which the holder can buy or sell the underlying asset
is called the
A) premium.
B) call.
C) strike price.
D) put.
By the standard of low-grade bonds, interest rates were ________ and monetary policy
was ________ during the Great Depression.
A) low; tight
B) low; easy
C) high; tight
D) high; easy
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________
U.S. dollars.
A) 0.30
B) 0.87
C) 1.15
D) 3.10
Show graphically and explain the profits and losses of buying futures relative to buying
call options.
Explain the margin requirement for financial futures and how marking to market affects
the margin account.
Explain the problems that necessitate insurance management, and three methods
insurance companies use to address these problems. Identify the problem that each
practice addresses.
Explain why the Social Security system faces problems. Discuss the possible solutions
to these problems.
Your bank has the following balance sheet:
If the required reserve ratio is 10%, what actions should the bank manager take if there
is an unexpected deposit outflow of $50 million?
What is arbitrage? Explain why arbitrage drives the contract price of futures to the price
of the underlying asset on the expiration date, for prices above and below the asset
price.