Which of the following policy measures created an Office of Credit Ratings at the SEC
with its own staff and the authority to fine credit-rating agencies and to deregister an
agency if it produces bad ratings?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
A(n) ________ in the riskiness of corporate bonds will ________ the price of corporate
bonds and ________ the yield on corporate bonds, all else equal.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; increase
D) decrease; decrease;decrease
A permanent negative supply shock causes stock prices to ________ than they would if
the
supply shock were temporary.
A) fall more
B) fall less
C) rise more
D) rise less
If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A) 0.5%.
B) 5%.
C) 0%.
D) -5%.
Evidence suggests that credit-rating agencies ________ exploited conflicts of interest
because ________.
A) have not; it would cause their ratings to lose credibility and thus have a lower value
in the marketplace
B) have not; they would have an increase in profits in the long-run
C) have; it would cause their ratings to lose credibility and thus have a lower value in
the marketplace
D) have; they would have an increase in profits in the long-run
If a firm is due to be paid in euros in two months, to hedge against exchange-rate risk
the firm should ________ foreign exchange futures ________.
A) sell; short
B) buy; long
C) sell; long
D) buy; short
If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike
price of 114, and at the expiration date the price is 110, your ________ is ________.
A) profit; $1000
B) loss; $1000
C) profit; $3000
D) loss; $3000
Only ________ can issue monoline insurance policies.
A) life insurance companies
B) insurance companies that issue multiple types of insurance
C) property insurance companies
D) insurance companies that specialize in credit insurance alone
According to the liquidity premium theory of the term structure, a slightly upward
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.
From 2000 to 2014, the dollar depreciated substantially against other currencies. This
drop in value most likely benefitted
A) European citizens traveling in the U.S.
B) U.S. citizens traveling in Europe.
C) U.S. manufacturers importing parts from abroad.
D) U.S. citizens purchasing foreign-made automobiles.
If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it
can reduce interest-rate risk with a swap that requires Second National to
A) pay fixed rate while receiving floating rate.
B) receive fixed rate while paying floating rate.
C) both receive and pay fixed rate.
D) both receive and pay floating rate.
Coinsurance reduces moral hazard in exactly the same way as
A) limits on insurance.
B) risk-based premiums.
C) deductibles.
D) restrictive provisions.
An increase in the riskiness of corporate bonds will ________ the price of corporate
bonds and ________ the price of Treasury bonds, everything else held constant.
A) increase; increase
B) reduce; reduce
C) reduce; increase
D) increase; reduce
Some automobile owners will drive faster knowing that they are covered by health and
automobile insurance. This behavior creates the problem of
A) fraudulent claims.
B) moral hazard.
C) adverse selection.
D) pecuniary purchases.
By taking the short 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.