If new information becomes available indicating that a company’s profits will be much
less than previously believed, the flow of funds into the market for its securities will
decline
(a) unless the expected real interest rate on its securities rises.
(b) unless the expected real interest rate on its securities falls.
(c) unless the expected real interest rate on its securities remains unchanged.
(d) irrespective of changes in the expected real interest rate on its securities.
Answer:
What was the international transaction currency before World War II?
(a) German mark
(b) French franc
(c) U.S. dollar
(d) British pound
Answer:
Which of the following is not a key financial service provided by the financial system?
(a) Risk sharing
(b) Profitability
(c) Liquidity
(d) Information
Answer:
The total payment to a lender for a simple loan is
(a) P.
(b) P + i.
(c) i(1 + i).
(d) P(1 + i).
Answer:
Today, the countries with large trade surpluses to deposit in Eurodollar accounts are
(a) Canada and the United States.
(b) France and England.
(c) Germany and England.
(d) Japan and South Korea.
Answer:
Under the Bretton Woods system, exchange rates were supposed to be adjusted
(a) only when a country experienced fundamental disequilibrium.
(b) daily.
(c) weekly.
(d) following each annual meeting of the board of governors of the International
Monetary Fund.
Answer:
The efficient markets hypothesis predicts that an investor
(a) will not be able consistently to earn above-normal profits from buying or selling
stocks.
(b) will be able consistently to earn above-normal profits from buying or selling stock
so long as he or she makes use of rational expectations.
(c) will be able consistently to earn above-normal profits from buying or selling stock
so long as he makes us of adaptive expectations.
(d) will be able consistently to earn above-normal profits so long as stock prices in
general are rising.
Answer:
If Treasury currency outstanding increases, the monetary base will
(a) increase, provided the increase in currency is held by banks.
(b) increase, provided the increase in currency is held by the public.
(c) increase whether the increase in currency is held by banks or by the public.
(d) decrease.
Answer:
Special Drawing Rights
(a) are granted by the Fed to banks which want to trade in the foreign exchange
markets.
(b) were eliminated when the Bretton Woods system broke down.
(c) are created by the IMF in its role as lender of last resort.
(d) were created by the Nixon administration on August 15, 1971.
Answer:
Changes in the payments system
(a) are rare and their effect on money demand can usually be ignored.
(b) usually result in an increase in money demand.
(c) are hard to incorporate into empirical money demand functions.
(d) cause interest rates to rise, if everything else is held constant.
Answer:
Under the Bretton Woods system an asymmetry in the ability of central banks to defend
their exchange rates existed because
(a) a country experiencing an excess demand for its currency on foreign-exchange
markets was limited in its ability to defend its exchange rate by its stock of international
reserves.
(b) a country experiencing an excess supply of its currency on foreign-exchange
markets was limited in its ability to defend its exchange rate by its stock of international
reserves.
(c) central banks were allowed by the IMF to adjust their exchange rates upward
whenever they chose but were rarely allowed to adjust their exchange rates downward.
(d) central banks were allowed by the IMF to adjust their exchange rates downward
whenever they chose but were rarely allowed to adjust their exchange rates upward.
Answer:
Futures contracts are traded
(a) face-to-face by investors.
(b) on exchanges by commodity brokers.
(c) over-the-counter by dealers.
(d) on the floor of the New York Stock Exchange.
Answer:
Financial instruments with high information costs
(a) will usually be more liquid than similar instruments with low information costs.
(b) will have lower yields than U.S. Treasury securities.
(c) may not be offered for sale in some states.
(d) will have lower prices than similar instruments with low information costs.
Answer:
The duration of a bank’s assets equals
(a) the asset’s market value divided by the market interest rate.
(b) the market interest rate divided by the asset’s market value.
(c) the percentage change in the asset’s market value divided by the percentage change
in the market interest rate.
(d) the percentage change in the market interest rate divided by the percentage change
in the asset’s market value.
Answer:
What is a super-NOW account?
(a) A NOW account against which checks may not be written
(b) A NOW account that pays no interest
(c) A NOW account that pays high interest, but the funds in which may not be
withdrawn for
6 months
(d) A NOW account linked to a savings account
Answer:
According to Keynes, the demand for real balances is best expressed by which of the
following equations?
(a) M/P = (1/V)Y
(b) M/P = L(Y, i)
(c) M/P = L(Y *, i iM, – iM)
(d) M/V = PY
Answer:
During the 1980s and 1990s
(a) the volume of worldwide cross-border transactions in stocks and bonds grew very
rapidly, but the volume of international bank lending declined.
(b) the volume of international bank lending grew very rapidly, but the volume of
worldwide cross-border transactions in stocks and bonds declined.
(c) the volume of worldwide cross-border transactions in stocks and bonds and the
volume of international bank lending both grew rapidly.
(d) global investment in the stock of multinational corporations in 1990 was lower than
it had been in 1980.
Answer:
If the financial side of the economy is stable
(a) the demand for money and nonmoney assets are unstable.
(b) money supply targets are preferred.
(c) interest rate targets are preferred.
(d) the real side of the economy must be unstable.
Answer:
The use of floating-rate debt will not entirely eliminate a bank’s exposure to interest rate
risk because
(a) the value of the bank’s assets will still be affected more than the value of the bank’s
liabilities by changes in interest rates.
(b) the value of the bank’s liabilities will still be affected more than the value of the
bank’s assets by changes in interest rates.
(c) a rise in interest rates might increase the default risk of borrowers.
(d) Federal Reserve regulations limit the amount of floating-rate debt a bank may have.
Answer:
If foreign interest rates rise
(a) the demand for domestic currency rises, causing it to appreciate.
(b) the demand for domestic currency falls, causing it to depreciate.
(c) the demand for domestic currency rises, causing it to depreciate.
(d) the demand for domestic currency falls, causing it to appreciate.
Answer:
Participation in international banking by U.S. banks has
(a) declined since 1980.
(b) increased to match the growth of foreign trade by U.S. businesses.
(c) increased during periods when global interest rates have been high and decreased
during periods when global interest rates have been low.
(d) been more tightly regulated since World War II than it was before.
Answer:
Which is the correct expression for currency in circulation?
(a) Federal Reserve Notes outstanding + Treasury currency outstanding banks’ vault
cash.
(b) Federal Reserve Notes outstanding + Treasury currency outstanding + banks’ vault
cash.
(c) Federal Reserve Notes outstanding + banks’ vault cash Treasury currency
outstanding.
(d) Treasury currency outstanding (Federal Reserve Notes outstanding + banks’ vault
cash).
Answer:
The equilibrium real interest rate in Belgium will be
(a) generally above the world real interest rate.
(b) generally below the world real interest rate.
(c) equal to the world real interest rate.
(d) determined by the equilibrium between desired domestic saving and desired
domestic investment.
Answer:
The fixed exchange rates of the Bretton Woods system were maintained
(a) by central bank interventions in the foreign-exchange market.
(b) by the requirement that short-term interest rates be equalized in all participating
countries.
(c) by the requirement that long-term interest rates be equalized in all participating
countries.
(d) through the automatic workings of the foreign-exchange market.
Answer:
Which of the following would shift the aggregate demand curve to the left?
(a) An increase in the money supply
(b) A cut in federal income taxes
(c) An increase in money demand
(d) An increase in the price level
Answer:
What is the current reserve requirement for checkable deposits?
(a) All checkable deposits are subject to a 10% reserve requirement.
(b) Checkable deposits at banks are subject to a 10% reserve requirement, while
checkable deposits at S&Ls are not subject to a reserve requirement.
(c) The first $42.1 million in checkable deposits are subject to a 3% reserve requirement
and checkable deposits above $42.1 million are subject to a 10% reserve requirement.
(d) Reserve requirements on checkable deposits vary according to the location and size
of the depository institution.
Answer:
Promises given by borrowers to lenders are
(a) recognized as legally enforceable only in some states.
(b) not subject to federal taxation.
(c) assets to the lenders.
(d) liabilities to the lenders.
Answer:
Customers who have long-term relationships with banks
(a) pose particular problems with respect to adverse selection.
(b) pose particular problems with respect to moral hazard.
(c) often obtain credit at a lower rate or with fewer restrictions.
(d) are more likely to default or violate restrictive covenants.
Answer:
The wealth elasticity of demand describes the percentage change in
(a) the quantity demanded of an asset for a given percentage change in the price of the
asset.
(b) the amount of wealth possessed for a given percentage change in the age of the
saver.
(c) the quantity of an asset demanded for a given percentage change in wealth.
(d) wealth for a given percentage change in the amount of any one asset added to the
saver’s portfolio.
Answer:
Which of the following is a key assumption of Irving Fisher’s quantity theory of money
demand?
(a) Increases in the price level reduce the level of real money balances.
(b) The price level is always constant.
(c) The money supply is always constant.
(d) Velocity is always constant.
Answer:
National banks are supervised by the
(a) Office of the Comptroller of the Currency.
(b) Office of Bank Supervision.
(c) Securities and Exchange Commission.
(d) Office of Management and the Budget.
Answer:
If the expected gains on stocks rise, while the expected returns on bonds do not change,
then
(a) the demand curve for bonds will shift to the left.
(b) the supply curve for loanable funds will shift to the right.
(c) the demand curve for loanable funds will shift to the left.
(d) the equilibrium interest rate will fall.
Answer:
An increase in borrower net worth will shift the aggregate demand curve
(a) and the money demand curve to the left.
(b) and the money demand curve to the right.
(c) to the left, and the money demand curve to the right.
(d) to the right, and the money demand curve to the left.
Answer: