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The fundamental value of a stock equals
A) the future value of all future dividends.
B) the present value of all future dividends.
C) the present value of current and future dividends.
D) the present value of all future capital gains.
Answer:
A load fund
A) charges a commission for purchases or sales.
B) is not obligated to redeem shares issued.
C) earns income only from management fees.
D) issues shares that may sell at a discount to the market value of the underlying assets.
Answer:
Which of the following occurred following the failure of the Bank of the United States
in 1930?
A) Interest rates on low-grade corporate bonds rose relative to high-rated corporate
bonds.
B) Other banks in New York City suffered liquidity problems.
C) A bank panic ensued within days.
D) The stock market crashed.
Answer:
Which of the following accurately describes the Fed's inflation target?
A) It is implicit rather than explicit.
B) It seeks to maintain an average inflation rate of 2% per year.
C) It seeks to keep inflation at 2% all the time.
D) Its goal is to achieve zero inflation.
Answer:
The demand for U.S. dollars represents:
A) the demand for U.S. goods and financial assets by households and firms outside the
United States.
B) the demand for foreign goods and financial assets by households and firms within
the United States.
C) the demand for U.S. goods and financial assets by households and firms within the
United States.
D) the willingness of households and firms that own dollars to exchange them for
foreign currency.
Answer:
In the late 2000s, which of the following was the primary source of external financing
for small to medium-size firms?
A) mortgages
B) bank loans other than mortgages
C) trade credit
D) other loans
Answer:
Small investors face
A) high transactions costs in financial markets.
B) low transactions costs in financial markets.
C) high transactions costs in financial intermediaries.
D) high information costs in financial intermediaries.
Answer:
The Fed pledged to continue QE3 until:
A) inflation got out of control
B) real GDP and employment returned to more normal levels
C) the financial crisis was over
D) it was time to begin QE4
Answer:
Which of the following best characterizes the profit of a buyer of a futures contract?
A) spot price at settlement minus futures price at purchase
B) futures price at settlement minus spot price at purchase
C) futures price at purchase minus spot price at settlement
D) spot price at purchase minus futures price at settlement
Answer:
In an article, "Preparing for the Next Black Swan" (Wall Street Journal, Aug 21, 2010),
the point is made that diversification may be insufficient in protecting one's portfolio
during a "Black Swan" event. Why may this be true?
A) virtually all asset classes may decline at the same time
B) investors may be unable to buy different assets during a "Black Swan" event
C) some assets may rise while others decline during a "Black Swan" event
D) Black Swan events are surprises and thus one cannot prepare for such an event.
Answer:
The interest rate on interbank loans is called the
A) discount rate.
B) federal funds rate.
C) repo rate.
D) prime rate.
Answer:
If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance
sheet will show
A) an increase in discount loans of $2 million and an increase in bank reserves of $2
million.
B) an increase in discount loans of $2 million and a decrease in bank reserves of $2
million.
C) a decrease in discount loans of $2 million and an increase in bank reserves of $2
million.
D) a decrease in discount loans of $2 million and a decrease in bank reserves of $2
million.
Answer:
An implication of the efficient markets hypothesis is that
A) only sophisticated investors will be able to earn above-normal profits from financial
investments.
B) above-normal profits are available only to major traders.
C) above-normal profits will be eliminated in the trading process.
D) unless he or she acts recklessly, the average investor should be able to make
above-normal profits.
Answer:
Under a barter system
A) each good has many prices.
B) each good has a single price.
C) no prices for goods exist.
D) prices for goods are very stable.
Answer:
Which best describes the relationship between the cost of acquiring information and
return?
A) A high return must compensate for a high cost of acquiring information.
B) A higher cost of information corresponds with a low return.
C) A low cost of acquiring information corresponds with a high return.
D) A higher return results in a lower cost of acquiring information.
Answer:
An argument in support of hysteresis is
A) companies may be reluctant to hire workers until AD increases.
B) prices are sticky in the short run.
C) the skills of unemployed workers may deteriorate making it more difficult to find a
job.
D) overlapping wage contracts.
Answer:
The most important derivative instruments are
A) futures, options, and swaps.
B) common and preferred stocks.
C) corporate bonds.
D) government bonds.
Answer:
Though useful, purchasing power parity does not completely explain long-run
movements in exchange rates due to
A) some goods being nontradeable.
B) changes in the real exchange rate.
C) differentiated products.
D) all of the above.
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 stocks
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 stocks
so long as he makes use of adaptive expectations.
D) will be able consistently to earn above-normal profits so long as stock prices in
general are rising.
Answer:
The efficient markets hypothesis implies that stock investments should have the same
expected return after adjusting for
A) risk.
B) information costs.
C) liquidity.
D) all of the above.
Answer:
About what percentage of U.S. output was exported to foreigners in 2012?
A) 1%
B) 14%
C) 18%
D) 25%
Answer:
The small-firm effect
A) shows that investments in the stocks of small firms would have earned a
below-normal return during the period beginning in the mid-1920s.
B) may be the result of the low liquidity and high information costs of small-firm stock.
C) was stronger during the 1980s than in previous decades.
D) is the tendency for stocks of large firms to outperform those of small firms.
Answer:
Suppose the required reserve ratio is 8% and the Fed purchases $100 million worth of
Treasury bills from Wells Fargo. By how much is Wells Fargo able to increase its loans?
A) $8 million
B) $92 million
C) $100 million
D) $1.25 billion
Answer:
Required reserves are
A) the portion of demand deposits and NOW accounts banks must hold.
B) zero on demand deposits.
C) zero on NOW accounts.
D) imposed on all deposits at commercial banks.
Answer:
Which of the following statements accurately describes the Fed's control of discount
policy?
A) It controls discount policy more completely than it controls open market operations.
B) It must abide by discount rates set by Congress.
C) It controls discount policy less completely than it controls open market operations.
D) It controls discount policy completely, just as it controls open market operations.
Answer:
On August 15, 1971, the United States
A) returned to the gold standard.
B) suspended the convertibility of dollars into gold.
C) provided unlimited dollar reserves to the German central bank to help end a
speculative attack on the mark.
D) provided unlimited dollar reserves to the Bank of England to help end a speculative
attack on the pound.
Answer:
With respect to U.S. Treasury bills,
A) the bid price is always greater than the asked price.
B) the asked price is always greater than the bid price.
C) the bid price is only greater than the asked price if investors expect interest rates to
decline in the future.
D) the asked price is only greater than the bid price if investors expect interest rates to
decline in the future.
Answer:
