1) Technical analysis is a popular technique used to predict stock prices by studying
past stock price data and searching for patterns such as trends and regular cycles.
2) The FOMC is an element of the Federal Reserve System.
3) Municipal bonds that are issued to pay for essential public projects are exempt from
federal taxation.
4) If the dollar appreciates relative to the Swiss franc, Swiss chocolate will become
cheaper in the United States.
5) A mildly upward-sloping yield curve suggests that the market is predicting constant
short-term interest rates.
6) The risk premium on corporate bonds becomes smaller as the liquidity of the bonds
falls.
7) The Commodity Futures Modernization Act (2000) removed derivative securities,
such as credit default swaps, from regulatory oversight.
8) Owners cannot write checks on nontransaction deposits, but the interest rate paid on
these deposits are usually higher than those on checkable deposits.
9) The expectations theory is able to explain why yield curves are usually
upward-sloping.
10) Property and casualty insurance protects against losses from fire, theft, storm,
explosion, and even neglect.
11) Futures trading is regulated by the Commodity Futures Trading Commission.
12) Americans are the biggest users of checks in the world but nonetheless are ahead of
Europeans in the proportion of noncash payments that are made by electronic means.
13) An objective of the Federal Reserve in its conduct of monetary policy is high
employment.
14) A sales finance company differs from a captive finance company primarily in
regulations and other restrictions.
15) Who would be most likely to buy a long stock index future?
A) a mutual fund manager who believes the market will rise
B) a mutual fund manager who believes the market will fall
C) a mutual fund manager who believes the market will be stable
D) none of the above would be likely to purchase a futures contract
16) A bank’s commitment (for a specified future period of time) to provide a firm with
loans up to a given amount at an interest rate that is tied to a market interest rate is
called
A) credit rationing
B) a line of credit
C) continuous dealings
D) none of the above
17) In Stage Two of an financial crisis in an emerging economy, speculators engage in
massive ________ of a currency if it is fixed against the U.S. dollar.
A) sales
B) purchases
C) either A or B can be correct
D) neither A nor B is correct
18) Which of the following is true regarding the Gordon growth model?
A) Dividends are assumed to grow at a constant rate forever
B) The dividend growth rate is assumed to be greater than the required return on equity
C) Both A and B of the above
D) Neither A nor B of the above
19) One problem of the too-big-to-fail policy is that it ________ the incentives for
________ by big banks.
A) reduces; moral hazard by big banks
B) increases; moral hazard by big banks
C) reduces; adverse selection by big banks
D) increases; adverse selection by big banks
20) If the Fed uses the federal funds rate as an interest rate target, fluctuations in the
reserves demand curve will cause ________ to fluctuate.
A) nonborrowed reserves
B) the federal funds interest rate
C) Treasury bill interest rates
D) the inflation rate
21) Studies of mutual fund performance indicate that mutual funds that outperformed
the market in one time period
A) usually beat the market in the next time period
B) usually beat the market in the next two subsequent time periods
C) usually beat the market in the next three subsequent time periods
D) usually do not beat the market in the next time period
22) A bank’s balance sheet
A) shows that total assets equal total liabilities plus equity capital
B) lists sources and uses of bank funds
C) indicates whether or not the bank is profitable
D) does all of the above
E) does only A and B of the above
23) Insurance companies’ attempts to minimize adverse selection and moral hazard
explain which of the following insurance practices?
A) gender-neutral premiums
B) flat-rate premiums
C) restrictive provisions
D) all of the above
E) only A and B of the above
24) A fall in the expected future exchange rate shifts the expected return schedule for
________ deposits to the ________ and causes the domestic currency to depreciate.
A) domestic; right
B) domestic; left
C) foreign; right
D) foreign; left
25) A requirement in the bond indenture that the firm pay off a portion of the bond issue
each year is called
A) a sinking fund
B) a call provision
C) a restrictive covenant
D) a shelf registration
26) A decline in the expected inflation rate causes the demand for money to ________
and the demand curve to shift to the ________
A) decrease; right
B) decrease; left
C) increase; right
D) increase; left
27) The share of the mortgage market held by savings and loans is
A) over 50 percent
B) approximately 40 percent
C) approximately 20 percent
D) less than 10 percent
28) The Competitive Equality in Banking Act of 1987
A) provided insufficient funds to the FSLIC to close down insolvent S&Ls
B) actually directed S&L regulators to continue to pursue regulatory forbearance,
further delaying the closing of insolvent S&Ls
C) created a new agency, the Resolution Trust Corporation, to manage insolvent thrifts
D) did all of the above
E) did only A and B of the above
29) When workers voluntarily quit a job or decline a job offer so they can search for a
better one, the resulting unemployment is called
A) structural unemployment
B) frictional unemployment
C) cyclical unemployment
D) underemployment
30) What insurance protects against liability for harm the insured may cause to others as
a result of product failure or accidents?
A) property insurance
B) health insurance
C) life insurance
D) casualty insurance
31) A bank can reduce its total amount of loans outstanding by
A) “calling in” loans; that is, by not renewing some loans when they come due
B) selling loans to other banks
C) selling loans to the Federal Reserve
D) doing all of the above
E) doing only A and B of the above
32) The Federal Deposit Insurance Corporation Improvement Act of 1991
A) increased the FDIC’s ability to borrow from the Treasury to deal with failed banks
B) reduced the scope of deposit insurance in several ways
C) eliminated governmentally administered deposit insurance
D) did only A and B of the above
33) Supporters of the current system of Fed independence believe that a less
autonomous Fed would
A) adopt a long-run bias toward policymaking
B) pursue overly expansionary monetary policies
C) be more likely to create a political business cycle
D) do only B and C of the above
34) Intermediaries who are agents of investors and match buyers with sellers of
securities are called
A) investment bankers
B) traders
C) brokers
D) dealers
E) none of the above
35) Banks fail when the value of bank ________ falls below the value of ________,
causing the bank to become insolvent.
A) reserves; required reserves
B) loans; secondary reserves
C) assets; liabilities
D) income; expenses
36) Which of the following can be described as involving direct finance?
A) A corporation’s stock is traded in an over-the-counter market
B) A corporation buys commercial paper issued by another corporation
C) A pension fund manager buys commercial paper from the issuing corporation
D) Both A and B of the above
E) Both B and C of the above
37)
Figure 4.3
In Figure 4.3, the factor responsible for the decline in the interest rate is
A) a decline in the price level
B) a decline in income
C) an increase in the money supply
D) a decline in the expected inflation rate
38) During the early years of a balloon mortgage loan, the lender applies
A) most of the monthly payment to the outstanding principal balance
B) all of the monthly payment to the outstanding principal balance
C) most of the monthly payment to interest on the loan
D) all of the monthly payment to interest on the loan
E) the monthly payment equally to interest on the loan and the outstanding principal
balance
39) The Global Legal Settlement includes what key element?
A) It directly reduces conflicts of interest
B) It provides incentives for investment banks to not exploit conflicts of interest
C) It has measures to improve the quality for information in financial markets
D) All of the above
40) The yield to maturity of a one-year, simple loan of $400 that requires an interest
payment of $50 is
A) 5 percent
B) 8 percent
C) 12 percent
D) 12.5 percent
41) (I) The coupon rate is the rate of interest that the issuer of the bond must pay.
(II) The coupon rate on old bonds fluctuates with market interest rates so they will
remain attractive to investors.
A) (I) is true, (II) false
B) (I) is false, (II) true
C) Both are true
D) Both are false
42) Factors that determine the demand for an asset include changes in the
A) wealth of investors
B) liquidity of bonds relative to alternative assets
C) expected returns on bonds relative to alternative assets
D) risk of bonds relative to alternative assets
E) all of the above
43) Which of the following is not an objective of the Securities and Exchange
Commission?
A) maintain integrity of the securities markets
B) advise investors about which particular stocks are good buys
C) require firms to provide specific information to investors
D) regulate major participants in securities markets
44) When a municipal bond is given tax-free status, the demand for municipal bonds
shifts ________, causing the interest rate on the bond to ________.
A) leftward; rise
B) leftward; fall
C) rightward; rise
D) rightward; fall
45) Insurance companies’ attempts to minimize adverse selection and moral hazard
explain which of the following insurance practices?
A) collection of information and screening of potential policyholders
B) risk-based premiums
C) cancellation of insurance
D) all of the above
46) Examples of off-balance-sheet activities include
A) loan sales
B) foreign exchange market transactions
C) trading in financial futures
D) all of the above
E) only A and B of the above