Which of the following is a fixed payment loan?
(a) A home mortgage
(b) A U.S. Treasury bill
(c) A U.S. Treasury note
(d) A zero-coupon bond
Answer:
A central bank may be reluctant to see its currency appreciate because
(a) rising prices of imports will contribute to inflation.
(b) falling prices of exports will contribute to inflation.
(c) the country’s goods may become uncompetitive in world markets.
(d) the country’s monetary base will increase.
Answer:
If oranges sell for $100 per crate in the United States and 4000 pesos per crate in
Mexico, the law of one price indicates that you should be able to exchange $1 for
(a) 0.025 peso.
(b) 4 pesos.
(c) 40 pesos.
(d) 400 pesos.
Answer:
Using a monetary aggregate for an intermediate target
(a) will cause the inflation rate to accelerate.
(b) will cause interest rates to fluctuate.
(c) requires the use of an interest rate as an operating target.
(d) is required by the Federal Reserve Act.
Answer:
In the period since 1914,
(a) M1 velocity has been roughly constant.
(b) M2 velocity has been roughly constant.
(c) neither M1 nor M2 velocity has been constant.
(d) both M1 and M2 velocity have been roughly constant.
Answer:
Under a current SEC proposal,
(a) the majority of the directors of any individual mutual fund must be independent of
the fund’s sponsor.
(b) funds that hold common stock may not also hold bonds.
(c) funds that hold short-term assets may not also hold long-term assets.
(d) the tax rate on returns to the fund would be greatly reduced.
Answer:
How can a bank avoid exchange rate risk?
(a) By buying financial futures
(b) By buying call options
(c) By buying put options
(d) By matching the currency denomination of assets and liabilities
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:
The maturity of a debt instrument refers to
(a) its interest rate, expressed as a percentage of its principal.
(b) its interest rate, expressed as an absolute amount.
(c) the length of time until it expires.
(d) the length of time until the first interest payment on it is due.
Answer:
In an open economy, desired domestic lending
(a) must equal desired domestic borrowing.
(b) must equal desired domestic borrowing plus the amount of international lending.
(c) is always greater than desired domestic borrowing.
(d) is always less than desired domestic borrowing.
Answer:
What is the dominant currency in the Euromarkets?
(a) Japanese yen
(b) U.S. dollar
(c) British pound
(d) Canadian dollar
Answer:
An efficient financial market is one in which
(a) transactions costs for trading securities are zero.
(b) all information available to market participants is reflected in market prices.
(c) all securities traded are very liquid.
(d) there are no taxes on the gains from trading securities.
Answer:
If the Fed desired to reduce the federal funds rate,
(a) it would conduct an open market sale reducing reserve supply.
(b) it would conduct an open market purchase increasing reserve supply.
(c) it would conduct an open market sale increasing reserve demand.
(d) it would conduct an open market purchase reducing reserve demand.
Answer:
The nominal exchange rate is
(a) the difference between the interest rate in one country and the interest rate in another
country.
(b) the rate at which a bond may be exchanged for currency.
(c) the rate at which a stock may be exchanged for currency.
(d) the price of one country’s currency in terms of another’s.
Answer:
In the current U.S. economy who plays the role of lender of last resort?
(a) The Securities and Exchange Commission
(b) The Federal Deposit Insurance Corporation
(c) The Federal Reserve System
(d) The Social Security Administration
Answer:
The relation between the nominal and real exchange rates is given by which of the
following equations?
(a) EX = (EXrx P)/Pf
(b) EXr= (EX x P)/Pf
(c) EX = (EXrx Pf)/P
(d) EXr= (EX x Pf)/P
Answer:
If the current price of a bond is less than its face value,
(a) an investor will receive a capital gain by holding the bond until maturity.
(b) the yield to maturity must be less than the current yield.
(c) the coupon rate must be greater than the current yield.
(d) the coupon rate must be equal to the current yield.
Answer:
Which of the following increased its share of the percentage of total assets of financial
intermediaries by the most between 1960 and 2003?
(a) Money market mutual funds
(b) Life insurance companies
(c) Private pension funds
(d) Commercial banks
Answer:
If market participants have rational expectations, then the best forecast of the price of a
stock in the next period is
(a) equal to an average of the prices of the stock in previous periods.
(b) equal to the price of the stock in the current period.
(c) dependent upon all information available in the current period, including, but not
limited to, the price of the stock in the current period.
(d) zero
Answer:
In 1931 the Fed increased the interest rate it charged on loans to banks
(a) to protect its gold reserves.
(b) to raise funds to meet its expenses.
(c) to spur residential construction.
(d) to offset the negative impact on the economy of the federal budget deficit.
Answer:
According to the real business cycle model,
(a) changes in money growth cause output fluctuations in both the short run and long
run.
(b) changes in money growth cause output fluctuation in the long run, but not in the
short run.
(c) there is no causal link between the money supply and output.
(d) most observed changes in the money supply are independent of previous changes in
output.
Answer:
During World War II the Fed pegged interest rates in order to
(a) stabilize the money supply.
(b) help the Treasury finance the war effort.
(c) control the inflation rate.
(d) encourage home buying.
Answer:
Why did the Fed cut interest rates in late 1998?
(a) To help reduce the value of the dollar.
(b) To help increase the value of the dollar.
(c) It was fearful of the consequences of the Asian financial crisis.
(d) It wanted to offset the effects of low oil prices.
Answer:
Which of the following is NOT a reason that IBFs have been desirable to banks?
(a) They are not subject to Federal Reserve regulation.
(b) They are exempt from reserve requirements.
(c) They are exempt from federal restrictions on interest payments to depositors.
(d) They are often free from state and local taxation.
Answer:
Analysts have attempted to model the impact of monetary policy on net worth by
emphasizing
(a) the impact of lower interest rates on business spending on fixed investment.
(b) the impact of lower interest rates on household spending on housing and durable
goods.
(c) the liquidity of balance sheet positions as a determinant of business and household
spending.
(d) the greater variability of business spending compared to household spending.
Answer:
The main reason for trade in financial assets is
(a) the desire of holders of bonds to be able to exchange them for shares of common
stock.
(b) the mismatch of income and spending for many individuals and businesses.
(c) a shortage of money in an economy, making trade in other financial assets necessary.
(d) the refusal of most modern governments to trade currency for gold or silver.
Answer:
Credit controls were removed in July 1980 because they had
(a) proved to have little impact on economic activity.
(b) resulted in sharp increases in interest rates.
(c) raised the inflation rate.
(d) produced a recession.
Answer:
Under the expectations theory, an upward-sloping yield curve indicates that investors
expect future short-term rates to
(a) fall.
(b) rise.
(c) remain constant.
(d) either rise or remain constant.
Answer:
From 1970 until the early 1980s the creditworthiness of many developing nations was
improving because
(a) the collapse of Communism allowed these countries to spend less on defense.
(b) of falling commodity prices.
(c) of high real interest rates.
(d) of rising commodity prices and low real interest rates.
Answer:
If people use automated teller machines more frequently, what will happen to M1
velocity?
(a) It will rise.
(b) It will fall.
(c) It will be unaffected.
(d) It will rise, fall, or be unaffected depending upon the size of the money multiplier.
Answer:
Federal Reserve float is defined as
(a) the excess of total deposits by depository institutions over required reserves.
(b) the liquid funds the Fed has available to lend to banks.
(c) cash items in the process of collection minus deferred availability cash items.
(d) deferred availability cash items minus cash items in the process of collection.
Answer:
Which of the following statements about the Penn Central Railroad crisis is NOT true?
(a) The crisis resulted in a large decline in commercial paper lending.
(b) The crisis was ended by the Fed making credit available to commercial banks.
(c) During the crisis banks made loans to companies that would normally have used the
commercial paper market.
(d) The Fed’s charter greatly restricted the number of banks to which it could make
loans.
Answer:
Which of the following assets is the least liquid?
(a) Dollar bill
(b) Personal check
(c) Corporate bond
(d) Family home
Answer:
The most common type of simple loan is a (an)
(a) automobile loan from a bank.
(b) mortgage loan from a bank.
(c) commercial loan from a bank.
(d) corporate bond.
Answer: