Stocks of small firms have a higher annual average return than stocks in general. Some
economists attribute this to:
A) compensation for the higher risk of small firms
B) lower liquidity of stocks of small firms
C) higher information costs of stocks of small firms
D) all of the above
Answer:
Which of the following is NOT included in M1?
A) currency
B) savings account deposits
C) checking account deposits
D) traveler’s checks
Answer:
Congress established the FOMC because
A) a group was needed to set reserve requirements for member banks.
B) of a lack of coordination among district banks in carrying out open market
operations.
C) Congress was attempting to expand its influence within the Federal Reserve System.
D) a group was needed to coordinate the setting of discount rates by the district banks.
Answer:
Which of the following is NOT a reason that credit ratings agencies became more
relevant beginning in the late 1970s?
A) the number of bond defaults rose due to periods of recession and inflation
B) rating agencies began to charge investors for their services
C) governments began to include bond ratings in their regulation of banks, mutual
funds, and other financial firms
D) rating agencies began to rate bonds issued by foreign governments and firms
Answer:
The price of a financial asset equals the
A) future value of all payments
B) sum of all payments
C) present value of all future payments
D) difference between the future value and present value of all payments
Answer:
Situations of negative interest rates on short-term bonds resulted from:
A) high income tax rates
B) government regulations requiring financial firms to purchase government bonds
C) very low risk premiums
D) investors were looking for safe havens when other investments were perceived to be
very risky
Answer:
During a banking panic, a lender of last resort will
A) purchase banks which are having difficulty but appear sound.
B) make loans to solvent but temporality illiquid banks.
C) make loans to insolvent but liquid banks.
D) make loans to any banks which request them.
Answer:
Forward transactions
A) provide substantial liquidity.
B) entail small information costs.
C) provide risk sharing.
D) provide reduced tax payments.
Answer:
The required return on equity for an individual stock includes which of the following?
A) systemic risk
B) idiosyncratic risk
C) risk-free interest rate
D) all of the above
Answer:
Which of the following is NOT an example of a supply shock?
A) a drought in the Midwest
B) a decline in natural gas prices following discovery of new fields
C) the introduction of a new line of computer-controlled machine tools in
manufacturing
D) a substantial increase in federal government spending on Medicare
Answer:
Bank capital can best be described as:
A) funds contributed by shareholder purchasers of a bank’s stock plus the accumulated
retaining earnings
B) the accumulated amount of reserves held by a bank
C) the location of most of the major banks of a country
D) another name for bank assets
Answer:
If traders in a market have rational expectations, then
A) the price of an asset equals its fundamental value.
B) prices of riskier assets are higher than prices of less risky assets.
C) past prices of assets do not affect market participants’ expectations of future asset
prices.
D) they make use of less information than they would if they had adaptive expectations.
Answer:
Under the efficient markets hypothesis, what would be the price per share of a company
whose current dividend is $10.00 and whose dividends are expected to grow by 3% per
year (assume the risk-adjusted interest rate is 10%)?
A) $74.62
B) $79.23
C) $142.86
D) $147.14
Answer:
Money is a medium of exchange in that
A) money is generally accepted for buying and selling goods and services.
B) currency may be exchanged for gold at any national bank.
C) other assets may be better or worse in facilitating exchange than money.
D) it must maintain most of its value over time.
Answer:
The members of Federal Reserve district bank boards of directors who are bankers are
known as
A) Class A directors.
B) Class B directors.
C) Class C directors.
D) Class D directors.
Answer:
Some economists have predicted that recent developments in energy production in the
United States are estimated to result in all of the following EXCEPT:
A) millions of new jobs
B) the United States having the lowest energy costs of any country in the industrialized
world
C) a substantial increase in GDP over time
D) significant increases in pollution
Answer:
The ratio of a bank’s after-tax profit to bank capital is known as
A) net interest margin.
B) return on equity.
C) return on capital.
D) spread.
Answer:
Which of the following rules affected hedge funds as a result of the Dodd-Frank Act of
2010?
A) Hedge funds have to make detailed disclosure of their asset holdings.
B) Large hedge funds must register with the SEC.
C) Investors are allowed to make withdrawals after the first week.
D) Carried interest is taxed as ordinary income.
Answer:
The aggregate supply curve represents levels of output that producers are willing to sell
at
A) each level of the real interest rate.
B) each level of real GDP.
C) each price level.
D) each inflation rate.
Answer:
The yield to maturity on a new one-year discount bond equals
A) (F V- P)/P.
B) (D – FV)/P.
C) (FV – P)/FV.
D) (P – FV)/FV.
Answer:
A call option is said to be “in the money” if
A) it is written on a Treasury bill or other money-market asset.
B) it has increased in price since it was first written.
C) the price of the underlying asset is currently greater than the strike price.
D) the price of the underlying asset is currently greater than the strike price plus the
option premium.
Answer:
If the Fed buys $2 billion of short-term securities issued by the government of Japan
and pays for them by writing a check for $2 billion,
A) its assets will rise by $2 billion and the monetary base will rise by $2 billion.
B) its assets will fall by $2 billion and the monetary base will fall by $2 billion.
C) its assets will rise by $2 billion and the monetary base will fall by $2 billion.
D) its assets will fall by $2 billion and the monetary base will rise by $2 billion.
Answer:
The terms of futures contracts traded in the United States are
A) standardized as to amount or value, but not as to settlement dates.
B) standardized as to settlement dates, but not as to amount or value.
C) not standardized, but are determined entirely on the basis of the agreement entered
into by the buyer and seller.
D) standardized as to amount or value and as to settlement dates.
Answer:
Which of the following is NOT a significant cost that a barter system imposes on an
economy?
A) Many prices must be maintained for each good.
B) Only agricultural goods may be traded.
C) Specialization of labor is hindered.
D) The costs arising from the problem of finding two people who each want what the
other produces.
Answer:
According to the liquidity premium theory, a steep yield curve may be an indicator of
A) expectations of a significant increase in inflation.
B) an upcoming recession.
C) an economic slowdown.
D) lower future short-term interest rates.
Answer:
Which of the following statements about junk (high-risk) bonds is true?
A) They never outperform treasury bonds since they’re too risky.
B) The price of junk bonds increase as their perceived risk increases.
C) They tend to perform best during recessions.
D) One can profit by owning them if market perceptions of their risk decline.
Answer:
In 2006, the Bank of Japan adopted a policy framework focusing on
A) expected inflation one to two years in the future.
B) current inflation.
C) maintaining a fixed exchange rate.
D) the growth in the money supply.
Answer:
Members of the Board of Governors
A) must resign when the President who has appointed them leaves office.
B) may serve no more than three consecutive four-year terms.
C) serve for life or good behavior.
D) serve one nonrenewable fourteen-year term.
Answer:
Excess volatility refers to
A) the unwillingness of financial analysts to consistently recommend the same stocks.
B) the greater volatility of futures prices compared to the volatility of prices of the
underlying assets.
C) the tendency for stocks with high rates of returns also to have quite variable returns.
D) the larger movements in market prices of stock than in their fundamental values.
Answer:
All of the following are possible consequences of noise traders EXCEPT
A) increased volatility in the financial market.
B) asset prices differing from fundamental values.
C) herd behavior contributing to speculative bubbles.
D) reduced volatility of asset prices.
Answer:
When the price of a coupon bond increases,
A) the coupon rate declines
B) the coupon rate increases
C) the current yield declines
D) the current yield increases
Answer:
A company that retains a high bond rating during a recession in which many other
companies see their bond ratings cut will experience
A) an increased flow of funds into the market for its securities.
B) an increased demand for its securities, resulting in a higher expected return.
C) a decreased demand for its securities, resulting in a lower expected return.
D) a decreased flow of funds into the market for its securities.
Answer:
An investor who is considering hedging by selling Treasury futures can also hedge by:
A) buying Treasury put options
B) selling Treasury put options
C) buying Treasury call options
D) buying European Treasury options
Answer: